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Morning Briefing for pub, restaurant and food wervice operators

Wed 20th Jun 2012 - Greene King, Costa Coffee and Peach Pub Company

Story of the day:

Collyer – Greene King is the best long-term performer in the sector; scope for nil premium merger with M&B: Suffolk-based Greene King has been the best long-term performer in the sector, Deutsche Bank analyst Geof Collyer has argued in a 48-page research note published yesterday. Issuing a Buy recommendation and a Price Target of 665p for the shares, he said that Greene King, for which Deutsche Bank is house broker, has improved the quality of its business more than any other company in the sector in the past decade, with over 55 per cent of its pubs now located in the more economically prosperous parts of the UK – London and the South East. He said: “Greene King was the only group to have maintained investment in its estate during the debt crisis as well as maintaining and growing its dividends when all others either passed or reduced theirs. Greene King has delivered the best like-for-like sales performance during the last four tough years for the sector, 2007-2011, and is leading the sector in 2012. On top of this, it is the only retailer to have grown its operating margins in the sector’s largest profit generating area – retail.” He pointed out that Greene King doesn’t have the tenanted and leased exposure that Punch Taverns (100 per cent of EBITA), Enterprise Inns (100 per cent of EBITA), and Marston’s (47 per cent of EBITA) have. He also noted that it doesn’t have the capital structure issues that Spirit has (1.5x fixed charge cover), the corporate governance issues of M&B (two shareholders control over 50 per cent of the equity), nor the operating margin concerns of JD Wetherspoon (lowest since Initial Public Offer). He added: “We estimate that the group is the Number Three player in the UK eating out market behind M&B and McDonald’s (based on EBITA), but with just 1.2 per cent revenue market share. With the strongest balance sheet amongst its peers, there is further scope for value-accretive mergers and acquisitions, either from more deals like RealPubs, Capital Pub Co and Cloverleaf, or bigger targets such as the Whitbread Restaurant business or a nil premium merger with Mitchells & Butlers.”

Industry news:

UK pub and restaurant sales rose by 2.6 per cent in May: UK pub and restaurant groups saw a welcome 2.6 per cent increase in collective like-for-like sales in May, according to latest Coffer Peach Business Tracker data. Total sales, which include the effect of new openings, were up 6.5 per cent on the same month last year. However, the improved top-line performance, following a two per cent fall in like-for-likes in April, was not reflected in all parts of the business – with the weather again a big factor in influencing the public’s choice of where to go out. “Pubs and pub restaurants were the best performers, and particularly those inside the M25,” said Peter Martin of Peach Factory, the business intelligence specialist that produces the sector Tracker, in partnership with Coffer Group and UBS. “The hotter weather at the end of May was a help for them after a cool start,” Martin added. “High street casual dining chains generally had a tougher month, and especially in London where competition is fiercest. The annualised like-for-like sales growth rate for the leading groups is currently running at around two per cent. New site openings are pushing up total sales by more than that, but that is also increasing competitive pressures, as consumers increase the number of brands they use as they shop around for better value, better quality and better experiences. Competition between brands and companies is becoming much more intense,” he said. “We are also beginning to see the effects of casual dining chains trying to cut back on voucher activity.”

Horizons reports food and beverage sales hit £42.8bn in 2011: Market research and insights firm Horizons has reported that food and beverage sales in the UK hit £42.8 billion in foodservice outlets in the UK in 2011, a nominal increase of 1.9 per cent in the year. Adjusted for inflation this headline spending figure fell 1.6 per cent in real terms. Food service operators served a total of eight billion meals in 2011, down 1.9 per cent year-on-year. For more information contact Peter Backman on

The BII lost almost £500,000 in 2011: Documents filed at Companies House reveal that the British Institute of Innkeeping lost £484,463 in 2011 as income from qualifications dropped by £558,529 to £2,350,577 – 19.2 per cent. The deficit was a 60 per cent increase on the £296,386 lost in 2010. The profitable qualifications arm of the BII, BIIAB, made a contribution of £388,604 compared to £578,538 in 2010. The number of BII members declined in 2011 from 12,956 to 11,816 – 2,766 new members were recruited during the year while 3,906 were lost. The losses at the BII came despite reducing costs by £297,553 or 13.9 per cent. Its cash balance at the end of 2011 was £431,199. The BII had total reserves of £1.7m when the freehold of its headquarters is included, which suggests its headquarters is valued at around £1.27m. The budget for this year shows operating costs of £4.4m, a £400,000 reduction from 2011.

Cambridge launches consultation on saving pubs: Cambridge City Council has produced draft guidelines to protect pubs in the city. The plans are aimed at ensuring pubs can only be redeveloped for housing if they are no longer needed and to “deal robustly with speculative applications”. The consultation closes on 27 July.

Nomura – solus drinking declining by four per cent per annum: Nomura, launching its coverage of the pub and restaurant sector, has claimed that drink volume declines in the on-trade are once again accelerating. Its newly published report stated: “Data on the contrasting health of drinks-led and food-led pubs is particularly stark. Mitchells & Butlers estimates that the market for solus-drinking - drinking out without food - has decreased by four per cent per annum over the last five years. While the average annual decline in on-trade beer sales is 4.4 per cent, at its worst point in 2008 this deteriorated to minus nine per cent once the smoking ban took effect. A slight improvement to minus three per cent in 2011 was short lived and in the first quarter of 2012 the decline was minus six per cent, suggesting that the beer duty escalator continues to affect volumes and the decline is once again accelerating.”

Company news:

Whitbread’s coffee spurt helped by wet weather: Costa Coffee like-for-like sales growth in the UK of 8.4 per cent reported yesterday was helped by poor weather boosting sales of hot beverages, the company has told City analysts. Deutsche Bank analyst Geof Collyer said the like-for-like sales growth was “double our best expectations and way above our two per cent forecast”. Costa Coffee was boosted by the installation of around 500 Costa Express machines in petrol stations in its first quarter. Whitbread reports that coffee sales increase by around 20 per cent when they replace existing coffee machines. The 500-machine installation is 50 per cent of the target of new machines for the whole year. “It may be that we over-achieve on the 1,000 unit target,” chief executive Andy Harrison told analysts. There are now 1,714 Costa Express units in the UK and this part of the business, called Costa Enterprises, saw system sales up 29.9 per cent to £50.6m for the quarter.

Orchid Pub Company reports Euro 2012 boost: Managed operator Orchid has reported that the timing of this year’s England matches has given its pubs a sizeable sales boost. The company, which has worked-up a “summer of sport” programme, has reported a 37 per cent sales uplift worth more than £100,000 for Orchid pubs at the England versus France match on 11 June. Sales between 5pm and 8pm were up 72 per cent against the same Monday last year. The Ireland matches against Croatia on 10 June and Spain on 14 June saw sales uplifts increases of four and five per cent respectively. The day of the England versus Sweden match on 15 June saw a year-on-year increase of over 30 per cent - a massive £165,000. Said Simon Dodd, commercial & people director at Orchid: “With Sky Sports in every pub, not to mention 3D TVs, a great atmosphere and the chance to enjoy the match over a drink or a meal with friends, it is no wonder that we have seen such positive results.”

Former Punch director sets up investment and advisory firm: Adrian Fawcett, former chief executive of BMI Healthcare, former chairman of Realpubs and chief operating officer at Punch Taverns, has set up Advest Capital. The business focusses on business opportunities arising from dislocations created by shifts in regulation, legislation or financing, with the provision of advisory input and investment capital. It is understood Advest focuses on re-structuring advice for banks and private equity, as well as making its own equity investments. Early investments include interests in insurance, energy technology, training and pension advisory. Fawcett currently also chairs the Silentnight Group as well as being chair of the Advisory Board to Eurosite Power.

Admiral Taverns launches pub-finder app: Community pub operator Admiral Taverns has released an iPhone App to help potential tenants find their perfect pub. The ‘Admiral Taverns’ App, which is powered by, allows budding entrepreneurs who have a thirst to run their own pub to quickly discover what Admiral pubs are available nearest to them, via GPS.

Mitchells & Butlers focuses on growing drinks trade at Sizzling and Ember: Managed operator Mitchells & Butlers is focused on driving drinks sales at both Ember and Sizzling Pub Company. The move follows executive chairman Bob Ivell deciding that food may have been pushed too hard at a number of the company’s community pubs. A spokesman said: “For Sizzling we've looked at every pub to focus on driving their point of difference in the local neighbourhood - drink, food or best of both. Where we see an opportunity to drive drinks sales, the pub will receive additional drinks marketing point-of-sale. The same for Ember, no change in signage just looking to place increased support for pubs that can grow drinks trade.”

Number Works Pub Company to close Swindon site: Number Works Pub Company, the seven-strong operator led by Martin Hathaway that is pioneering a new value offer around fixed price points of £2, £4, £6 and £8, is to close its Swindon site, Ellingtons, after failing to establish an evening trade. The town centre venue, a Spirit lease, was selling up to 300 meals during the day but struggling to sell food after 5pm. Number Works Pub Company has achieved sales of £20,000-a-week at other sites thanks to its competitive price points on food.

Nightclub to be transformed into a family entertainment centre: A nightclub in Gainsborough, Lincolnshire is to see a £350,000 investment to transform it into a family entertainment centre. The Bridge Street property is set to undergo a complete interior facelift to provide conference, wedding and party facilities. It will be managed by Keith Gee, who has worked for 19 years as operations director at the Damon's restaurant in Lincoln.

Former All Bar One brand director lines up second Punch Taverns pub: Alastair Scott, who was previously the operations director for Mitchells & Butlers’ All Bar One bar chain, is lining up his second Punch Taverns site, understood to be in Yorkshire. Scott re-opened the George at Backwell, near Bristol, last summer after a £360,000 joint investment with owner Punch Taverns. It’s just notched up its record sales week - £18,800 net - after taking circa £2,000-a-week prior to refurbishment. “We’ve set a target of £20,000 per week net during the summer,” he told Morning Briefing. Scott, who invested £180,000, alongside a £180,000 investment from Punch, said the secret was to place the pub at the centre of the community. “A community pub doesn't have to be down-market,” he said. The success of the pub has been helped by making the most of its facilities. It had, for example, an un-used room called The Dungeon. “We've turned it into a meeting room for the community,” he said. “A pub tied to an owner like Punch Taverns is a fantastic way to get into the business. It's about getting a great deal - like the one here.” Scott’s operating company is called Malvern Inns – and it was founded with former M&B colleague David Roffe.

Caldmore Taverns re-opens Staffordshire pub: A pub once described as 'one of the worst in Stoke-on-Trent', has reopened after a £200,000 refurbishment. Shropshire-based Caldmore Taverns has invested in the former Foaming Tankard, in Fenton. The Victoria Road venue is now called Darcy's and reopened last weekend after an eight-month closure as a family pub.

Pub micro-brewer launches Brewer’s Table: Licensee Tom Gee, who owns Cricklade’s Red Lion, near Swindon unveiled his first beer at the weekend after investing £50,000 building an on-site micro brewery. The micro brewery has a private dining table inside and a beer hatch to serve customers from on weekends. “I don’t know anywhere else that has this, so it really is unique,” he said. “Our plan is for the Brewer’s Table to be an exclusive dining space with a special beer-themed menu.” The micro brewery is part of Gee’s business model to source as much locally as he can – he keeps his own pigs and sends out foragers to collect ingredients.

Ooberstock signs deal with Society of Independent Brewers: A ground-breaking deal between local cask ale brewers and a new ‘intelligent wholesale’ business is set to give independent pubs and bars across the UK unprecedented access to craft beers. The agreement between SIBA (Society of Independent Brewers) and Ooberstock – the revolutionary drinks distribution business – promises a step-change in the geographical reach of award-winning cask ale brands. The partnership means that freehold pubs, bars and restaurants will for the first time have access to a range of quality beers from participating local brewers around the UK. SIBA’s highly-successful Direct Delivery Scheme, launched in 2002, already offers an extensive range of its members’ beers to tenanted and managed pubs. 

Peach Pub Company wins Best Pub Employer for the second year: Peach Pub Company, headed by Lee Cash and Hamish Stoddard, has won the Best Group Pub Employer at the 2012 Best Employers in Hospitality awards hosted by hospitality recruitment specialist – for the second year running. Cash said: “It’s fantastic to win a second year running – the team is the part of the business that really means a lot to Peach. If you create a great place to work and the right place to work you get the right people working for you. We take our team seriously and it really is what matters to the business.”

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