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Thu 18th Jul 2013 - Breaking News - Spirit reveals brand development plans
Spirit reveals brand development plans: Managed operator Spirit Pub Company has revealed brand development plans on a field trip for City analysts. The company has been trialing a smaller 1,200 square foot template at Flaming Grill (usual size is 3,000 square foot) for eight weeks and it is proceeding ‘very successfully’ – the company will trial three more in August at John Barras sites. Meanwhile, Fayre & Square, its 156 value-led pub restaurants, has potential to grow to 250. Analyst Douglas Jack, of Numis Securities, reported: “Twofer offers have been extended into starters, desserts and meal trade-ups, with drinks to come next. Cakeaways have been introduced in three sites and could be rolled out through the rest of the Fayre & Square estate by November. A total of 80 Fayre and Square pubs have an adjoining Wacky Warehouse playzone. Eventually, every Fayre & Square should have a Wacky Warehouse, in some form. Flaming Grill, the 84-strong neighbourhood pub brand with a 46% food mix, has potential to grow, to 225 sites. Satellite television is in 45 Flaming Grill pubs, but this number is about to increase to 75. Of these two will be signing up to BT Sport, 12 to BT and Sky and 61 just to Sky - renegotiations with Sky are almost complete. Food is in strong growth - driving up drink sales is the next opportunity aided by better event management. The leased estate (468 pubs with circa 30% invested) has had 80 “transformational” investments for £10.6m in 2013, achieving ROI above 25%. A total of 40 leased pubs have had the John Barras food menu introduced (rising to 50 by the end of August). In the first 17 trials, food sales have doubled, boosting beer volumes in the process. 16 sites are under trial - five premium, four retail agreements and seven franchise. Eventually, there could be 50 premium, 100 retail agreement, 200 franchise and 50 stand-alone leased pubs. The rest (59 pubs) should be sold.” Jack revealed that Wacky Warehouses – four have opened in the past year - add an average of £4,000 per week in sales at each site and cost £80,000 to convert from function rooms. Return on Investment is 25%. The introduction of Costa Coffee in 2011 has led to coffee sales of £800,000 per annum within the 113-strong Taylor Walker premium brand. The roll-out of an £14m investment in Pub in a Box, a back-of-house IT system, completed in December last year, has led to a 60bps increase in food gross margins. Meanwhile, guest advocacy, at 73%, is rising and general managers’ bonus scheme is to be altered from 2014 to have more focus on guest measures. A new, even tougher mystery customer programme is to be introduced. Jack added: “Spirit’s site visit yesterday highlighted some of the major improvements that have been achieved over the last four years. It also provided insights into opportunities for further progress.” Jack has a 'Buy' recommendation on Spirit shares with a Target Price of 85p.

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