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Morning Briefing for pub, restaurant and food wervice operators

Thu 21st Mar 2013 - Spirit, Stonegate and Zizzi

Story of the day:

Spirit closes the George in Belsize Park for conversion to first ‘premium’ pub: Managed operator Spirit has closed its George pub in Belsize Park for a month-long refurbishment to convert the pub to its first ‘premium’ site. The George, currently a Taylor Walker site, is located close to Hampstead Heath and Hampstead high street. Chief executive Mike Tye has reported that its new premium offer will be upmarket from Taylor Walker and Chef & Brewer. The first conversion is close to Mitchells & Butlers Spaniards Inn, which was recently re-opened as its third Premium Castle site. Spirit is currently recruiting staff for the new offer, which will have an ‘independent’ feel to it. Spirit states: “We are currently developing a new premium food pub that will offer outstanding food, drink and service, in an independent and stylish pub environment. Consistently delivering excellence will be will be fundamental to its success. Located in affluent areas, our pubs will attract a discerning guest that has high expectations. They will put as much emphasis on the atmosphere and service as they do on the quality of the food and drink and we will deliver all four elements in total synergy, with passion and flair. These pubs will look and feel like independent locals, offering a social haven for every occasion. They will be run by a confident, engaging and friendly team with a passion for great fresh food and drink. The bar will be the hub of the pub and the atmosphere will spread from here. The food offer will be fresh and seasonal. Craft beers, alongside a carefully selected wine list and fresh food, with a daily changing menu, will be at the heart of the offer. There is potential for a turnover in excess of £1 million with a 40% split of food sales.”

Industry news:

Beer duty escalator originator welcome scrapping of escalator: Wychwood Brewery beer duty escalator originator Chris Keating has welcomed Chancellor George Osborne’s decision to put the beer duty escalator in reverse by knocking a penny off duty. He said: “The government has stopped scoring own goals. A petition launched by Hobgoblin a year ago reached 100,000 signatures before Christmas - one of only 20 e-petitions ever to do so. The campaign attracted support of CAMRA, SIBA, BBPA but, most importantly, it made sense to the drinkers who never really understood the wording cleverly written by Whitehall mandarins (“The duty escalator remains”) - which should have read, ‘Your pint goes up 2% above inflation every year – (because we can)’. (It’s) a victory for the hard working, pub going regular man of Britain - get down to your pub and celebrate today.”

Orchid – we wish the Chancellor had gone further and reduced VAT: Orchid Pub Company has welcomed yesterday’s beer duty cut but argued the Budget should have gone further and reduced VAT. People and commercial director Simon Dodd said: “We wish the government had gone further with a reduction on VAT as adopted by both Ireland and France. Another easy win would have been to make supermarkets stop using alcohol as a loss leader, and instead cut the prices of essential fruit and vegetables. This would not only help the pub industry but help tackle obesity at the same time. On a different note, we are glad to see Mr Osborne acknowledge the power of apprenticeships. At Orchid we believe this is crucial to reducing unemployment and supporting our youngsters starting out on a rewarding career path. During 2013, Orchid will be further committing to our apprentice scheme with over 200 places in the next 12 months.”

ALMR – there’s more to do to redress the balance: The Association of Licensed Multiple Retailers has argued that there’s more to do to redress the balance between the on-trade and off-trade despite yesterday’s decision to axe the beer duty escalator. Strategic Affairs Director Kate Nicholls said: “The Chancellor’s scrapping of the beer duty escalator and cut in taxes is good news for Britain’s pubs and bars – and long overdue. George Osborne said he wanted to back sectors which are global successes and free up major employers – and that is precisely what we represent. Britain’s pubs and bars generated one in eight of all new jobs last year, we’ve delivered 8% growth year on year in GDP and the value we add to our local economies and communities - and it is time that was recognised and supported. This goes some way to re-dressing the balance but there is still a long way to go to level the playing field with the supermarkets and across all products. With 70% of alcohol now sold and consumed away from the responsible, supervised environment of the pub, we need to make sure that this is the start of a more healthy dialogue about the positive role pubs can play.”

Chris Gerard - the beer tax cut is a missed opportunity: Chris Gerard, whose Innventure business runs six pub restaurants, described the beer tax cut as a missed opportunity. He said: “It is not a 1p a pint beer tax cut that will save the British economy. Food has been the saviour of today’s British pub for the last ten years and continues to be so. It is true that the beer escalator was crazy and horribly damaging, but a 1p change to duty will not nudge the needle of our country’s tax deficit. If I were the Chancellor I would change the VAT definition on food from hot food to prepared food. This would be really clever. The broadening of the tax base from hot food to prepared food would increase the lines carrying duty to such an extent that the VAT on prepared food would need to be reduced to 5% from 20% to remain revenue neutral! The battered fish in the supermarket would go up but the battered fish at the chippie would go down! Moving food production from food factory’s abroad to our small businesses in Britain would be game-changing in terms of employment and quality. And, unlike the pastie tax, the move would be popular as payment of VAT on prepared food would be voluntary as there is a more attractive choice - cook fresh. The pubs, hotels and restaurants of Great Britain would gain sales enabled by reduced prices, 200,000 jobs would be created in those businesses and the related supply chain, as they have been in other EU countries that have reduced VAT on hot food.”

Company news:

Eclectic Bars reports strong six months of trading: Late-night operator Eclectic Bars has reported sales rose to £10.2m in the six months to the end of December, compared to £10m the year before. Site ebitda was £2.75 million (2011: £2.5 million) and company ebitda was £1.7 million (2011: £1.5 million) Part owner Avanti Capital said: “Trading over the period and over New Year was once again strong and management are optimistic that the second six months will continue the trend seen in the first half. At the end of July 2012, Eclectic entered into a new management contract to operate a further 33 restaurants, bars and nightclubs on behalf of PBR Leisure Limited. PBR Leisure owns The Living Room, a leading premium bar and restaurant brand, with a total of 14 sites, and a portfolio of 19 other bar, nightclub and hotel businesses operated under the Ultimate Leisure umbrella. These sites are spread all across the UK. The PBR Leisure estate, together with Eclectic’s own portfolio, brings the number of venues under management from 16 to just under 50. This significant expansion of operations demonstrates the management team’s ability to continue to develop and grow the Eclectic group. The group’s investment, which is predominantly in the form of a secured loan, has a book value of £7.3 million (2011: £7.4 million). The only other debt outstanding in Eclectic is a senior debt facility from Barclays Bank. In September 2012 the company renewed its term debt for a further period of three years and agreed a £1.5 million revolving facility to support the refit and acquisition programme. As at December 2012, bank debt (net of cash) stood at £0.66 million (2011: £1.85 million).

McDonald’s takes monopoly promotion mobile: McDonald’s is taking its annual monopoly promotion onto mobile devices in a move aimed at expanding the reach of the game. Participants can play ‘Monopoly Fortunes’ digitally by entering a code from stickers on McDonald’s items onto a virtual game board. Online users are guaranteed to win a prize every time they play, according to the company, with prizes including discount vouchers, cinema tickets and smartphones. The move online is a change from previous years, where players have had to redeem stickers in-store to receive prizes. It aims to attract new consumers to the competition with the promise of greater accessibility and guaranteed prizes.

Stonegate to add kitchen-timing system at refurbished Slug & Lettuce: Managed operator Stonegate is to re-open its Slug & Lettuce venue next week (29 March) after a £230,000 refurbishment that will include an upgrade in kitchen systems and dining options. To the rear a ‘quaint courtyard’ will offer alfresco dining. A high-tech kitchen management system, which monitors timings from the moment the customer’s food is ordered through to its delivery, will be fitted – it ensures every order reaches the customer perfectly prepared and on time.

Savoy Hotel opts for casual dining change: The Savoy Hotel, opened in 1889, is to introduce a more casual style of dining at a new restaurant called Kaspar Seafood Bar & Grill, which offers a chic brasserie-style offer. The new restaurant will replace the River Restaurant, a French establishment that opened after a £220 million refurbishment of the hotel that was completed in October 2010.

Nando’s to open in Leamington Spa: Nando’s will open a site in Leamington Spa in June. The new restaurant will be located in Regent Court, in the middle of the town centre, seating up to 100 people at a time and bringing 30 new jobs to the town.

JD Wetherspoon to offer freshly-ground coffee: JD Wetherspoon is to offer freshly ground coffee - Tierra Rainforest Alliance beans are to be used - across the estate in partnership with Lavazza. The coffee company reports a revival in popularity of filtered coffee with UK consumers who want a healthier, less-milky alternative to cappuccinos and lattes. Barry Kither from Lavazza UK, said: “We’ve been trialing filtered coffee in a number of JD Wetherspoon pubs since August and the consumer response has been fantastic. The quality of the beans is exactly the same as we use for espresso-based drinks.” All pubs will be equipped with an advanced filter coffee system including a grinder set to achieve the ideal grind - a brewer that uses vacuum technology to insulate the coffee avoiding the quality damaging application of heat; and a server which holds the brew at its optimum quality.

Award-winning Sheffield Tap expands and opens a brewery: The award-winning Sheffield Tap, located in the city’s train station, has re-opened the station’s sumptuous Edwardian rooms and added an on-site brewery, the Tapped Brew Company. Guardian blogger Daniel Dylan Wray said: “Roll into Sheffield train station and take a walk into the Sheffield Tap and you’ll experience something altogether different. Snake through the cavernous Grade II listed building and come to the bar, and you will be greeted with beers from across the world in their hundreds, a glorious interior and not a television or generic brand in sight. The Tap is not a new arrival to the city - it has been winning awards and recognition from beer lovers all over the country for three years now. But it has just opened up a huge extension, now complete with an on-site brewery.”

Aslit to re-open Hastings nightclub: Leisure company Aslit is to re-open the former Crypt nightclub in Hastings as West Exit. The 440-capacity town centre venue, which has its entrance on Robertson Street, is to open its doors to the public on Saturday, March 30 following an extensive refurbishment. Aslit has described West Exit as a multi-purpose entertainment venue.

Bill’s picks up former Marston’s site: Bill’s Restaurants has acquired a former Marston’s site in London’s Kingsway. Marston’s sold the lease on the premises, which expires in 2031 and carries a rent of £123,000 per annum. The premium was undisclosed. The 4,500 sq ft site was previously a Pitcher & Piano. Nick Weir, director at Shelley Sandzer, said: “(It is) one of the most hungry groups in the market right now. Bill’s is one of the most trail-blazing brands to come along for long time and their simple formula of healthy, good produce in relaxed surrounding with friendly service is winning lots of fans.”

McDonald’s to challenge Subway in the US with the McWrap: McDonald’s is set to challenge for Subway’s share of the sandwich market with the launch of the McWrap. The company is understood to view the new product as its biggest launch of 2013 and its biggest brand opportunity since McCafe. The McWrap is available in some locations already but McDonald’s is expected to launch it nationally within the next few weeks.

Inova Leisure opens third Bed site: Inova Leisure, the operator of the Bed Bar cocktail lounge and nightclub concept with sites in Woking and Reading, has opened a third site in Torquay. The company operates medium-sized venues with capacity for 300 to 700 people and has grown through cashflow. It is able to open sites for a fraction of the normal cost thanks to in-house manufacturing of furnishing and equipment. Site Edibta is around 25% of turnover in the region of £1m to £2m per site. Chairman Charles Johnson told Propel last year: “We took three years to make sure the brand values were right at our first site and we’d now like to roll the brand out. As ever, even though we’re debt free, funding is an issue and restricts our ability to develop as fast as we would like.”

Bruce Taverns buys Falkland pub: Multi-site pub and hotel operator Bruce Taverns has bought The Lomond Tavern in Falkland, Scotland, from a private vendor. Barry McNeil, associate director at Christie + Co’s Edinburgh Office, said: “I have now sold the Lomond Tavern five times in the last 15 years - but, I’m sure the business will now stay in caring and steady hands for the foreseeable future.” The Lomond Tavern was originally placed on the market for offers over £300,000. The final purchase price was not disclosed.

Stonegate Pub Company introduces ping pong tables: Managed operator Stonegate Pub Company has introduced ping pong tables at a number of Scream student bars - and a Slug & Lettuce venue. “We believe we are the first national pub company to introduce ping pong to our customers,” said Richard Bruce, marketing director. “As a company, we are looking for new activities that will appeal to our customers, creating fun and memorable social occasions in our pubs and bars. This search for new trends and innovative ranges across food, drink and entertainment will help us to ensure we stand-out from other pub and bar operators. Our Scream pubs, with their locations near to University campuses, sporting links and traditions along with their target audience are perfectly placed for ping pong as is the Slug & Lettuce in Islington with its creative, professional customer base looking for a light-hearted yet skilled challenge!”

Zizzi to open fourth restaurant in Edinburgh: Zizzi is set to open its fourth site in Edinburgh. The chain has agreed a 25-year lease on a 4,000 square foot unit at the Advocate’s Close development in Edinburgh’s Old Town. Property development business The Chris Stewart Group, which is leading the £45 million development, said Zizzi is the first tenant to take space. The restaurant, which will have an entrance on Roxburgh Close, will open out onto a public square to the south and have panoramic views across Princes Street to the north.

Be At One opens 16th site; reports 9% like-for-likes: London cocktail bar group Be At One opens its sixteenth site today, on Upper Street in Islington. This is the third opening so far this year for the company, led by three former TGI Friday’s bartenders who opened their first bar together in 1998. Be At One, which received investment from Piper Private Equity in October 2011, has kick-started 2013 with an ambitious expansion plan, opening four bars in the space of just nine weeks, something it has never attempted before. Director Steve Locke said: “We spent time in 2012 gaining momentum and consolidating the existing business which has allowed us to be able to expand very quickly in a short space of time. As a team, we have great confidence in the talent that we have within Be At One which will enable us to grow, yet still retain the consistency and feel of the business when we had just one bar.” This year, Be At One have opened in Smithfield and Fenchurch Street, with Islington opening tonight and they are due to open their first bar outside the capital in Reading next week. They plan to take their estate up to 20 bars this year, with an aim to get to 30 bars within the next three years. The group is forecasting turnover of £11.5 million for the financial year end, another record year which sees them 9% up on last year on a like-for-like basis and 22% up including new openings. The other 15 Be At One Bars are located in Battersea, Richmond, Covent Garden, Balham, Hammersmith, Putney, Soho, Clapham Common, Spitalfields, Shoreditch, King’s Cross, Monument, Guildhall, Smithfield and Fenchurch Street with Reading opening next week.

New Pub Company to create a private members club at award-wining Camden Eye: New Pub Company, the seven-strong operator led by Peter Linacre, is to invest £150,000 in creating a private members’ club at its Camden Eye pub, where licensee Mahdis Neghabian won BII Licensee of the Year last year. Linacre said: “We will remove part of the gable space to create the private members’ club. There’s no private members’ club in Camden and a shortage of interesting meeting places during the day. I anticipate we’ll sign up northwards of 500 members following the Jonathan Downey fee structure but at lower prices – around £250 for a year’s membership, which is not a horrible amount of money.” Work is expected to be completed in six months’ time. New Pub Company fitted a high-end pizza oven at the Camden Eye a couple of months ago after taking inspiration from Richard and Loren Pope’s Bull’s Head pub in Repton – and will now add pizza ovens at two other pubs where schemes are planned. The Hare and Hounds, Claygate and The Cricketers, Hartley Whitney. “We’re selling 500 pizzas a week at the Camden Eye, incremental to our other food trade, and we haven’t even started our takeaway service yet.” Linacre said the major learning so far at the Camden Eye is around how to serve “this quantity of food in a business the size of this”.

Waterstones in Bradford replaces Starbucks with own brand: The Waterstones site in Bradford has stepped in to reopen a coffee shop that was closed down by Starbucks. Starbucks pulled out of the Wool Exchange store in February after more than 15 years. The coffee shop has now reopened under the Café W branding, which is in 12 Waterstones branches and is placed into its stores when concessions pull out. Current book store staff have been trained in a dual role as baristas. A spokesman said: “When the lease comes up for whatever concession in the stores, it makes sense (for us to take over) and is part of the bookshop experience. Pretty much all of our stores have cafes and it makes sense to have our own. I think, more often than not, customers are happy that there is a coffee shop there. I don’t think they have really mentioned Starbucks going.”

Coaching inn entrepreneur acquires fifth site: Coaching inn entrepreneur Mark Bowley has acquired his fifth site - The Danebury Hotel in Andover. He will invest £1m to increase bedroom numbers to 36 rooms and introduce a restaurant for 120 diners as well as a traditional pub. The site will revert to its previous name of the Star and Garter. Bowley already operates sites in Alton, Yeovil, Salisbury, and near Bournemouth. The hotel’s interior will most closely resemble his Bridge House site in Ferndown near Bournemouth. “The bedrooms are going to be contemporary with the latest technology including power showers, flat-screen TVs and Wi-Fi, but keep the traditional look of the building,” he said. “It’s not going to be so contemporary downstairs and will be made to look more traditional. The restaurant will serve a carvery which will be freshly cooked every day.”

Douglas Jack – here’s what we learnt at our leisure conference: Numis Securities analyst Douglas Jack has outlined the key points made by Domino’s Pizza, Enterprise Inns, Fuller Smith & Turner, Marston’s and Mitchells & Butlers at its leisure conference. He said: Domino’s Pizza (BUY / TP 625p). A three times increase in its number of stores (from 250) has converted into an 11 times increase in UK profit before tax since 2002. Our 2021E PBT forecast of £150m is based on 1,200 stores and requires order frequency to fall to 33 days, from 38, and household penetration to rise to 20%, from 19%. Encouragingly, two long-standing UK franchisees are already achieving over 40% household penetration. In the UK, delivery times continue to fall (down circa 30 seconds to 22.5 minutes last year). The shift towards online ordering is boosting average order size and enabling promotions to become more focused. In Germany, new openings are trading as well as new sites in the UK (even without the brand awareness). Most of the German expansion is now undertaken by franchisees, who will eventually buy the corporate stores; Enterprise Inns (ADD / TP 125p) is generating over £100m of annual free cash flow. After capex and disposals, it should reduce debt by circa £200m this year. The model works with sustainable flat like-for-like net income (selling bottom-end pubs and reinvesting in the core estate). Management hopes for better, aided by: more growth-orientated capex; reducing the cost of business failures (which fell 8% in Q1); and an end to rent-rebasing (84% of rents have been adjusted since 2008); Fuller Smith & Turner (ADD / TP 825p). Trading in London is consistent through the week, also with a trend to more premium products. Fuller’s is positioned to benefit from this trend, in addition to which it has extended its product range. Examples include world beers, Brewer Street (Fuller’s in-house) branded coffee and London Porter smoked salmon. Fullers’s new digital platform has materially increased direct online bookings and reduced third-party booking commissions; Marston’s (ADD / TP 145p) has opened 60 pub restaurants in the last three years. Every one of these sites has achieved the target return on capital. With a £6.50 average food spend per head (ex-VAT, with full table service), these sites continue to generate attractive growth, taking share from restaurants (narrowing the service gap utilising new hand held technology and kitchen software) and supermarkets (where food price inflation is higher); Mitchells & Butlers (BUY / TP 400p) underlying like-for-like sales have been 1% (until January). The company has the scale, brand range and capital resource to increase like-for-like sales, but it first needs to improve operational execution. It is attempting to rectify this by rolling out its Ways of Working service culture (guest advocacy is still only 55%). The company will also invest to promote brand awareness (rather than discount), per the current Harvester TV adverts, which are “gaining a terrific consumer response.”

Starbucks to buy coffee farm: Starbucks plans to buy a 600-acre coffee estate on the slopes of the Poas Volcano in Costa Rica. It plans to convert the farm to an agronomy research and development centre working on climate change mitigation, long-term crop stability and other schemes. It did not disclose terms of the deal, which is expected to be finalised in May. The centre “will support the resiliency of coffee farmers and their families as well as the one million people that represent our collective coffee supply chain,” chief executive Howard Schultz said. Starbucks’ farm could also be used to experiment with new types of coffee, he said. Over the past 40 years, Starbucks has invested more than $70 million on programs that support farmers’ livelihoods and help ensure the long-term availability of high-quality coffee.

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