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Morning Briefing for pub, restaurant and food wervice operators

Mon 21st Jan 2013 - Luminar, Marston’s and Wagamama

Story of the day:

Londonderry MP sets out the case for VAT reduction: The Northern Ireland MP who tabled a parliamentary motion last week calling for a reduction in VAT for the hospitality sector has set out the benefits of the move in Northern Ireland. Mark Durkan, who represents Londonderry, said a reduction in the VAT rate for the hospitality sector would be a great boost for local pubs, hotels and restaurants during the UK City of Culture 2013. He said: “The hospitality and tourism industry is critical for our local economy - not least during this year’s City of Culture. Hotels, pubs and restaurants are central to the economic and social life in Derry and across the north. However in the current climate many of these local businesses are facing an extremely challenging economic environment. It would create jobs and stimulate business, helping our tourism and hospitality sector to move forward and encourage more visitors to come to Derry every year. Offering VAT relief would also encourage people across the island of Ireland to travel into the sterling zone and take advantage of the many opportunities Derry has to offer. We are looking forward to the opportunities raised by this year’s City of Culture which will be a springboard for long-lasting economic benefit to the city. However, we now need a concerted effort from the Chancellor on VAT reduction if we are to properly capitalise on such a pivotal year for Derry in what should be one of the strongest sectors of our local economy.” Meanwhile, influential international news agency Reuters has published a long feature on the campaign by Jacques Borel to reduce VAT to 5% in the sector. Reuters wrote: “Frenchman Jacques Borel’s opponents have ranged from the Nazi secret police to compatriots angered by his move to bring fast food to the home of fine dining. Now the 85-year-old is in Britain, leading a campaign to cut tax for pubs and restaurants. Borel’s mission is to persuade the British government to cut VAT sales tax on food and drink for the industry to 5% from 20%. A reputation for persuasiveness, along with a 70-hour working week, has helped Borel win campaigns for VAT cuts in some 58 countries.”

Bookings for Spring edition of Propel Quarterly: The Spring 2013 edition of Propel Quarterly is now open for advertising bookings. Contact either or to book space.

Propel Multi-Club conference: The first Propel Multi-Club conference takes place at One Moorgate Place, London EC2R 6EA on Tuesday 19 March and multi-site companies can book two free places each on a first come, first serve basis - more than 100 places have already been booked so far. The speaker list will be unveiled later this month. E-mail to book places.

Industry news:

Allegra Strategies – high street vacancy rates an opportunity for coffee shops: Research firm Allegra Strategies has argued that high street vacancy rates are an opportunity for shops. Writing in The Times, managing director Jeffrey Young stated: “Coffee is one of the stars of the high street and it has nothing to worry about any time soon. In one sense, there is an opportunity for coffee to capitalise on the increase in vacancy rates – 10% across the country and up to 20% in some areas, and this implosion of bricks-and-mortar retail is only just beginning. Now there are more options for coffee sites than ever before.” 

Banks’ interest rate swap bill set to double: The cost of mis-selling interest rate swaps to small businesses is set to double to more than £1.5bn, according to The Sunday Telegraph. The four major banks have set aside £720m so far but The Sunday Telegraph claims that one unnamed bank is set to double the amount it has set aside while another plans to treble the sum. Banks are concerned that the Financial Services Authority (FSA) has set the parameters on which businesses are eligible to claim too widely, meaning that many sophisticated players in the financial markets are attempting to claw back money. A FSA pilot study in which each bank assessed 50 claims with the help of an independent auditor is thought to have referred many more claims for payment that had been expected. 

Pub is the Hub launches unique heritage project at Wales pub: Pub diversification body Pub is the Hub has launched a pub heritage project at The Prince of Wales, Kenfig near Bridgend. A £10,000 investment has allowed the creation of six films telling the story of the pub and surrounding area. Visitors are able to watch the films at the pub via a web-based APP available at a special Perspex ‘kiosk’ which surrounds a digital touch screen. Malcolm Harrison, director for Pub is the Hub, said: “This is a unique and imaginative scheme – a real first for Wales and for pubs – and only goes to show how well pubs are embedded into our history, heritage and cultural psyche. We are grateful to all the agencies involved in funding this project and supporting it with their expertise.” The £10k project has been funded by the Welsh government, the European Agricultural Fund for Rural Development and the Pub is the Hub Co-operation Project led by Cadwyn Clwyd.

Luke Johnson – 2012 was frustrating but 2013 could see an improvement: Private equity investor Luke Johnson, who has investments in Patisserie Valerie, Giraffe, Draft House and Gail’s, has described 2012 as one of the most frustrating he can remember in terms of finding fresh investments. In his Management Today column, he said: “For those who invest in private companies, it has been profoundly frustrating; one of the most disappointing I can remember. We found it extremely difficult to put new money to work profitably - and wasted lots of fees to accountants and lawyers on aborted transactions. Meanwhile, corporate finance professionals are being laid off at many firms and morale in the M&A community is poor. The volume of deals has slumped to multi-year lows. But intermediaries and private equity executives I talk to say 2013 will be an improvement, and I am fairly confident they are right. There are rational grounds for such optimism: eventually, businesses will want to raise capital to expand - while others will be unable to put off selling any longer. Meanwhile, many entrepreneurs are expecting their profits to recover further next year, which should mean the gap between buyers and sellers is reduced. There have also been some real positives from a difficult period. In 2012, four of my more substantial investments - Patisserie Valerie, APT Controls, Gail’s and Giraffe - all increased profits by 20% or more. A clear demonstration that even in a sluggish economy, sound companies can still make excellent progress. Moreover, organic growth - rather than growth driven by acquisition - is generally of a higher quality. So, really, I should have no complaints.”

Coffee fix on the way to work costs £393 a year: A survey by OrSavelt has found Britons spend an average of  £393 a year on buying coffee on the way to work, which is a total of £15,725 over the course of a lifetime. However, 70% of the 2,000 surveyed reported that they would try to cut back this year.

Company news:

Marston’s set to open fourth Revere site: Midlands-based Marston’s is to open its fourth premium destination pub under the Revere Pub Company banner at the Angel in Lymington. The move follows the opening of three sites before Christmas - The Lost and Found in Bennetts Hill, Birmingham, The Hogshead in Westbourne, near Bournemouth which re-opened as The Libertine and Ye Olde Saracen’s Head at Balsall Common in the West Midlands. The development of Revere is being compared to the development of Mitchells & Butlers’ Premium Country Dining pubs. Marston’s has tasked its Hammersmith Brands division, headed by Colin Sadler, which looks after Pitcher & Piano and Bluu sites, to oversee development of the pubs under the Revere banner. Marston’s chief executive Ralph Findlay told Morning Briefing at the end of last year that trading at the first openings has been “encouraging”.

Preston police move to review Luminar licence: Preston police have requested a review of the licence of Luminar’s Lava and Ignite club in Preston’s Church Street. Officers said there had been a number of “incidents of crime and disorder” at the premises in recent months. A spokesperson for Luminar said: “Lava & Ignite (in Preston) is a well-run, professional and secure venue that over 160,000 people enjoy every year. The safety and security of our customers is and always has been our main priority and we look forward to continuing to work closely with Preston police. We are clear on what we need to do to ensure that we meet the licensing objectives so that our customers can continue to enjoy a safe night out. We will continue to liaise with Preston Police, so that we can reach an agreement with them on the review application.”

Wagamama exploring US expansion: Wagamama chief executive Steve Easterbrook is exploring further US expansion, according to The Sunday Telegraph. The company has three sites in the Boston area currently and Easterbrook is looking at the cities in the US that most suit the brand. Meanwhile, the company, which has 82 UK restaurants, opened five UK sites in the run-up to Christmas – and will open five more in the early part of 2013, including a Holborn venue which opens tomorrow and Finchley, which opens next month. Like-for-like sales and profit were both in double-digit growth in the run-up to Christmas, The Sunday Telegraph reported.

Simon French – we remain positive on Enterprise Inns: Panmure Gordon leisure analyst Simon French has re-iterated a “Buy” recommendation on Enterprise Inns’ shares, with a Target Price of 120p, after a presentation from its chief executive. French said: “Ted Tuppen (CEO) and Neil Smith (CFO) presented to the Panmure Gordon sales team last night. Enterprise is clearly rehabilitated with a determined focus to achieve like-for-like net income growth as quickly as possible. The group has become more adept at identifying likely business failures and thus reducing the financial impact of a closed pub. Debt reduction remains a priority for the group and we believe the market is accepting of the current balance sheet structure due to the strong free cash flow generation and income from disposal proceeds. Enterprise will issue an IMS on 31 January which, as previously indicated, is likely to show a mixed start to the year with a tough October followed by an improving November and relatively strong December (as per industry data) with January trading now facing the risk of being impacted by snow. We would expect trading to improve over the rest of the year reflecting growing momentum and easier comparatives. Rental income growth should be underpinned by RPI remaining above 3% and industry beer volume declines appear to have stabilised at circa minus 4%, which we would expect Enterprise to outperform. We do not foresee a risk to earnings from the proposed introduction of a statutory code and industry adjudicator.”
Booker chief executive warns on illegal cigarettes: Booker chief executive Charles Wilson has warned about a boom in illegal cigarettes. Wilson said: “The market is down as people are giving up smoking. Others go to Calais to pick up cigarettes as prices rise here. But also you are seeing cigarettes from Russia, China and eastern Europe coming into the UK and being sold in black bags in pubs for £2 to £3 a pack. The government should be concerned because of all the duty they’re losing. Illicit cigarettes are thought to make up 14% of the market as it is, but we are hearing it could be closer to 20%.” Booker generates around £1.3 billion from cigarettes sales but £1 billion goes to the Treasury in tax.

Giraffe extends 40% off offer: Restaurant chain Giraffe moved on Friday to extend its 40% off food offer for another week in January. The company e-mailed its database on Friday afternoon to say: “With the temperature dropping, we thought we’d lift your spirits by extending our 40% discount for another week. So now you can enjoy a whopping 40% off your food bill if you visit us for dinner until 25 January.” The offer is valid after 5pm Monday to Friday and after 6pm on a Sunday.

Orchid’s Rufus Hall - British spirit shines through at pubs when the snow falls: Orchid chief executive Rufus Hall has noted that pubs trade on in snowy weather – and argued that they are the embodiment of indomitable British spirit. In his weekly blog, he wrote: “A bit of snow and schools close, trains are cancelled and shops shut early. In fact, panic sets in before it’s even snowed! If the shops are shut and trains are cancelled, how come the staff can spend time in the pub on this Friday afternoon? At 4pm (on Friday afternoon), customers in The Plough & Dragon, Hemel Hempstead delighted in telling me that they got off early and were enjoying an early start to the weekend. If the schools are shut, how come the kids can go sledging? On reflection, with the nation going soft, it’s a good job the indomitable British spirit shines through with British pubs. Don’t see any of them closed? Shops, factories, schools might shut but not the pub – another example of why this unique British institution should survive and be supported rather than persecuted by the government.”

Whitbread withdraws beefburgers: Whitbread has withdrawn beefburgers from sale at its 240 Brewers Fayre pub restaurants amid concern over horsemeat. The brand is supplied by Ireland’s Silvercrest Foods — part of the ABP empire. A spokesman told The Sun: “We asked our supplier, Silvercrest, to give us assurances the product supplied to us was not affected. They told us they can’t give this guarantee. We therefore immediately removed their products.”

Half of WaverleyTBS staff find jobs: The former chief executive of wholesaler WaverleyTBS has told The Times that around half of its 800 former staff have found jobs since the company collapsed. Steve Benger told the newspaper that staff had found jobs with rivals Booker and Matthew Clarke and also with wine suppliers, brewers and pub companies. Benger attributed the demise of the company to a move by its biggest drinks suppliers to tighten credit terms, a drop in sales during last summer’s wet weather and a 10% drop in margins amid discounting by rivals.

Travelodge to retain ten extra sites: The Times has reported that Travelodge is set to retain up to ten of the 49 sites it was due to shed in the middle of March thanks to a mixture of fresh management contracts, franchise deals and new leases.

SSP looks to China and US for growth: Privately-owned travel hub caterer SSP is looking to China for growth. The company, which operates 2,100 food and beverage concessions in travel hubs worldwide, said new contracts won last year at railways and airports in China and the US – including Phoenix, Arizona and New York’s JFK – would bring in revenues worth an additional £82m per year. “We see a strong pipeline of opportunities, particularly in Asia and the USA, that should help offset the continuing economic uncertainty in the eurozone,” Andrew Lynch, SSP’s chief executive, told The Financial Times. In 2012 the company won concessions in Hangzhou and Xian airports in China, taking the number of Chinese airports it operates in to five.

Simon French – we are “Hold” on Fuller’s shares: Panmure Gordon analyst Simon French has issued a Hold recommendation on Fuller’s shares. He said: “Fuller’s is due to issue an IMS on Thursday, 24th January. We expect the group to have traded well over the Christmas and New Year trading period with well-located and invested managed pubs. After 33 weeks managed pub like-for-like sales were +2.1% and we expect this rate of growth to have been at least maintained. We roll our valuation year forward and increase our Target Price to 755p (from 735p) based on 10.0x CY 2013E adjusted EV/EBITDAR and reiterate our Hold recommendation.”

Stonegate Pub Company improves sports offer at Twickenham pub: Managed operator Stonegate Pub Company has ramped up the quality of the sports offer at The Bear in York Street in Twickenham which is due to re-open on Wednesday 23 January after a £150,000 refurbishment. Planned changes for The Bear include new external signage and a change of colour scheme to create greater impact on York Street. Inside the pub, additional tables and chairs will be introduced to cater for customers dining at The Bear along with a lighter and brighter colour scheme, new carpeting throughout and an improved heating system to ensure a cosy, warm pub at every visit. The Bear has introduced a large 8ft projector screen to show the variety of matches broadcast by Sky Sports and ESPN and, as part of the investment, a retractable blind will be installed to ensure that the light that floods into the pub doesn’t hinder the very best in sports viewing.

Beefeater Grill repeats two-for-one Sunday offer: Whitbread’s Beefeater Grill brand repeated a two-for-one offer on Sunday. The brand had offered customers the chance to buy one and get one free last weekend – and repeated the offer yesterday with an e-mail to its database on Friday as snow fell across the UK.

Pepsico trials new generation vending machine: Pepsico is trialing a new generation vending machine in the US that provides interactivity – customers can purchase a drink for a distant friend by emailing or texting a gift code to him or her (recipients can reciprocate from any other interactive machine). Patrons also are offered the opportunity to play an onscreen random-chance game by making a purchase. Mastering the game issues a code redeemable for a free 20 fl oz drink immediately or at the winner’s convenience at any Pepsi Interactive Vending machine. The new-generation PepsiCo machines are undergoing extensive field evaluation in five malls around the country, managed by General Growth Properties (Chicago).

Fuller’s helps customers beat ‘Blue Monday’ with book of jokes: London brewer and retailer Fuller’s is helping its pub customers survive the most depressing day of the year on 21 January, also known as ‘Blue Monday’, by distributing a book of some of the favourite jokes of employees at the London brewery.

ABP Group – no evidence of Burger King contamination: Food processor ABP Group has insisted that there is no evidence of contamination by horse DNA in Burger King products. The ABP Food Group suspended all production at one of its plants in Co Monaghan, Ireland, after tests found contamination in frozen burgers. But it has since insisted that meat for fast-food giant Burger King was produced and stored separately at the plant. It said: “We would like to reiterate that all Burger King products produced by us are stored separately and manufactured on an independent line. There is no evidence of any contamination of raw material used for the manufacture of any Burger King products.”

Rhyl nightclub to re-open after two-year closure: A Rhyl nightclub that has been closed for more than two years is set to re-open in time for Easter. The former Bar Blu, on Kinmel Street, is set to open its doors on 22 March under new ownership. Mandy Griffiths and her partner Trevor Tyrie, who have lived in the area their whole life, said they were inspired to buy the former popular hotspot to help bring night-life back to the town. Said Griffiths: “We want to bring people back into Rhyl. We are hoping to give it the wow factor. We are also hoping to get permission to put a roof terrace - it will keep people from standing outside smoking.”

JD Wetherspoon manager who stole £18,000 banned from using the internet: A JD Wetherspoon manager who embezzled £18,730 from the company in a bid to pay off huge gambling debts has escaped a jail sentence – but has been banned from using the internet. Ian Gregory, 37, was in charge of the David Macbeth Moir public house in Musselburgh when he took more than £18,000 of takings in a bid to wipe out his betting debts. Sheriff Peter Braid ordered Gregory to carry out 300 hours of unpaid work, to pay his former employers £16,851.22 and placed him on an 18-month Offenders’ Supervision Requirement. Sheriff Braid also took the unusual step of banning the pub manager from accessing the internet by any device.

Welcome Break completes £350m refinance: Welcome Break, the UK motorway service area operator, has completed a £350m refinancing of its debt facilities. The refinancing was concluded via £221m of senior debt provided by eight lenders and £130m of privately placed mezzanine debt. This refinancing will extend Welcome Break’s debt maturity profile to a pro forma average maturity of 5.5 years. Chief executive officer Rod McKie said: “The refinancing provides a great platform for the business and its leading brands to continue to grow and provide further investment. Indeed, Welcome Break has now become the biggest licensee of Starbucks stores in Europe, numbering some 50 sites with another tranche currently being developed, including further drive thru options. Waitrose has also been a great success following the roll out of 17 stores to date, with a number of new stores planned this year to further the convenience offer. As a result of this investment the Welcome Break estate continues to grow its top line sales and bottom line profit, thus complementing its superior site portfolio operating on the main volume motorways in the UK and situated on major hubs and connections.” Welcome Break chairman and managing partner of NIBC Infrastructure Partners Darren Kyte said: “This successful refinancing in challenging banking markets is a tribute to the robust underlying performance of the business in the tough trading environment experienced in the last few years, the quality of the management team, and the active involvement of shareholders who remain fully committed to the business for the long term.” Welcome Break has around 80 million customers per annum and generates revenue in excess of £600m per annum. It employs 4,200 people and operates across 29 sites, of which 24 are motorway service areas located throughout England, Wales and Scotland. Its brand portfolio consists of Waitrose, Starbucks, Burger King, KFC, WH Smith, Days Inn, Shell, BP and Papa John’s Pizza - the latter has just completed a further ten-site roll out programme at Welcome Break sites. Another seven are planned this year along with a further expansion of the Krispy Kreme doughnuts offering.

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