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Morning Briefing for pub, restaurant and food wervice operators

Fri 19th Jul 2013 - The rise of fast casual and Propel Diary

Story of the day:

Technomic – fast casual restaurants continue to grow fastest in the US: Market research firm Technomic has reported that the fast casual segment was the best performing part of the US market last year with sales up 13% – the largest chains grew sales by 16%. Technomic’s Top 150 Fast-Casual Chain Restaurant Report shows that fast casual makes up just 14% of the total $223 billion limited-service restaurant segment in the US. But fast-casual restaurants continue to outperform both quick-service and full-service establishments and post strong gains even while the rest of the industry is having a more difficult time. Looking forward, the trend is expected to continue. Whereas the compound annual growth rate for all limited-service restaurants is 4.5 % (2012 through 2017), fast-casual operators are expected to grow 10%, on average, over the same period. “Fast casual has become a $31-billion segment since Chipotle began reinventing fast food 20 years ago,” said Darren Tristano, executive vice president of Technomic. “Consumers today want quality offerings made quickly. Segments like burger, sandwich and Mexican have done a great job delivering on quality, fresh, gourmet, and made-on-demand offerings. There are still areas of growth in the fast-casual segment for operators to adopt these ingredients for success and become viable in the fast casual landscape.” Bakery cafés continued to lead all menu categories among the Top 150 fast-casual chains, with US system-wide sales of $6.1 billion, up more than 10% over 2011. The Mexican and sandwich categories were second and third largest, with US system-wide sales of $5.7 and $4.4 billion respectively. The categories that saw the fastest sales growth were sandwich (up 17%) and Asian/noodle (up 16%). The burger and sandwich clusters experienced the highest unit growth, growing outlets by 14% and 13%, respectively. Top players within fast-casual clusters include: bakery cafe led by Panera Bread with sales of $3.7 billion; Mexican led by Chipotle Mexican Grill with sales of $2.7 billion; chicken led by Zaxby’s with sales of $979 million; Asian/Noodle led by Panda Express with sales of $1.8 billion; better burger led by Five Guys Burgers and Fries with sales of $1.1 billion; sandwich led by Jimmy John’s Gourmet Sandwich Shop with sales of $1.3 billion; pizza led by Donatos Pizza with estimated sales of $157 million.

Industry news:

Boris Johnson unveils plan for restaurant cooking oil: London mayor Boris Johnson has unveiled a plan to turn cooking oil used by London restaurants and foodservice businesses into fuel for the city’s buses. He wants to create processing plants to convert an estimated 44 million litres of cooking oil into biodiesel. Johnson said: “There is huge potential to unlock the value in used cooking oil from London’s bustling food industry and turn it to our economic advantage. By capturing it right here in London and turning it into biodiesel we could provide 20% of the fuel needed to power London’s entire bus fleet while saving thousands of tones of CO2 and creating hundred of new jobs.”

NPD Group – lunch spend is starting to recover: Research from The NPD Group show an increase in British lunch traffic for the year ending March 2013 with the quick service restaurant (QSR) segment showing a 1.2% rise in visits. The bounce back for pubs has been slower although a recovery is underway. Guy Fielding, director of business development for The NPD Group, said: “Breakfast was a strong theme in 2012 and we saw breakfast and mid-morning snacks taking a bite from lunchtime spend and creating a ‘mid-day dip’. So a clear casualty during the recession, so far as the British foodservice industry is concerned, was the lunchtime occasion. We are now watching lunch closely as we expect this to be the next ‘day part’ to start to recover from the recessionary slump. Lunch does provide a useful clue to how consumers feel about the economy and their willingness to spend. Lunch is typically the first eating-out-of-home occasion to be ‘sacrificed’ to in-home/lunchbox eating. When money is tight, consumers will understandably make their own lunch. But when they feel they have a little more cash, they start buying again.”

Company news:

St Austell reports 17% sales spike last week: St Austell, the Cornish operator of 25 managed pubs and 143 tenanted sites, has reported a near 17% like-for-like sales spike last week as warm weather boosted pub visits and drew holiday crowds. Wet sales climbed 18.2% year-on-year, with accommodation up 24% and food sales rising 12% over the previous year. Marketing director Jeremy Mitchell told Propel: “We’ve been waiting a few years for weather like this – and long may the sun continue to shine. The sales boost has brought us back in line with last year’s results – we had an extended cold spell at the start of this year and there were two Bank Holidays in June last year.” He reported that accommodation bookings had continued a trend away from lengthy advanced bookings. “It’s all last minute bookings,” he said. St Austell is currently sponsoring Somerset County Cricket through its Tribute brand, which is working well. “Our primary growth in the on-trade is in and around Somerset and Gloucestershire.” Meanwhile, St Austell’s premium lager brand Korev has produced good sales within Mitchells & Butlers Brown bar and brasserie brand – and is now being trialed within the Premium Country Dining Group estate. Mitchell reported the company’s tenanted pubs had a “really tough start to the year” but are ‘doing well at the moment’.

Private investment fund buys two Punch pubs for £3.5m: A private investment fund has bought the freeholds of two Punch Taverns pubs in London for £3.5m. The two properties are The White Bear and The Smithfield Tavern, both in Clerkenwell, EC1, near London’s famous Smithfield meat market. “A tied freehold pub may not be at the top of every buyer’s wishlist but these transactions show that the demand is there if you have an expert on hand who understands how to administer the tie,” said AG&G’s James Grimes, who represented the buyers. “In today’s climate, the first consideration is not necessarily what yield the arrangement is going to provide but how large the property is and the price per square foot. We are finding that investors are more concerned with a property’s long-term investment potential than shorter-term gains – which is another reason why it pays to have specialist advice if you are planning to dip a toe in the water.”

Luminar to invest £4.5m this year: Nightclub company Luminar has reported it will invest £4.5m in the estate this year. The company is on site in Lincoln and Preston and will re-open its Bristol venue in the first week of September after refurbishment. Luminar will also invest in both its Cambridge sites in August and September. Luminar has seen a return of over 50% on the £4m it has invested within the estate so far. Finance director Russell Margerrison told Propel that results at its first two Jongleurs comedy clubs – located within sites in Cardiff and Nottingham – were “encouraging”. The company is now actively looking at expand the concept to three or four other sites. “Both units are trading profitability. There are plans for a roll-out although not to all 50 of our sites,” he said. “It is operated as much more of a joint venture (with Momo Leisure) than under the old Luminar.” The company bought the lease on Casino in Guildford last year and Margerrison said Luminar would look at tactical opportunities but its priority is investing in the existing estate. Asked about regulatory costs pressures, he said: “Aside from Kingston (where Luminar has fought to overturn a licence revocation on Oceana), it’s just a cost of doing business – for a well-funded and well-run operation it’s not a significant cost.” Margerrison said the company is not seeing a significant amount of investment from major competitors with the investment landscape very localised. Current trading is subdued because of the warm weather. “Sunny weather is not nightclub weather but July and August are traditionally lower volume months. We made a strong start to the year in March so these things tend to even out over time.” Luminar’s Facebook fans have doubled in number in the past year to more than 500,000 and Twitter followers have trebled in number.

Blue Bee Brewery to re-open Punch pub after £250,000 co-investment: Sheffield-based Blue Bee Brewery is to re-open the city’s Closed Shop pub on 25 July after a co-investment of £250,000. The Closed shop stock a range of craft beers and real ciders and will also serve four real ales from Blue Bee Brewery, which will rotate depending on customer demand. Andy Stephens, co-founder of Blue Bee and operator of a second city pub, The Rutland Arms, said: “The pub looks fantastic and I can’t believe the transformation. It has been updated and given a fresher appearance, but it has retained the traditional look and welcoming feel of a local, community pub.”

Nando’s secures Taunton site: Nando’s has acquired a site in Taunton, Somerset. Work will begin in October and is expected to be completed by February next year. Nando’s have signed a 20-year lease to occupy the right hand unit next to clothes store Fat Face, on North Street. A spokesman for Nando’s said: “The North Street site is a great location and will offer shoppers, locals and visitors to the area a fantastic experience.”

Level One operators – ‘we want to create the next Luminar’: Owners of Level One nightclub, which is opening a second site in Burnley on 25 July, have set their sights on becoming the next Luminar. Leon Kelly and business partner Alison Frost already operate a Level One in Accrington. Kelly said: “This will be a sister club. We want to create the new Luminar. We’ll hopefully open a third club in Preston within the next 12 months, and we want to have five Level Ones open, running and functioning within five years.”

Indian restaurant brand to convert nightclub for second site: The owners of the Shimlah Palace Indian Restaurant, Cowdenbeath are to convert the Follis nightclub in Glenrothes town centre for their second site. Barry McNeil, of Christie + Co in Edinburgh, handled the sale of the sub-lease, on behalf of the head tenant, Fraser Capital Management. He said: “The deal was facilitated by the Planning Department of Fife Council who made an approach to me during the marketing process to indicate that they would look sympathetically at a change of use from nightclub to restaurant.”

Nando’s, PizzaExpress and Starbucks set for Tamworth Retail Park: Nando’s, PizzaExpress and Starbucks will open on Tamworth’s Ventura Park retail centre. Councillor Jeremy Oates said: “I think we have got to be realistic, Ventura Park has a regional offer while the town centre has a local offer and people will travel to a PizzaExpress or Nando’s wherever it is. It’s now a case of attracting that strand of people into the town centre. It is unfortunate that they are not in the town centre but the role of Tamworth town centre is very different to the role of Ventura Park. We have tried to protect our heritage in the town centre and it is changing, we are investing in a cultural quarter and various events making it more of a leisure centre.”

Costa opens in former pub in Porthmadog – and has water supply turned off because of previous debts: Costa Coffee has opened at a former pub, The Ship and Castle, in Porthmadog in Wales – and found its water supply turned off because of previous debts that had been accrued. At 9.30am on the morning of opening two water company officials entered to turn off the water. A Dwr Cymru Welsh Water spokeswoman said: “We have been pursuing an outstanding debt at the property in accordance with industry approved procedures. This has included sending notices advising of the planned disconnection. We had not been made aware that new occupiers were now responsible for the property. We have however now been provided with these details and the supply has been restored.”

Hawksmoor duo to open new restaurant: The founders of Hawksmoor – Will Beckett and Huw Gott – are to open a new restaurant, Foxlow, on St John Street, in November. A departure from the Hawksmoor steakhouses, the plan is for Foxlow to be an intimate neighbourhood bar and restaurant. Following on from Hawksmoor, the meat at the restaurant will be ethically sourced, and expect cocktails to be a major feature at the new site.

Yotel to open in Singapore: Yotel, the hotel concept set up by YO! Sushi founder Simon Woodroffe, is to open in Singapore with a 600 cabin property due to open in 2018. It will act as a springboard into Asia for Yotel, following the opening of its 669 cabin hotel in Times Square, New York. The Singapore hotel will have Yotel’s signature elements of its flagship ‘city’ properties and will include a Club Lounge space with ‘Club cabins’ that double up as meeting/work spaces during the day, transforming to a restaurant/bar space in the evenings and weekends, and large outdoor terrace space, with a pool and a gym. 

JD Wetherspoon to start work on Pwllheli pub – without bedrooms: JD Wetherspoon will start work on building a pub in Pwllheli on the Lyn Peninsula, Wale (population: 3,861) in mid-October. The company was given the green light last year to transform the Bon Marche building on Station Square, into a pub and restaurant. Gwynedd Council’s planning committee voted in favour of plans to change the use of the entire ground floor and basement of the former shop into a pub and restaurant. Last year, the company lodged an application in November to also include a 14 bedroom hotel in the plans. However, earlier this year they withdrew their proposals for the hotel because they were unable to “justify the investment in the town”.

Former Gordon Ramsay head chef behind stoves at Shepherd Neame pub: Andrei Lesment, who was previously head chef at Gordon Ramsay’s Pied a Tere and Maze restaurants, is behind the stoves at the refurbished Cardinal Wolsey in Hampton Court Road, London, a Shepherd Neame tenanted pub being run by new licensee Ross Notarki. He will oversee the pub’s new restaurant, The All Seasons Grill. Manager Gareth Hawkins, who will manage the new venture front-of-house, said: “We’re using Andrei’s experience and expertise to offer a high-end dining experience in a sophisticated, smart yet casual pub setting.” Shepherd Neame property and tenanted trade director George Barnes said: “The Cardinal Wolsey enjoys an enviable location on the doorstep of one of only two surviving palaces owned by King Henry VIII. Its vibrant new food offer delivered by a top chef will give it the edge in attracting visitors to the area.”

Milkshake brand lines up three new openings: Milkshake brand ShakeAway is lining up three new openings – in Hosham, Leicester and Watford. ShakeAway, which offers 180 flavours of milkshake, opened in Bournemouth 14 years ago, and it now boasts more than 30 locations in the UK.

Pret A Manger set to benefit from Jessops collapse in Peterborough: Pret A Manger looks set to benefit from the collapse of Jessops. The company has applied for planning permission to take over the former Jessops store and the frontage on Long Causeway in Peterborough. A report, prepared by estate agents Savills, said: “The unit is currently vacant. Permission is sought to allow for the unit to be occupied by Pret A Manger, enabling it to provide approximately 30 full-time equivalent employment opportunities.”

Punch makes finals of business enabler awards: Punch Taverns has been shortlisted for the Business Enabler of the Year Award at this year’s National Business Awards. Going up against nine businesses across different industries, the winner will be revealed at the National Business Awards gala dinner held on 12 November in London. Charles Ward, judge for the category, said: “The traditional pub trade is suffering from a similar malaise to high street retail. Failure rates are alarming so the Punch Franchise Tenancy model is a true innovation in supporting pub entrepreneurs to buck the trend through up-skilling managers and encouraging differentiation.” Andy Slee, Punch external affairs director, said: “We are delighted to be shortlisted for this year’s awards. This year, we have introduced a number of initiatives, such as the Punch Franchise Tenancy, to get our licensees off to the best start whilst continuing to support them throughout their journey with us. I want to thank our licensees and the Punch Taverns team for their hard work at getting us to this stage and I look forward to the finals in November.”

North Country Inns opens fifth site: North Country inns has opened its fifth site, The Queens Arms in Warwick-on-Eden is back in business following a £300,000 co-investment with Thwaites. The pub had been closed for two years, prompting a campaign by locals to get it re-opened. North Country Inns also operates The Brackenrigg Inn at Watermillock, Ullswater, The Bull Hotel in Sedbergh and The Marton Arms at Thornton-in-Lonsdale near Ingleton. Garry Smith, of North Country Inns, said: “We’ve developed what had sadly become a local eyesore into an outstanding inn the area can be proud of. Our food offering will be based around quality traditional dishes with a modern twist and perfectly complemented by cask-conditioned ales and a wide variety of wine and spirits.”

Propel Diary:

A little local difficulty for Tesco: Tesco’s acquisition of Giraffe for £48.6m clearly opens up a whole range of strategic options. But the deal also means a little estate trimming as Tesco culls a few weaker sites, creating a problem or two. Which sensible landlord that finds he or she has Tesco as a tenant is going to want to swap the supermarket’s covenant for something inferior. Diary hears of freeholds going to market at speed. Could it be that Tesco will have to agree to sub-let rather than assign to achieve landlord co-operation?

Tesco carve-up: And talking of Tesco’s worrying news arrives – Diary hears that Tesco is working on the launch of an in-store carvery concept as it expands its retail offer. One source chirrups, with a strong undertone of alarm sounding in his voice: “This is a real threat - Toby Carvery always has the highest Net Promoter Scores at Mitchells & Butlers. Carvery is a people pleaser.” 

Hurray, a drop of golden sun: There were dark stories doing the rounds just a few weeks ago about the possibility of a major operator, decent summer weather dependent, having to issue a profit warning amid a draconian lockdown on managers’ hours and general girding of the loins. In fact, about the only thing that could put the profit line back on track would be an unlikely, lengthy heatwave. And lo, it came to pass – the hottest, sustained weather since 2006 has ridden to the rescue to deliver a sharp upward sales bounce. 

Peachy non-leak: As it happened, Diary placed a call to sector sage Peter Martin on Wednesday morning at 9.30am to shoot the breeze. Martin seemed not completely his usual self, almost a little distracted. Diary hears that there was, in fact, some initial concern, triggered by Propel’s call, that news of the imminent purchase of Peach Factory by CGA Strategy had leaked out. Thankfully not, although, as usual, a shuffle of directors at Peach Factory, recorded at Companies House a few days earlier, did somewhat give the game away.

Windows crash plan: Hundreds of people signed a petition in Maldon to try to block a plan for JD Wetherspoon to convert the unused post office to a new site. As tends to happen with these things, it was to little avail with the plan passed back in February. But, as it turns out, there was something in the planning consent that has thwarted the scheme. The budget pub chain has scrapped its scheme after it learned Maldon District Council had stipulated in the original plans that two rear windows had to have opaque glass so neighbours could not be overlooked. “No doubt there will be some people that will be delighted with the decision, but there were a lot of people in favour of having a Wetherspoon there who will be disappointed,” says Diary chum and Wetherspoon spokesman Eddie Gershon.

Giggling Squid refuses to cave in: The opening of the latest Giggling Squid in Reigate this week, the sixth in the chain with national ambitions, was not without its dramas. The opening date was delayed by a chunky four weeks after the discovery of a 60 cubic metre cave under the restaurant. As workmen tried to lower the basement floor to create a kitchen, they hit open air and unearthed the chasm, which may not have seen the light of day in almost 100 years. “It may well have been a silver sand mine,” says Giggling Squid owner Andy Laurillard. “It was a bit of a shock; we knocked through the wall and underneath the foundations found this cave. It wasn’t on any map – it’s just been rediscovered. There are some dates on the wall and it seems the last time it was used was 1905.” Enterprisingly, Andy and his wife and business partner Pranee has turned the cave into a feature – the basement area of the new opening now features a cave viewing window.

There’s no doubting Thomas, Stevie: Veteran nightclub boss Stephen Thomas keeps adding useful sites to his No Saints Group nightclub business, with Wolverhampton Oceana the latest to join the fold. But he’s in danger of being eclipsed by son Stevie Thomas, who has clearly benefited from his old man’s hospitality genes. Young Stevie spends some of his time each week at his dad’s nightclub business where he is head of marketing and, according to his Linkedin profile, is helping his dad in ‘building back the Empire – one party at a time’. But he also has a sideline as managing partner of Icarus Leisure Notting Hill, running the odd bar or two in London. In fact, his Rum Kitchen venture, serving Caribbean-inspired food in a beach shack restaurant, has won a mighty four stars from Sunday Times beast AA Gill for its ‘atmosphere’ although the food scored a little lower.

Yesterday Breaking News catch-up:

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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