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Morning Briefing for pub, restaurant and food wervice operators

Wed 1st May 2013 - Costa Coffee, Hard Rock Café and Peach Pub Company

Story of the day:

Whitbread plans 60 new co-located Premier Inns and pub restaurants; trials new room format: Whitbread plans to opens 60 new co-located Premier Inns and pub restaurants, which currently serve 46 million meals a year, in the UK in the next five years. Chief executive Andy Harrison said: “The joint site model is unique. A Premier Inn would not be a viable without the restaurant – breakfast, in particular, is a critical part of the Premier Inn proposition. The joint site model provides some of the best returns on capital in Whitbread.” There has been widespread speculation that Whitbread is to launch a second, budget hotel brand, with reports in particular that the company is testing a smaller room format, which is priced lower. Asked about this, Harrison said: “I’ve read all the Press speculation. We are constantly testing new things – and we are testing some new propositions within Premier Inn.” Whitbread reported that the independent hotel market in the UK is thought to have shrunk to just less than 50% market share (compared to 30% in the US). Harrison added: “We call the independent market the dark side of the moon – there is very little information on it.” Whitbread said it has 7% market share, which will rise to 11% in 2018 when it has 75,000 rooms in the UK. Premier Inn’s average TripAdvisor score is currently 4.3 out of five. The company also reported that the lucrative London market, which had 88% occupancy last week, provides twice the Ebitda per site than its provincial Premier Inns achieve. Meanwhile coffee and breakfasts provided the biggest boost to its pub restaurant sales, both up by circa 16% in the year with overall sales up just 2.3% on a like-for-like sales basis. 

Industry news:

Luke Johnson – Tim Martin in the same ‘avenging angel’ mould as Cornelius Vanderbilt: Sector investor Luke Johnson has argued that determination is the most important asset for the entrepreneur. In his Financial Times column, he wrote: “As the management thinker Peter Drucker wrote, “whenever something is being accomplished, it is being done, I have learned, by a monomaniac with a mission”. Cornelius “Commodore” Vanderbilt, a robber-baron who built up an enormous fortune in the shipping and railroad industries in the 19th century, was famed for writing a letter to two former partners who had double-crossed him. “Gentlemen, You have undertaken to cheat me,” he wrote. “I won’t sue you, for the law is too slow. I’ll ruin you.” A present-day avenging angel in the same mould is Tim Martin, the publican of JD Wetherspoon fame. He recently announced he had spent eight years pursuing litigation on behalf of his company against certain agents and landlords who had defrauded him. He has bankrupted several individuals and received large sums in settlement from others. Determination is generally a much more important asset for an entrepreneur than qualifications or connections.”

Warm weather forecast for Bank Holiday weekend: Weather forecasters predict that the weather will gradually warm up over the Bank Holiday weekend, hitting as high as 23C on Bank Holiday Monday. Helen Chivers, a Met Office forecaster, said: “Sunday looks pretty good at 17C to 19C and we may well see slightly higher temperatures on Monday.”

Livebookings adds Relais & Châteaux to electronic booking platform: Livebookings, the operator of online bookings technology and marketing services for restaurants, has unveiled a new agreement with Relais & Châteaux to make its electronic reservations system instantly available to more than 700 restaurant members. Relais & Châteaux associated restaurants hold a total of 347 Michelin stars between them and span across 60 countries.

Sky Sports signs Jamie Carragher: Sky Sports has strengthened its line-up of football experts by signing Liverpool legend Jamie Carragher. He will join Sky Sports in August 2013, adding to a line-up that includes Gary Neville, Jamie Redknapp, Graeme Souness, Niall Quinn and Alan Smith.

Mintel – coffee sales broke through the £1 billion mark in 2012: Mintel has reported that 2012 saw the UK retail coffee market break the £1 billion barrier for the first time. Mintel’s Jonny Forsyth said: “However, compared to continental Europeans, the UK remains coffee novices, with our retail market worth only a third of the German market and a half of the French. The more educated UK consumer now wants even more gourmet options, though, hence the increasing rise of “artisan” coffee shops. Meanwhile, consumers increasingly want to replicate at home the coffee shop experience of having great coffee produced at the push of a button. Hence the increasing popularity of single-serve coffee machines, which at around £100-plus allow consumers to produce fresh coffee in an instant by slotting an expensive coffee pod/capsule of ground beans into the machine. Again, the UK is well behind the continental curve in take-up of such machines, but I expect that to have changed considerably a few years from now.”

Company news:

Douglas Jack – Greene King expects to add 100 managed sites in next two years: Numis Securities analyst Douglas Jack has reported that Greene King expects to add 100 managed pubs in the next two years, with 80 acquisitions and 20 internal transfers. Jack, who attended an analyst’s briefing that toured three Hungry Horse sites in Birmingham on Monday, said that Greene King managed pub like-for-like sales were up 7-8% last week, which meant the full year should be up circa 2.5%. He said: “The rest of the day emphasised Greene King’s continuing efforts to position towards value food, which is becoming increasingly important within the pub sector. The market is polarising in favour of value and premium. Greene King’s value segment’s share of managed pub profits is expected to increase to 53% from 47% over the next three years. The key driver is Hungry Horse, the main value brand, which has doubled sales and profits (largely through expansion) over the last three years. Hungry Horse’s recent developments include: developing its in-house coffee brand (Big Bean); coffee, pizza and cake takeaway; digital marketing; ordering via smartphones is about to commence; electronic kiosks for ordering food and drink (10% of sales are ordered through the kiosks to avoid bar queues); and external coffee vending machines. Since 2008, Hungry Horse has increased to 199 from 96 sites (15.7% CAGR); average Ebitda is up to £297k from £208k (7.4% CAGR). As a result, Ebitda margin has risen to 26.3% from 25.2%. Hungry Horse’s average EBIT return is 12%; more recent openings are closer to 20% Ebitda return on an average £2.5m freehold investment. The site pipeline has 24 outlets on-site/secured and 114 further sites being worked on. Management believes the brand could expand to 500 sites eventually. Greene King expects to increase its managed estate by 100 sites over the next two years (80 new sites; 20 internal transfers). We expect this to be in the value segment, outside London. If achieved, capex, returns and earnings growth should exceed expectations, but the extra capex will limit the reduction in leverage.” He has had an “Add” recommendation on Greene King shares with a target price of 765p.

Costa Coffee to open six sites in Paris as it takes 11% market share in the UK: Costa Coffee is to open six trial sites in Paris after the success of a franchise site in the Gare de Lyon. Chief executive Andy Harrison said the company is planning hundreds of stores in France based on the strategy of “going into closer markets to the UK on an equity basis”. Meanwhile, the Massimo coffee machine, where Whitbread earns royalties in supplying Costa pods, has already overtaken Nespresso as the best-selling UK coffee machine on the market despite only launching last October. Whitbread reported that the gap between itself and its two nearest rivals, Starbucks and Caffé Nero, is widening, with 34% of those surveyed naming Costa as their favourite brand (20% for Starbucks, and 12% for Caffé Nero). Costa Coffee market share in the UK is currently 11% compared to 7% in 2009. The company reported that Costa Coffee took £11,000-a-week in Chelmsford in 2005-2006 – the figure is now £62,400 per week after adding seven Express machines, plus sites in Waterstones, a retail park, WH Smith and two Tesco stores. 

Snug Bars reports like-for-likes up 8.6% in the first quarter; plans two more sites: Five-strong Snug Bars, the operator led by Giles Fry, has reported like-for-likes sales are ahead 8.6% in the first 13 weeks of its financial year having had “a storming December and January”. Sales are 6% ahead of budget. Fry said: “The two main drivers have been the £55,000 refurbishment investment that we spent on our Hertford site. We are really pleased with the finish that Concorde BGW has created and so far this site is exceeding last year’s sales by almost 60%. The second driver has been the rollout of our new food and drink menu. We took the decision to separate the menus so that we now have the ability to change the food menu seasonally and by day part. The menus have been rolled out in our Hertford and High Wycombe bars and include a new range of Tiki cocktails with an eclectic mix of some classics. Our partners at Greene King have also supported our launch with additional support of premium beers.” The new menus will now be introduced at its St Albans site and both sites in Cambridge. Snug Bars is looking to add a further two sites to its portfolio by the end of the year. Fry added: “The menu changes have also allowed the business to expand their range of possible trading sites.”

Peach Pub Company partners Tahola to target offers: Peach Pub Company, the 16-strong gastro-pub operator led by Hamish Stoddart and Lee Cash, has signed Tahola to deliver a Business Intelligence solution designed to improve customer insight and marketing. Andrew Percy, financial controller at Peach, said: “In today’s fast moving world, we need to have accurate and reliable business intelligence at our fingertips to ensure that we have the best possible sense of our guest base. Tahola showed us a potential solution based on a pub business like ours. It enabled us to quickly understand just how powerful its capabilities could be for our own business.” Stoddart said: “It really enabled us to test first-hand how we can make meaningful decisions for our business based on real insight. A one-day ‘proof-of-concept’ gave us the confidence to know that (this) will make a valuable contribution to our business and enabled us to gain buy-in from our operations team.” The Tahola system will allow Peach to match each transaction to individual guests as it rolls out a loyalty scheme across the group. This will enable Peach to understand customer behaviours and focus marketing effort in a more targeted way. Peach Pub Company’s Epos system is supplied by IBS.

All Bar One offers wine flights for five-week promotion: Mitchell & Butlers’ All Bar One brand is offering customers a flight of three 50ml glasses of wine for £9. The promotion is part of a five-week Wine World Tour offer – a five-week promotion involving wines from Italy, France, the Americas and Australasia. Blind-tasting sessions and food-matching advice are also part of the initiative. Wines on offer include Barolo Lo Zoccolaio from Domini Villa Lanata, St Emilion Reserve from Baron Philippe de Rothschild, St Michelle Riesling from Columbia Valley in the US and Cloudy Bay Sauvignon Blanc from New Zealand. Each week features a different country - week one is Italy, two is France, three the Americas, four Australasia and week five is “Favourites Week”. Drinkers can collect stamps throughout the first four weeks and those with a complete collection will receive a free flight during the final week. The event runs from 29 April to 2 June.

Hard Rock Café plans second Scottish opening: Hard Rock Cafe plans to open a second site in Scotland - on Glasgow’s most upmarket street, Buchanan Street. The company has applied to the city council for permission to use the A-listed former Athenaeum Theatre as a licensed restaurant. The brand operates 175 cafes in 53 countries but so far Edinburgh is the only city in Scotland that has a Hard Rock Cafe. Its other UK sites are in London and Manchester. Of its circa £20m of UK sales, around £10m comes from the sale of merchandise. (Hard Rock Café is one of 200 leading UK multi-site pub, restaurant and foodservice brands that are ranked by turnover and profitability on a five year basis in the Propel Blue Book of Sector Turnover and Profit. E-mail to buy the Spring edition.)

TLC Inns reports boost from April sunshine: TLC Inns, the operator of six pubs and restaurants, led by Steve Haslam and Jo Drain, has reported a boost from the better weather in April. The company has a number of sites with very large gardens and so trading can be badly affected by poor weather – last April, Haslam reported double-digit sales declines amid very wet weather. One site, The White Horse, Ramsden Heath, Essex, with the largest outdoor space in the estate, achieved a like-for-like sales increase of 36%. The Cutter in Ely saw sales rise 7% year-on-year and a village pub with a play area was up 15%. The company’s land-locked American bar and grill Grand Central in Basildon saw a more modest 4% sales rise. Haslam said: “This April has been more ‘traditional’ with the weather good enough at times to help sales. There are always anomalies with like-for-likes but blue-sky days certainly help – April 2012 also had Easter falling in the month. We are very positive for the year ahead, if we can get some decent weather.”

Star Pubs & Bars partners CPL Online to launch e-learning across estate after trial at seven-strong New Pub Company: Star Pubs & Bars has appointed CPL Online to roll out an e-learning package for all its lessees encompassing 24 accredited staff training and personal development courses. Star Pubs & Bars lessees are the first of any national leased pub operator to benefit from the e-learning programme, which provides them with the high standards and scope of managed pub company training. The tenanted pub operator has used its buying power to secure the package for its lessees at a fraction of the cost they would be able to purchase it for as individuals. For £250 a year each pub’s staff and lessees can access the interactive training from any internet connected computer 24 hours a day completing as many courses as they wish. The modules are grouped into three main areas: compliance (such as Age Verification, Food Hygiene and Handling and Health & Safety), soft skills ranging from Up-selling to Cellar Management and personal development, including Interview, Staff Appraisal and Time Management skills. Research of Star Pubs & Bars’ lessees has found that sourcing good, affordable staff training was a major challenge. Said Chris Moore, Star Pubs & Bars property and strategy director: “E-learning is the perfect solution. Courses are designed to be used unsupervised and feature interactive animations, games and voiceovers to make the process easy, accessible and fun. Everyone can do it at a time and place that best suits them and can work at their own pace.” New Pub Company, which operates seven Star Pubs & Bars sites, has trialed eighteen of its staff, including managers, front of house and assistant managers, on Star Pubs & Bars’ e-learning courses. Employees have tested twenty hospitality e-learning courses using the Star Pubs & Bars e-learning console, which has been developed in partnership with CPL Online. Boss Peter Linacre said: “Much of our success is due to the brilliant teams in each site, and I have found that when you help people to develop they often go on to do fantastic things. We feel that CPL shares our perspective on personal development, and from their e-learning courses we are taking staff to a higher level of training.”

Chef John Torode steps down from restaurants after £250,000 loss: Celebrity chef John Torode, who hosts Masterchef, has stepped down from the holding company Korado that operates his two restaurants after a £242,903 annual loss. Torode launched Smiths of Smithfield in 1999 and opened The Luxe, in Spitalfields Market, in 2009. Torode told The Sun: “I’m very proud of what I achieved but it’s time to do my own thing – so watch this space.”

Leopard Leisure takes lease on Spirit pub: Leopard Leisure, headed by Harry Costigan, has taken a lease on Spirit Pub Company’s Blackbird pub in Ponteland, Northumberland. The pub was taken over and refurbished by the Washington-based Principle Leisure Group in 2010, but closed its doors again last year after the firm went into administration. The pub, which used to be a castle and manor house, will re-open in early May. Costigan said: “The Blackbird is a very beautiful building and our aim is to take it back to its former glory. The previous people in charge decided to turn it into more of a restaurant and they were doing okay until they suffered financial problems. Even though we will have a decent food menu, our focus is on making this a friendly pub with a good atmosphere where people can come for a few drinks and a chat.”

PizzaExpress launches biggest change to kids menu in seven years: PizzaExpress launched the biggest changes to its kids “Piccolo” menu yesterday since its introduction seven years ago. One blogger wrote: “The new Piccolo menu is being billed as one that appeals to ‘kids who enjoy good food’ and PizzaExpress have been working with a nutritionist to ensure that what can be a high calorie ‘treat’ meal is as good as possible for our little people. They have reduced the amount of salt in their tomato sauce, mozzarella and also tried to limit sugar where possible by removing fudge and cakey bits from kids ice cream desserts). Not only can you still choose from a range of pasta and pizza on the Piccolo menu, you can now allow your child to be in charge and create their own pizza. And the real selling point is that it won’t cost you a penny more than the inclusive price of £6.50 for three courses.” Adults with a small appetite can now order a children’s main courses alone for the price of £3.95. Other changes include more light choices an extension to its Leggera skinny range of pizzas. 

Wetherspoon opening in Diss delayed by archaeological dig: The opening of a new JD Wetherspoon pub in Diss, Norfolk looks like being delayed until next Easter. The development at Kings Head Yard in Diss had been due to open in the autumn, but landowner Joe Darrell said the launch may not now happen until Easter 2014 due to delays with an archaeology report. He said planning officials at South Norfolk Council could not give full written planning consent for the development until the archaeological dig had been completed.

Spirit launches new staff development scheme: Spirit Pub Company has launched a new training programme aimed at developing the calibre of its pub team leaders. The programme, which will train over 1,000 candidates in the first 12 months, will be available for new starters and current team leaders, providing them the skills and qualifications needed to progress to the next management level. After a year on the programme candidates leave with an APLH Personal License, Beer Experience BIIAB Award in Beer & Cellar Quality, Bar Experience BIIAB Award and a Team Leader Apprenticeship qualification – the equivalent of five GCSEs. Jo Bradford, national qualifications manager for Spirit, said: “We are committed to developing the skills and abilities of our teams to ensure that they can follow a successful career pathway in the hospitality sector.”

Nightclub property in Manchester sells off £2.5m asking price: A property in Manchester, 121 Princess Street, that houses the 5th Avenue nightclub, has been sold to a private investor off an asking price of £2.5m. The property offers is 42,500 square foot of space over basement, ground and six upper floors. It has an annual rental income of around £100,000. Apart from 5th Avenue nightclub and an architects’ practice, the building is otherwise vacant.

O’Neill’s launches new menu: Mitchells & Butlers O’Neill’s brand has launched a new menu. The company said: “We’ve crafted some new dishes made for sharing, perfect with a pint and a good helping of live sport or live music.” New dishes include: chicken wings, pasties, the O’Neill’s hot dog, freshly-prepared salt and pepper dusted calamari and home-made nachos. The brand has added a new Guinness Chocolate Brownie, made with Guinness to the dessert menu. The brand is offering a free starter or dessert to customers ordering a main course dish from the new menu, through a voucher on its website.

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