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Morning Briefing for pub, restaurant and food wervice operators

Wed 25th Jul 2012 - Greene King, McDonald’s and Marston's

Story of the day:

Greene King to step up Realpubs conversions: Industry sources report that Greene King is to step up conversions of existing pubs to the Realpubs trading format. Greene King has converted just two pubs to the Realpubs premium format since it acquired the company, founded by Nick Pring and Malcolm Heap, for £53.1m in April 2011. Now it is understood the company aims to convert as many as six before its year-end in April 2013. The first conversion is understood to be The King’s Stores in Liverpool Street. It will be the first Realpubs site in a Zone One location, with work expected to start next month. Other pubs within the Greene King estate expected to be converted are the St Margaret’s, in St Margarets, Twickenham and The Island Bar and Dining Room in Kensal Rise, a former Capital Pub Company site. Paul Hickman, City analyst at Peel Hunt, recently praised the conversion of the first two Greene King pubs to the Realpubs trading style. Hickman reports that The Maynard Arms in Crouch End has seen turnover climb from £14,200 a week to £22,600 a week after a £408,000 investment. Meanwhile, The Black Lion in West Hampstead, the most recent investment, has seen turnover per week almost double from £12,500 to £24,200 after a £322,000 investment. Hickman said: “In one sense the phenomenon of Realpubs represents a simple act of confidence – the confidence to put a truly premium offer into a market that responds to it.”

Industry news:

Pubs in Northern Ireland might get later hours: Some pubs in Northern Ireland may be permitted to remain open an hour later until 2am under proposed changes announced by the Social Development Minister Nelson McCausland. However, a levy on late-night businesses could be imposed to pay for emergency service cover. The extra hour of opening on special occasions could be introduced alongside measures to further restrict the sale of alcohol in supermarkets. McCausland said too many people died because of drink misuse. His proposals, which have gone out for consultation, including segmenting alcohol displays in supermarkets and forcing buyers to queue up twice. McCausland said: “It is a sad paradox however that the decline in pubs, which offer the safest and most regulated place to consume alcohol, has come alongside what seems to be an increase in drinking and alcohol-related problems.”

Horizons – consumers eating out more, spending less: A survey by market insight firm Horizons has shown consumers are eating out more now than in the past two years. However, while those eating out are doing so more often, spend across all outlets has declined and now stands at £12.30 (including drinks), compared with £12.69 a year ago. A spokesman said: “The fact that average spend has fallen is evidence of continued cost cutting - forgoing a course, ordering a glass of wine instead of a bottle, or opting for a sharing dish. The amount of discounting in the sector has also driven down average spend. Average spend in a pub has fallen from £15.80 in December 2010 to £13.28 in June 2012. Pub restaurants and takeaways are the most popular choices, perhaps as diners downgrade from more expensive establishments. With the London Olympics just days away, we anticipate that the quick service and takeaway sector will receive a further boost as people stay at home and order food.” 

Leeds United wins pay-for-policing case: Leeds United has won a High Court action against West Yorkshire Police over whether it should fork out for wider policing on match days. The football club had argued that it was wrong for the force to charge it for policing streets and car parks near its Elland Road ground. It argued that policing here fell within the scope of normal police obligations to maintain public order. Mr Justice Eady ruled the club should not pay for policing the wider area.

MPs - bingo tax should be reduced: Tax levied on bingo halls should be reduced by five per cent to bring it in line with other forms of gambling, according The Commons Culture Select Committee. Mark Jones, the former Yates’s and Premium Bars and Restaurants boss who is now managing director of Mecca Bingo, said: “We are pleased that the Select Committee has recognised that bingo should be taxed at 15 per cent bringing it in line with other forms of gambling in the UK. We remain convinced that a fair tax regime that supports UK jobs and stimulates local economics can only be achieved by introducing a single rate of tax for all products governed by the Gambling Act.”

Company news:

Marston’s – performance satisfactory despite weather: Midlands-based brewer and retailer Marston’s has reported “satisfactory performance” in recent weeks in view of the “very wet weather conditions”. In managed pubs, like-for-like sales for the 42-week period were 2.2 per cent ahead of last year, including like-for-like food sales growth of 2.4 per cent and like-for-like wet sales growth of 2.1 per cent. In the ten-week period since 12 May, like-for-like sales increased by 1.6 per cent. In tenanted and franchised pubs underlying trends have continued to improve with operating profit estimated to be 3.2 per cent ahead of last year. The company stated: “This reflects a strong performance in the franchise estate, which now operates in around 450 pubs, and continued stability and modest growth in the traditional tenanted and leased estate.” Own-brewed beer volumes up around two per cent versus last year. Chief executive Ralph Findlay said: “Our performance to date demonstrates that our focus on offering great value for money underpinned by high service levels remains attractive to our customers despite the wider economic challenges. In recent weeks we have achieved sales growth despite the poor weather, helped by key trading events including the Jubilee weekend, Euro 2012 and Father’s Day. By the end of this financial year we will have built around 60 new pub-restaurants in three years, and we have a clear site pipeline for future development.” Douglas Jack, of Numis Securities, who has a 130p Target Price and a “Buy” recommendation on the shares, said: “Despite the weather being distinctly leery, Marston's continues to trade well.”

McDonald’s – time to drive customer growth with marketing focus on value: McDonald’s will combat a dramatic slowdown in sales growth by driving hard at increasing customer visits with a value message. Sales growth in the US slowed from 8.9 per cent in the first quarter to 3.6 per cent in the second. The company said it had come across an unprecedented slowdown across all territories where it operated although it has taken market share in the UK. Chief executive Don Thompson said: “Now is the time to focus on guest count growth and market share gain. We go hard at that in times like these, even though it means an investment.” An increased focus on value could reduce average-spend-per-head but the challenge for now is to bolster site traffic, retain customers and upsell them when economic conditions improve. “What we’ve employed historically is (a strategy where) we have to be in the best position to drive traffic and trade people up,” Thompson said. “We’re seeing results in guest count movement, but we won’t see sales flow down to the bottom line until we’ve got in a position to trade those guest counts up. Value is not a new thing, the question is how much you address it in your media mix. You have to also have a premium product message in the marketplace, and we haven’t given up on that. It’s a tweak in our marketing mix.” McDonald’s has faced increased marketing spend from Burger King and Taco Bell in the US. “That isn’t new — we go through competitor resurgences and ebbs and flows — but we have to be focused on our business plan and execute at the highest levels.” he added.

Atmosphere Bars and Clubs to re-open Chicago’s in Stourbridge: Atmosphere Bars and Clubs, headed by Paul Harbottle, is to open a new Chicagos in Stourbridge in September. The old Chicago Rock Cafe closed in Stourbridge in 2010 after its owner 3DE went into administration - JD Wetherspoon took over the High Street venue, renaming it The Chequers Inn. But Atmosphere Bars and Clubs, which now owns the renamed Chicagos brand, will convert a site previously occupied by Que Pasa on the corner of the Ryemarket shopping centre and the High Street. A £500,000 makeover of the vacant unit, formerly occupied by Que Pasa, is now underway. Business development manager Jamie Whittingham said the company has received more than 250 applications for the 25 jobs on offer. 

Britvic places newspaper adverts to reassure customers: Britvic has placed newspaper adverts telling customer that its Robinsons Fruit Shoot product will be back on the shelves by the end of August. The product was recalled after the discovery of faulty self-sealing tops, with a hit on pre-tax profits of up to £25m. In the advert, Britvic states: “The good news is that we’ve now fixed the problem and we’re now in production again so we’ll be back on shelves by the end of August.”

Dylan Thomas pub re-opens after five year closure: The iconic Brown’s Hotel in Laughern, frequented by Dylan Thomas, has re-opened after a £1m investment to turn it into a 1950s-themed boutique hotel and bar. The Grade II listed building, which dates back to 1752, was previously co-owned by Men Behaving Badly actor Neil Morrissey before being sold in 2006. New owner Nigel Short, chairman of Penderyn Whisky, gained a £300,000 funding package from the Welsh Government and monuments body Cadw towards the refurbishment. It now has 14 boutique bedrooms and a ground-floor apartment. “It has cost an awful lot of money – the wrong side of £1m – and has taken 16 months,” he said. “It has been vital that we got the delicate balance right on so many factors – the sensitive restoration of a listed building and the recreation of the atmosphere that inspired Dylan Thomas, alongside the compliance with building and planning regulations.”

Paul UK – higher rents and variable trading produce loss: Paul UK, the French sandwich shop, has reported that pre-tax losses were £596,969 in 2011, compared to a pre-tax profit of £44,765 the year before. Turnover rose to £22.67m from £19.32m the year before. The company said three of the five openings in 2011 “need to improve their performance” and overall ticket value dropped in 2011 compared to 2010. Its rent to turnover ratio climbed from 10.8 per cent to 11.2 per cent on “rent increases and lower turnover levels”. External funding became more expensive after the company switched from Royal Bank of Scotland to Credit Lyomais and BNP Paribas.

Two Costa Coffees in Bristol face public inquiry: Two Costa Coffee sites in Bristol, which have been refused planning consent but are trading, face a public inquiry this week. Franchisees Stuart and Lynn Montgomery have been criticised for opening branches of the Costa Coffee shop chain in Whiteladies Road and Gloucester Road without the necessary planning consent. Bristol City Council has issued enforcement notices for both premises, and is investigating complaints about a third Costa in Westbury-on-Trym. The authority refused permission for the Gloucester Road branch last September.

Scottish Pub Group opens its most southerly pub in England: Scottish Pub Group, which operates 11 pubs, bars and hotels in Scotland and the north of England are to re-open a south Norfolk inn this week. The Group’s owners are Tony and Stephanie Heavey and they will re-open The Chequers Inn at Bressingham, near Diss. The Enterprise Inn-owned inn was rebuilt over 18 months following a thatch fire in 2009.

JD Wetherspoon – management think rivals finding it harder to compete: Paul Hickman, leisure analyst at Peel Hunt, has reported on a meeting with Wetherspoon management where they argued that the company’s “volume strategy is working” and some “rival brands are finding it harder to compete”. Paul Hickman said: “This is a volume business and the strategy has been to maintain footfall. Survey information confirms that average prices are running consistently 15-20 per cent below the market. The emphasis remains on value-for-money combined with quality and service. There has been no change here throughout the brand’s history. This is the third recession Wetherspoon has traded through and, as before, austerity favours its value offer. Management is only targeting 20-30 openings in 2013 financial year, but this is lower than in the past. With increasing interest in smaller towns, we believe it is possible that openings are more likely to increase once more from this point, and some of these could come from Punch and Enterprise. The company is around two years from catching up in terms of refurbishments, now running at circa £40m after a lower spend period in FY09 (£11m) and FY10 (£10m). That does create some constraints on free cash. Management believes some rival brands are finding it harder to compete. Against the Peach Coffer Tracker, Wetherspoon has improved its lead gradually since. Management is quietly confident that its volume-based strategy is working. As was the case in financial year 2008 to 2009, a continuation of difficult consumer conditions not only favours trading by the brand, but is likely to make more sites available at competitive rates. We would not be surprised to see Wetherspoon start to pick off selected sites from Enterprise and Punch as it ramps up its roll-out once more.” 

Stonegate converts Litten Tree into Yates’s: Managed operator Stonegate has spent £200,000 converting its Litten Tree site on Birmingham Road, Sutton Coldfield into the 72nd Yates’s. The venue is open for breakfast at 10am Monday to Saturday and 11am on Sunday. On Thursday, Friday and Saturday it is open until 1.30am providing the perfect place to party.

Admiral Taverns –we have the best BDMs in the business: The chief executive of 1,200-strong Admiral Taverns, Kevin Georgel, has praised the company’s business development manager of the year, Michael Bridger, who has notched up six per cent like-for-like growth on his patch in Birmingham since joining in April 2011. He has more than 25 years’ experience in the licensed trade, working his way up from kitchen porter to pub licensee before moving into area manager work. Georgel said: “We now have what we believe are the best group of BDMs in the pub business, so for Michael to be recognised in this way is a very special achievement. The financial performance of his area has been very impressive, but more importantly it has been the way Michael has supported his tenants that has impressed the most. We know that in some circumstances it is possible to get numbers moving in the short term, but this is the right kind of growth – Michael has focused on helping licensees build sustainable businesses. Since he joined us he has quickly got to grips with his area, making a series of fast but fundamentally sound business decisions and he has also driven a programme of significant capital investment in his pubs.” Bridger said: “I have the freedom and autonomy to make decisions without having to get every detail signed off or spend hours filling in paperwork, I have budgets to invest and I’m allowed to make quick decisions that bring good and fast results to pubs and tenants.”

Judge blasts Luminar under-18s event: A judge has criticised an Oceania nightclub venue in Bristol, run by Luminar, for running a “Love Social” event for under-18s. Presiding in a case in which a 13-year-old girl who attended an event made sexual assault allegations against a man who gave her a lift, Judge David Ticehurst said: “That a nightclub should advertise and seek to attract children between the ages of 13 to 16 is in my view a regrettable step. The club’s closing time of 11pm inevitably means that those attending will probably not be home until midnight or later. It is naive to assume that these youngsters will not drink alcohol even if it is not provided by the club.” A Luminar spokesman said: “Oceana in Bristol has run Under 18’s events during school holidays without incident for the past seven years. As with all its sister clubs running Under 18’s events up and down the country, Oceana continues to work with the local authorities and has in place numerous policies and procedures to ensure our customers under the age of 18 have a fun safe evening. These policies include removing alcohol from display and the ticket price includes unlimited soft drinks.”

Loungers lines up sixth Bristol site: Loungers, the café bar concept headed by Alex Reilley and backed by Piper Private Equity, has lined up a sixth site in Bristol, where the concept was founded. The company has agreed a deal on a new site and is expected to lodge a planning application today. The group opened its 24th site, Verdo Lounge in Wylde Green, Sutton Coldfield, in May and is currently on site in Salisbury developing its fourth Cosy Club, which will open in August. Work will soon start on a Lounge in Christchurch, Dorset following a successful planning appeal and the company is set to open its largest site to date, a 7,300 sq ft Cosy Club, in Cardiff, in late autumn. Reilley has also confirmed that the group has three sites in the north-west - one in Liverpool and two in Manchester – lined up.

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