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Morning Briefing Strap Line
Fri 17th May 2013 - Friday Opinion
Subjects: The Robert Cains saga, behaviour of good managers and community assets
Authors: Paul Charity, Ann Elliott and Neil Morgan

The Robert Cains rollercoaster by Paul Charity

It’s been a rollercoaster ride at Robert Cains Brewery since it was acquired by the Dusanj family back in 2002. There will be plenty of people who will feel less than sympathetic to the multiple setbacks the business has suffered in the subsequent 11 years. In fact, it’s felt a bit like it’s lurched from one disaster to another.

There haven’t been too many times that the business produced a profit – it scraped a £57,000 profit in 2006 after turnover had climbed from £14m to £26m over the first four years. In 2008 the business went into administration after a disastrous reverse takeover of the Honeycombe Leisure business at the height of the market. The Dusanj family had looked to replicate the time-honoured business model of the family brewers. The only problem was that it was doing it a completely novel way. Among the 100 pubs in the Honeycombe estate were 67 pub company leases, which made Cains the UK’s largest vertically-integrated multiple lessee. Nearly all of the pubs were free-of-tie so when beer volumes started to drop after the 2007 smoking ban it was stuck with rent as a fixed cost. Both of its major landlords generously dropped or waived large sums in owed rent but it still wasn’t enough to save the business. (The six months to 28 April 2008 saw the business chalk up an enormous £4.5m loss, the equivalent of around £170,000 per week).

One commentator has remarked on the “weapons grade forward-planning” by the Dusanj family prior to the administration. Despite reports of widespread interest in acquiring the brewery, it was certain to bounce back to the family courtesy of vesting the freehold interest in a family trust with £500,000-a-year rent. The newly-formed RC Brewery became a contract brewer with a small pub estate of nine sites. Hopes were pinned on developing an export business and growing its own label brewing business. In February 2011, Sudaghara Dusanj told me, on a visit to Liverpool, that he finally hoped to break even after losing a combined £2.69m in the first two years after administration on turnover of £42.6m.

He said at the time: “We lost contracts in the first year after administration but we are now the UK’s number one contract own-label brewer and are set to produce 100 million cans this year. We’ve been picking up the contracts we lost in the administration process.” It was a worrying sign that annual accounts have not been forthcoming for a couple of years now – the last published accounts cover the period ending September 2010. The problem is that this was always a very low margin business – it produced 6% gross margin - and simply replicated the inadequate business that the company tried to move on with the Honeycombe acquisition. It is difficult to generate the profit required to reinvest - and any visitor to the Liverpool brewer could see the decrepit state of much of its building. Sudaghara Dusanj told me last month that the loss of a major supermarket contract last autumn served as a wake-up call on whether the business was sustainable.

Now the future of the business is more or less a property play on the development potential of the brewery. The family already has widespread backing for a plan to develop a Brewery Village, which, actually, would be a pretty good use of a historic building close to the centre of Liverpool. There’s talk of a low-output craft brewery as well, which would be an attractive addition to the proposed food-and-drink development. But, truth is, brewing is no longer at the heart of what the Dusanj family want to do.

There are a lot of Dusanj critics out there, people who regard the family as business hoopleheads trailing devastation in their wake. I’m not one of them. Lots of people have had their hearts broken over the decades trying to make the Robert Cain Brewery work. That the Dusanjs kept this business brewing for more than a decade, and against the odds, speaks of their sincerity, evident when you met them, in trying to find a sustainable future. Many others would have arrived at the current juncture much sooner. 
Paul Charity is managing director of Propel Info

The way great managers behave by Ann Elliott

At one point in my career I was an operator looking after 280 pubs for Whitbread whilst running five leased pubs with my husband. One of the (very many) lessons I learnt during those four years was how absolutely critical a manager or tenant was to the success of my pubs. It’s self, bloody, evident when you’ve been there and done it (to a minor extent in my case). It isn’t always that obvious though if you’ve been a ‘head office’ marketing bod forever and not worked in the field at all. I have to be honest and say that, during my five-year journey from brand manager to marketing director at Whitbread (and prior to joining operations), the importance of managers in delivering brand success hadn’t really been at the front of my mind.

Luckily, my time in operations saved me from a life of almost total ignorance about the importance of the manager role. I now work a lot with pub and restaurant managers and am constantly impressed by their talent, expertise, passion and abilities. The great managers I work with seem to share some common characteristics.

1.  They want to be empowered: Great managers seem to thrive on being given targets, given support and then left alone. They don’t need to see their operations manager constantly or have endless visits from head office. They want the freedom to influence the food and drink they sell, to recruit who they want on their team, to manage their own budgets and to run their own marketing activity. They want to be accountable.

2.  They want to empower their teams: Great managers delight in giving their team members responsibility – often pushing their good team members out of their comfort zones in order to build their confidence and delegating to those who are capable of doing more. They positively seek development and training opportunities for those who want to progress and they don’t hold on to great people who can go further – in fact they delight in the fact that they have moved on to bigger and better roles.

3.  They are highly self-motivated – they want to achieve: Great managers are able brilliantly to motivate their teams (many of whom are on minimum wage) to deliver sales and profit targets often without the support of incentives or reward. They get them to buy in to their goals and aspirations. They take responsibility. I rarely hear great managers moan – they change either their attitude or the thing that needs changing. Great managers are very passionate about their own sites and proud of their team’s achievement.

4.  They give credit to their teams: Great managers talk about their team a lot and they believe in the power of the team. They don’t ask them to do things they wouldn’t do themselves. They very much lead by example. They are acutely aware of the need to ensure that new team members must gel with, and balance, their current team. Some even leave recruitment to their assistants and let their team decide who they want to join them.

5.  They make the rules work for them: Great managers would rather ask for forgiveness than permission. They don’t break the rules but they will bend those that they believe inhibit the business – they tend to think of them as guidelines not dictats (except the core legal and health and safety ones). Neither do they suffer fools gladly – they get rid of poor performers quickly and move those out who aren’t ‘on the bus’ with them.

All marketers in our sector really need to get under the skin of these managers – and to understand how they can work best with them. Without them they are nothing. Without them they will not succeed.
Ann Elliott is chief executive of Elliott Marketing and PR

What is ‘community value’ anyway by Neil Morgan

Drinkers in Nunhead, south-east London are said to be celebrating this week as their Ivy House pub has been ‘saved’ from the clutches of property developers  – with the locals using the Localism Act 2011 to preserve their pub as an asset of community value.

I’ve no wish to pour stale beer on the efforts or success of those involved with retaining The Ivy House as a pub for the people of Nunhead – it is something to be applauded. However, for those who wish all pubs threatened with closure or redevelopment to be listed as Assets of Community Value (ACV), I feel compelled to add a note of realism.

The well-meaning CAMRA and their equally well-intentioned friends in Parliament believe that up to 300 pubs can be ‘saved’ from closure or sale for alternative use. Yet the fact that so many pubs are facing closure surely questions the meaning of the words ‘community’ and ‘value’.

While we know that around two-thirds of pubs placed on the market are retained as pubs, it means that a further third find better uses for their local communities – be it in another form of licensed use, residential or convenience retail. And pubs generally close for one reason alone, and that’s the failure of the community to get behind them when they were open.

The headline-grabbing ‘rallying-round’ of local interest groups when a high profile pub is set for closure masks the former disinterest of punters when pubs were open. And to return to The Ivy House, while I wish it every future success, I have to ask whether the emotional bonds that brought a community together to preserve this pub will be reflected in the pub’s trading performance a year or two hence? I hope so.

And as others jump on the ‘save our pub’ bandwagon, I also have to look at the potential wider effect of the Localism Act – the law which is encouraging communities to take action to retain their local pub.

One of the major aspects of the Act gives community interest groups an opportunity to intervene when a pub is listed for sale; if the community is able to influence a local council to protect a pub as an ACV, then they are given up to six months to find the money to buy the pub – placing a substantial block on the transactional process. Through this ‘law of unintended consequences’ the government is in danger of hampering the pace of economic recovery in which the business transaction marketplace has a significant role to play.

Christie + Co has recently conducted a survey with convenience store operators and some tenanted pub companies (the findings of which will be fully published in June) to find out what the major problems are which face them in terms of trading businesses – by far the biggest concern to them were delays in planning, which listing all threatened pubs as ACVs will surely add to.

And on this note, some campaigners are encouraging local groups to push for so-called ‘Article 4 directions’ to specifically prevent pubs from being turned into supermarkets. Here’s the question: Why is a pub considered an asset of community value where a convenience store is not?

As I’ve suggested, pubs tend to close because no-one wants them. Using the site for a convenience store makes use of the site where the community had decided there was none. Moreover, convenience stores bring jobs to towns at a time when new jobs are thin on the ground. In addition, is a pub more important than affordable housing? You tell me what delivers more community value? And shouldn’t the whole community have a choice in what a building should be used for, rather than just a mere few, albeit influential, local people?

Back in 1999, I suggested that the UK pub sector was over-populated to the tune of 10,000 pubs. Since then, customers have decided with their feet that around 7,000 pubs are obsolete. With declining beer volumes and an increasing stay-at-home culture – what I call the Sky+ effect – I remain convinced there is room for further natural shrinkage in pub numbers, leaving only the best and better-supported pubs.

This is far from a crisis for the pub sector. Where there have to be closures it makes sense – for the operators, the economy generally and, dare I say it, the community.
Neil Morgan is head of pubs at Christie + Co

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