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Morning Briefing for pub, restaurant and food wervice operators

Mon 22nd Jul 2013 - Antic, M&B, Noble Inns and Spirit

Story of the day:

Spirit to evolve Chef & Brewer with premium offer: Spirit has told City analysts that it plans to evolve its 138-strong Chef & Brewer estate by creating a ‘collection of modern British country pubs with a more premium offer’. The next move within the estate follows a four-year period in which every Chef & Brewer has seen investment. Spirit reported average weekly takings within its managed division are now £17,000-a-week, up £1,900 since 2010. Ebitda per pub is now £187,000 per annum, up 35% since 2010. Meanwhile, leased pubs are producing average annual income of £98,000, up by 8% – the company is expecting flat like-for-like net income in the fourth quarter of its 2013 financial year. Spirit Pub Company’s first premium unbranded pub, The George in Haverstock Hill, which opened in April, has produced a 54% rise in turnover year-on-year after a total spend of £343,000. Chief executive Mike Tye has previously told Propel that will company will open two or three other sites to extend the trial. Duetsche Bank analyst Geof Collyer, who attended a Spirit tour of four of its pubs, said: “We think it is always a good sign when operating management is allowed to express itself without having to look over its shoulders at the chief executive and the finance director to make sure it is ‘on-message’. It highlights confidence in the overall performance. The progress within the leased estate seems to be faster than our prior expectations, which should help reduce the drag on group performance. We have raised our price target by 8% from 65p to 70p, still 5% below the share price. This is to reflect a bit of benefit from a stronger Q4 than previously expected, a bit for better margins from the ‘pub-in-a-box’ IT rollout programme and a little to reflect a better performance from the leased estate, where Spirit appears to be having more success than we had thought on upgrading the quality of its licensees.” Panmure Gordon analyst Simon French added: “The managed estate is now 86% invested, with average capital expenditure of circa £250,000 per site in 2010 falling dramatically over the last three years, with management suggesting an average capex spend per site of around £150,000. Furthermore, on a bull case scenario with the stock trading at a discount to the sector, we believe if the stock was to re-rate the sector average this would imply a share price of 138p (84% upside to the current share price).”

Industry news:

Independent coffee shops in growth: Insights firm Allegra Strategies has reported that the number of independent coffee shops grew by 8% to 5,633 in the three years to last December, compared with 5,225 branded outlets. The coffee shop sector as a whole grew by 7.5% last year to reach turnover of £5.8bn. Jeffrey Young, managing director of Allegra, predicted a new breed of artisan coffee shops would start to grow into small chains.

Tesco boss – food prices are going to soar: Tesco chief executive Philip Clarke has forecast that the era of cheap food is coming to an end because of rising global demand. He said: “There was a time when we could go to South Africa to buy fruit and be the only retailer there. Not any more.” Meanwhile, Professor Tim Benton has forecast that food prices could treble over the next 20 years as rises in the world population trigger a global fight for supplies, with everyday items like cocoa and meat becoming relative luxuries. Food inflation has been running at 4% in the UK this year.

Consumers over the worst: Deloitte’s Consumer Tracker has reported that consumer sentiment has turned a corner and consumers are less defensive about their spending habits. It found fewer shoppers are bargain hunting, trading down to cheaper items or buying on sale. The Tracker found a 7% rise in its ‘sentiment index’ which suggests that consumers feel more optimistic about their disposable income than at anytime since 2011.

Sunday Roast is UK’s favourite meal: A survey by Mars has found that the Sunday roast has displaced chicken tikka masala as the UK’s favourite meal. Curry is now third with spaghetti bolognese ahead of curry and sausage and mash in fourth place. Two-thirds of Britons regularly cook a roast on a Sunday, rising to 80% in the north east. The Mars ‘Feeding the Nation’ report adds that more than 50% of UK households find time to cook from scratch at least four times a week.

The Economist – the case for government activism on tenanted pubcos is weak: The influential Economist magazine has argued that the case for government activism on tenanted pub company regulation is ‘weak’. The magazine stated: “The pubcos are a tempting target for politicians and may deserve some of the scorn aimed at them. But the case for government activism looks weak. The closure rate for tied pubs is slightly lower than that for free houses (perhaps because free house are more likely to be in rural areas); 70% of licensees say they would sign up again with their current pubcos. Self-regulation has already been strengthened: under a new code of conduct, for example, companies must recommend that tenants take professional advice when negotiating rent reviews. The biggest threat to pub culture is not that pubs are tied to corporations but that punters are draining away.”

Cafe bars account for more than half of UK openings: Cafe bars accounted for 53% of the total on-trade openings in the UK last year, bringing the total up to 6,000 outlets, according to First Drinks third annual Market Report 2013. The format’s ability to offer a range of products, from coffee to cocktails, makes the format accessible to a wide range of consumers who are swapping late night visits for “low tempo” occasions. (See bottom of e-mail for other current trends identified by First Drinks)

Trading Standards – Indian restaurants are substituting lamb for cheaper meat: Undercover Trading Standards officers have found widespread substitution of lamb for cheaper meats by Indian restaurants. In some regions, officers found up to half of lamb dishes contained no lamb at all. In North Yorkshire, eight out of ten dishes tested were lamb mixed with cheaper meat. In Warwickshire, of the 19 lamb curries bought, 16 used beef or chicken – with four containing no lamb at all.

Company news:

Former Pitcher & Piano managers to open fourth site: Noble Inns, one of the rising stars of the London gastro-pub scene, is to open a fourth pub, The Smokehouse in Islington. Noble, run by former Pitcher & Piano managers Scott Hunter and Maria Larsen, already operates The Princess of Shoreditch, The Lady Ottoline near Chancery Lane, and The Pig and Butcher in Islington, formerly The Islington Tap. The new site will open next month offering around 20 different craft beers, hand-pulled local ales, and an exclusively European wine list from only small family vineyards. Fish and meat for certain recipes will be smoked in-house. The food will have a strong barbecue influence using a real wood and charcoal offset smoker, plus a bespoke robata grill. “The quality of the ingredients and traditional cooking styles will be the focus while the style will be defined and gutsy with lots of big flavours and wide-reaching influences,” said Neil Rankin, the former chef at John Salt who will take charge of the kitchen. Enterprise’s Islington Tap was transformed with a £250,000 investment. Takings increased five-fold since it re-opened and The Evening Standard described it as “serving food worth getting fat for”.

Lovely Pubs searching for next site after success of first opening in five years: Lovely Pubs, the Birmingham-based operator of gastro-pubs led by Paul Salisbury and Paul Hales, is searching for its next pub, its eighth, after the success of its first opening in five years. The company re-opened the former Enterprise Inns pub, The Queen’s Head in Stokes Pound Bromsgrove after a £800,000 refurbishment. Salisbury said: “We’re now looking at one or two other sites. The Queen’s Head has been phenomenal. The pub should take £70,000 this week. We’ve been full at lunch and diner since we opened – and 1,200 people came to our opening night. We have a big tepee outside, where there’s live music every other night – and it really anchors the beer garden.” The sales split at the new opening is 60/40 dry/wet so far. The Queen’s Head is an evolution of the company’s Farm pub, described a ‘posh Harvester’. Salisbury said The Farm is also averaging £70,000-a-week in takings at the moment.

Innventure reports 8% like-for-like growth in most recent year: Innventure, the six-strong gastro-pub operator led by former Mitchells & Butlers executive Chris Gerard, has reported like-for-like sales growth of 8% in the year to the start of July 2013. The company added The Cross Keys in Saffron Walden, a Charles Wells pubs, in the year so sales rose overall by 29% to £7,982,995 gross. Star performer was The Rusty Gun in St Ippolyts, Hertfordshire, which posted a 19% sales increase. Gerard said: “I am completely convinced that our growth recipe is a simple one – food quality, food quality and, more food quality, with added warmth and interested hospitality.” 

Antic – ‘we were gazumped on Walthalmstow pub’: London pub operator Antic has lost control of The Chequers in Walthamstow to the operator of Camden Lock. The Chequers in High Street, Walthamstow, shut its doors a week last Friday, only to reopen on Wednesday afternoon under new ownership. Max Alderman, Antic operations director, said: “It’s a great shame for us and annoying to say the least but when you’re gazumped there’s not much one can do about it. Sadly the pub’s no longer ours but we are doing everything we can legally to get it back.” He said he wanted to make it clear Antic had no issue with the new owners as they had acquired the property lawfully. The new owners also run The Shacklewell Arms in Dalston, The Three Crowns in Stoke Newington, Pub on the Park in London Fields and The Lock Tavern in Camden. The change of ownership came as a surprise to many as Antic had invested a substantial amount of money in a complete refurbishment.

Sarumdale administrator – we continue to progress interest rate swap mis-selling claim against Barclays: Administrator Begbies Traynor has reported that it continues to progress a claim against Barclays in relation to Sarumdale, the operator of 12 freeholds pubs and one leasehold that collapsed last year amid allegations over mis-sold interest rate swaps. The administrator has so far paid law firm Reynolds Porter Chamberlain £42,605 in relation to reviewing and actioning a claim against the bank. Begbies Traynor added: “Given the commercial sensitivity of releasing information into the public domain prior to a potential legal process, the administrators are unable to provide any further information in this regard at this time.” Barclays is owed £6.9m by the company and has so far received £2,917,577 from Sarumdale property sales. Three pubs have been sold for £1,650,000 in the most recent period. One leasehold and four freehold pubs remain to be sold. Unsecured creditors are owed £1.2m with no dividend likely. Between 13 June last year and 31 May this year, the Sarumdale estate turned over £2,710,264 and made a net profit of £233,687, subject to management company Convivial’s fees of £188,173. 

Pret lines up Newbury opening: Pret A Manger is lining up an opening in Newbury, Berkshire. Pret A Manger is seeking planning permission to convert a site in Newbury’s Northbrook Street, a Grade II-listed building currently occupied by the YMCA charity shop, to a new opening.

Simon French – we’d be selling Mitchells & Butlers shares: Panmure Gordon analyst Simon French has issued a 'Sell' note on Mitchells & Butlers shares, with a Target Price of 310p, ahead of its third quarter sales update this Thursday (25 July). He said: “We anticipate a strong trading update and forecast like-for-like sales growth of circa 4% for the nine weeks to 20 July. We therefore expect management to reiterate its confidence in meeting consensus expectations of £180.2m profit before tax (33.6p EPS). The stock trades on an unwarranted premium to Spirit Pub Company and JD Wetherspoon given the weaker earnings growth, significant pension deficit and consequent lack of dividend.”

Everards hires CBRE to advise on brewery sale: Leicestershire brewer and retailer has hired CBRE to advise on options for a sale of its existing Castle Acres brewery site after Blaby District Council gave outline planning consent for a new £25m craft brewery, offices, pub, visitors centre, and a the development of a cluster of “progressive food and drink manufacturers and retailers” on lands Everards owns between Castle Acres and Leicestershire police headquarters. Chief executive Stephen Gould said: “Our application was an outline of our plans – but with a resolution to grant consent in place we can now commit time and money to fully detail our plans. Once done – which I expect will take the remainder of this year – we will share our detailed plans with Blaby District Council. We have to sell our current site, at the right price, to facilitate our relocation. We have appointed CBRE, property agents in London to advise us on our options regarding our existing site. CBRE will be presenting those options to the company towards the end of the summer. So lots to do but real progress. However, an actual relocation is not going to happen anytime soon.” The actual outline planning consent will not be issued until a number of legal agreements and compliance matters are put in place, which include a referral to the Secretary of State.

Award-winning Darren Lingley to re-invest in Five Bells: Darren Lingley, who was named the UK’s best publican in 2011, winning BII Licensee of the Year, is to re-invest in his award-winning Five Bells in Colne Engaine, Essex. He said: “The Five Bells will be closed from the 5-21 August inclusive but will be open in plenty of time for the Bank Holiday. The Bells has been running for the last 11 years under this team as one of the social centres of this village, giving great service with no major closures in that time. It is time for a major revamp to ensure that we can keep the quality high for the next 11 years and beyond.” Lingley has set up the Saint Arnold Group to allow for expansion. Last July, he acquired the freehold of The Lion in Earls Colne, a pub previously owned by Punch Taverns for around £390,000. The second pub is three-quarters of a mile from his first site and Lingley has travelled to Italy to acquire the right wood-fired oven for the pub. He has taken on a third pub – The Griffin in Parsonage Street, Halstead, which is being run as a local’s pub. Lingley told Propel last year: “We’d like to be running ten sites within five years.”

Swire Hotels reports 28% saving on food purchasing after calling in procurement experts: Swire Hotels has reported a 28% saving on food-related purchases and 17% on non-food items after calling in procurement experts from Pelican, which also works with Beds and Bars, TLC Inns, Innventure and Oak Taverns. Swire Hotels is known for its luxury accommodation in the Far East, in addition to four prestigious hotels in the UK. Two operate under the Chapter Hotels brand, which includes The Magdalen Chapter in Exeter and The Montpellier Chapter in Cheltenham. The remaining hotels operate independently alongside Chapter, and are The Avon Gorge Hotel in Bristol and The Hotel Seattle in Brighton Marina. Swire Hotel UK’s operations director Jonathan Dawson said: “From a management perspective it was clear that by working smarter we would be able to make both cost and efficiency savings and so I started to look into our options. There are a number of advantages of working with Pelican. For me, it’s the knowledge that we are getting the best price we possibly can, with high levels of account management support, backed-up by the centralised reporting.”

Two Torquay hotels set for auction: Two hotel sites in Torquay once owned by Mark Jenkins, who appeared in Channel Four’s The Hotel, are to go under the hammer. The Kister and Inglewood Hotels are part of the Riviera Hotels portfolio currently in administration, a company owned by Jenkins. The hotelier also owned The Grosvenor Hotel, which featured in The Hotel but was not part of Riviera Hotels. The Grosvenor was bought last year by Richardson Hotels owner Keith Richardson. The Kistor has an auction guide price of £600,000 with The Inglewood priced at £450,000. Nigel Morrison and Alistair Wardell of Grant Thornton were appointed joint administrators of Riviera Hotels Torquay LLP in September 2012. Savills has been appointed to sell the properties. They had previously been on the market for a combined asking price of £1.7m at the request of Jenkins but a combined asking price of £1.25m was later adopted. The auction is to take place on 31 July 2013.

James Martin to open Manchester restaurant in September: Chef James Martin will be taking over Manchester235’s Linen restaurant from September. The restaurant will be called James Martin Manchester, offering classic British cuisine. Martin said: “I’ve always been keen to have a restaurant presence in the city. I’m currently working on the menus, with our main focus on modern British cuisine - I’m looking forward to unveiling some of our key dishes very soon.”

Sugar Hut owner leaves flagship Leigh project on hold: Mick Norcross, who bought the freehold of his Sugar Hut venue in Brentwood from Enterprise Inns last year, has caused frustration in Leigh, Essex after failing to make a start on a flagship multi-million pound boutique hotel scheme. Norcross, who has appeared in The Only Way is Essex, was first granted planning permission in 2010 to redevelop The Grand Hotel, on The Broadway. It was hoped the 20-bedroom boutique hotel, complete with spa, piano lounge bar, restaurant and bridal suite, would open in April next year, after a lengthy battle to secure a late licence – but work is yet to start. Local media reports that despite numerous attempts by Leigh Town Council since May to contact Norcross for an update on the situation, he has not been in touch.

Fleurets completes sale of Pumpster estate: Fleurets, acting in conjunction with DTZ and acting on behalf of the administrator, has now completed the sale process for the final properties from the Pumpster property portfolio. The portfolio was originally part of the Propco restructuring of Laurel Pub Company. The sales included 11 properties let to JD Wetherspoon, 13 Slug & Lettuce businesses, 35 Yates’s and 47 traditional unbranded public houses, mostly let to subsidiary companies of Stonegate Pub Company. The portfolio sold to a mixture of corporate and private investors. Sales included several group transactions. Martin Willis, of Fleurets, who handled the instructions, said: “We are pleased to have sold the last few properties, but now have a considerable number of investors looking to acquire leisure investments, but with limited stock available. The recent press comments that leisure assets are becoming more attractive due to the way rents are assessed, is definitely supported by our growing involvement in the investment market.”

First Drinks – customers have changed values because of austerity: The First Drinks third annual market report has identified a number of key trends in the on-trade. They are: Changed values and perceptions as a result of austerity: A prolonged recession has forced a change in spending habits. People are placing more importance on experiences rather than possessions and premium brands are well placed to deliver the kind of high quality experiences people are looking for; Greater desire and search for quality brands – Consumers have become hugely skilled at hunting out quality brands and experiences at affordable prices. This has been helped by discount voucher websites with an estimated two thirds of people using them in the last 12 months when eating out; The spirit for nostalgia – In times of recession, people tend to look back with a sense of nostalgia. The trend for rediscovering old skills and craftsmanship continues to grow with particular emphasis on recreating drinks from the early 1900s and Prohibition Era. Speakeasy style dive bars serving classic cocktails that have stood the test of time are also becoming popular across the country; Impact of e-commerce and social media – Mobile technology has opened up new opportunities for brands to engage with their consumers. 78% now share their experiences via social media so brands need to understand how this disrupts the traditional path to recommendation and harness the power of word-of-mouth. Similarly, brands need to embrace online shopping as the category significantly lags behind other sectors of e-commerce; a changed on-trade changing retail environment – Going out is one of the biggest cut back areas. However, when people do go out they want a quality experience with 51% looking for new products and services. 47% also look for novelty and fun with many bars now appreciating the need to be innovative with their serves and menus.

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