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Morning Briefing for pub, restaurant and food wervice operators

Tue 23rd Jul 2013 - Amber Taverns, Fuller’s, Hawksmoor and Wagamama

Story of the day:

Amber Taverns in negotiations on seven more sites – set to hit 100 pubs next year: Amber Taverns, the wet-led operator led by James Baer and Bryan Wardman, is in negotiations to buy seven more pubs in the north east and north west, with two more sites due open in the coming month. The company, which reported site Ebitda of £109,000 per pub last month, re-opened the old Varsity in the centre of Walsall last Thursday after a £400,000 refit under the name the Tap and Tanner. Chairman Clive Preston told Propel: “As this unit was land-locked with no external drinking or smoking area, our operations director Gary Roberts came up with the idea to remove a large existing glazed roof covering 25% of the unit’s floor space and create an open air courtyard within the four walls of the building. This is separated from the rest of the pub with floor to ceiling panoramic glass screens so it’s in full view of everyone on the premises. Innex Design have excelled themselves and have created one of the most stylish pubs in our estate with a real wow factor. We are up against stiff competition in Walsall with two Wetherspoons and a Yates’s all within 100 metres of the Tap and Tanner so we have got to be good. But we have made a great start with sales way ahead of expectations.” Amber Taverns, which is backed by LGV Capital, is currently working on two new units. It has bought the Ashley pub in the centre of Blackheath, Rowley Regis from Marston’s and is converting a five-room warren into a single room operation for a planned September opening. Preston said: “It’s got a great beer garden at the rear and we are also adding one at the front.” Amber has also acquired The Carvery Tavern in the centre of St Helens from Star Pubs & Bars, where a £370,000 refit is under way with a view to an opening in four weeks’ time. Preston added: “These seven sites all look very positive and we aim to purchase them and get them open this year which will take us up to 92 units - I can see us achieving the century next year.”

Industry news:

Luke Johnson – Grand Union deal is my career coming full circle: Sector investor Luke Johnson has described his recent deal to buy 50% of Grand Union – a deal that followed the Propel Multi Club Conference in March - as his career coming full circle. In his Management Today column, he wrote: “I recently bought a half share in a London late-night bar business called Grand Union. This investment is a case of my career turning full circle. I started out in business in roughly this sector in 1980, aged 18, promoting parties in a nightclub in Oxford while I was a student. The industry has certainly got a lot tougher since my first involvement over 30 years ago. Then there were relatively few late licensed premises, and anywhere decent could charge guests on the door - especially at weekends. In the summer of 1983 I ran a quasi-legitimate weekly club in Fulham Wharf where entry was £5 a head. These days many venues charge approximately the same amount – a collapse of revenue in real terms. Increased competition is the biggest factor: now many pubs can open until 2am or later. In truth, Grand Union runs bars, not what were once called discotheques. The smoking ban has also hit the industry hard, as have rising costs for everything from doormen to music performance fees. But well-managed operations can still do well, because twenty and thirtysomethings still like to go out and drink and dance - and meet members of the opposite sex. Luckily, my new partner, Adam Marshall, is much younger than I am and is therefore much better qualified to run the business. He understands the market of today and knows how to control what can be a challenging business. Many rivals are not so well run and this provides the opportunity.”

Police move to stop pubs using glass in Plymouth: Police in Plymouth want to ban glass in pubs where it has been used as a weapon to injure people. The force has started legal proceedings against one city venue to get them to stop using bottles following concerns about violent incidents. Chief inspector Ian Drummond-Smith said pubs would be asked to stop using glass and legal action under the Licensing Act could follow if they refused. Police will be warning any bars with more than one incident a year. Drummond-Smith said that the policy started in Newquay in Cornwall last year had led to an 80% drop in serious violence. He said that there had been 29 glassing attacks Plymouth in the last year.

Adam Hyman pays tribute to David Collins legacy: Restaurant consultant Adam Hyman has paid tribute to the legacy of the UK’s best-known restaurant designer, David Collins, who died last week. He said: “David Collins’s sudden death shocked the restaurant world last week. His work proves the maxim that restaurants are about more than food. The light, the position of tables, the colours and textures collectively build an atmosphere that Collins masterfully harnessed in his designs.” Marcus Wareing summed it up: “More and more I don’t think going to restaurants is about the chef. It’s about the atmosphere and the space you’re in. David’s designs were joyous and theatrical: they made going to restaurants fun.” Fay Maschler said: “Better than the rest, he understood the ergonomics of restaurants, how the traffic flows. And he knew what customers wanted: glamour but also cosseting. Collins designed some of London’s greatest restaurants and bars, from The Wolseley to the bar at Claridge’s. Like any artist, his work will be enjoyed and admired for many years to come.”

Pete Brown – Fuller’s pub in Kings Cross gives hope for the future of pubs: Award-winning beer writer Pete Brown has praised Fuller’s Parcel Yard pub in Kings Cross which opened in March last year. He said: “It’s a marvel – a pub that gives you hope for the future of pubs. Station pubs are normally dingy, depressing affairs – the pubs that preceded the Parcel Yard in the old version of King’s Cross station certainly were. With a high volume, transient customer base and few locals, they have guaranteed footfall without having to make an effort over troublesome things such as clean toilets, decent beer or pleasant service. By contrast, the Parcel Yard has one of the best ranges of beer I’ve seen in a mainstream pub, stunning architecture, better food than many nearby restaurants, and a light, friendly atmosphere.”

Company news:

Wagamama new chief executive is named: David Campbell, who until recently led Formula One’s marketing and hospitality, is to be named as the new chief executive of Wagamama – he will start the job in September. His appointment comes in the wake of the departure of Steve Easterbrook who left abruptly in April, after less than a year in the position to rejoin McDonald’s, where he worked previously. Wagamama, which is owned by Duke Street Capital, operates 94 sites across the UK and has 39 mainly franchised sites overseas. Campbell joined F1 two years ago as managing director of its Allsport unit, which oversees all advertising, sponsorship and hospitality. He has also served as chief executive of live entertainment company AEG Europe, worked for Richard Branson’s Virgin Group and set up Ginger Media Group with Chris Evans.

Travelodge chief executive to step down after a decade: Travelodge chief executive Grant Hearn is to step down after a decade in charge. Hearn told The Times: “It’s the right time for me and for the business. Ten years is a long time. The next phase of development needs four more years and the question I had to ask myself was could I see myself doing 14 years.” He will stay on until a successor is found – chairman Brain Wallace will begin a search to replace him. Hearn’s career has included time spent with Hilton, Whitbread and Forte.

Vianet restates objections to pubco regulation plans: Vianet has restated its opposition to the consultation on statutory regulation of tenanted pubcos, which includes a proposed effective ban on the use of flow monitoring equipment by pub companies with more than 500 pubs. Executive chairman James Dickson said: “The outcome, as proposed in the consultation, removes the only real source of transparency between the tenant and pub company and is a huge backward step. If the original consultation paper forms the basis for any legislation there will be unintended consequences which will damage the beer drinker’s experience, undermine investment in the pub trade, diminish HMRC revenues, and threaten jobs in the sector. Most concerning to us is the complete lack of evidence upon which the initial recommendations on flow monitoring equipment are based, as well as the deeply-flawed assertions within the original consultation paper.”

McDonald’s UK reports 29th quarter of sales growth: McDonald’s UK has reported its 29th consecutive quarter of growth. The UK result was a bright spot in European terms where sales fell 0.1%. No precise figures are given for UK performance but chief executive Jill McDonald said sales and visits grew “all around the UK”. The company has opened 14 new restaurants in Britain since the start of the year and is extending the opening hours at others. Meanwhile, the company reported disappointing results in Germany, Japan, France, China and Australia. McDonald’s reported a 4% increase in second quarter profits to £911m but fell short of analysts forecasts with the outcome a dramatic slowdown in growth.

Krispy Kreme, Orchid and Spirit run offers through FastConnect: Krispy Kreme, Orchid Pub Group and Spirit Pub Group are the first companies to run offers through The Cloud’s Wi-Fi app, FastConnect. The Cloud, Britain’s largest high street Wi-Fi provider and part of BSkyB, has added location-based voucher offers from its venue partners to its Wi-Fi app, letting users see promotions near them when they are out and about. The offers are available to The Cloud’s eight million registered users via its free FastConnect app. The app, which launched in April 2010, auto-connects users to The Cloud hotspots after one-time registration. The offers will be available as a trial, initially from outlets such as Krispy Kreme and select Spirit Pub Group and the Orchid Pub Group venues – together the participating companies have over 680 venues on The Cloud’s nationwide network. Other venue offers will be added over time. The offers can be uploaded and changed by the venue owners themselves in real-time through an online portal. This will allow venues to potentially attract more customers at quieter times and react to factors such as footfall and stock availability.

Douglas Jack – we’d recommend adding Domino’s shares: Numis Securities analyst Douglas Jack has issue an ‘Add’ note on Domino’s shares, with a 700p Target Price, ahead of its first half results, due on 30 July. He said: “We forecast first half profit before tax to be flat at £22.1m, mostly held back by higher German losses (where) losses should peak this year, such that it becomes a tailwind rather than a headwind to group growth next year. There is a risk of lower 2014 earnings guidance for Germany (currently a £2.5m loss) but we would use any weakness to buy into longer term growth.”

Geof Collyer – Spirit £150m spend on development capex should have generated more sales growth: Deutsche Bank leisure analyst Geof Collyer has argued that Spirit Pub Company’s captial spend should have delivered more sales growth. He said: “One would have expected that £150m of development capex would have generated significantly more top line growth than that achieved. Spirit has claimed that its capex generates a 25% EBITDA ROI. Using the 2009 EBITDA margin, pre-provision credits, of 13.3%, this development spend should have generated around £35-40m of incremental EBITDA and about £280m of incremental revenue per annum by 2013/14. We accept that the loss making reversionary leases are a problem, and will be eating into the profit delivery, but the sales performance or rather lack of it confirms to us that much of the development capex is actually still catch-up maintenance capex. Even if the investment was at an EBITDA margin of 25%, the incremental sales delivery should have been around £140m. This is way above the actual sales growth of £88m 2014 earnings over 2010. We haven’t used 2009 as a base as this would only show £45m of incremental sales. One could reach a number of conclusions: (i) the underlying business is still going backwards; (ii) the loss-making reversionary leases are eating up a lot of the progress - quite possible; (iii) investment isn’t delivering on the top line – yet like-for-likes have been +11.9% since 2010; (iv) the sales delivery gap can be accounted for by loss of sales from the net 44 pub reduction in the retail estate since end 2009. For us, the three problems with Spirit are (i) this non-delivery of sales from the investment programme; (ii) the very low fixed charge cover relative to the peer group; and (iii) a dividend uncovered by operating free cash flow after funding all spend on the existing estate and paying the securitisation amortisation. Now that Spirit is coming to the end of the catch-up investment programme, incremental profit delivery from here needs to come from an improved operational performance.” 

HSBC supports Cheshire Pubs and Bars ‘complex’ fifth acquisition: North west-based Cheshire Cat Pubs and Bars Ltd. has opened its latest venture, the Church Inn in Mobberley, after acquiring the premises with the support of HSBC’s Manchester Commercial Centre. The company opened the Grade II Listed pub’s doors following an eight week restoration project. The Church Inn has a ‘country tavern’ feel with intimate dining rooms, wonderful outside space as well as private dining rooms on the first floor. The acquisition brings the number of pubs in the company’s portfolio to five, with other pubs including The Red Lion in Weymouth, The Bulls Head in Mobberley, The Cholmondeley Arms near Malpas and The Three Greyhounds Inn in Allostock. Funding for the deal was arranged via HSBC Senior Commercial Manager David Woodward. The innovative deal involved dividing ownership of the property between the limited company business and the two directors’ Self Invested Personal Pensions, reflecting HSBC’s ability to cater for complex financial arrangements. Jason Trigg, HSBC Manchester Area commercial Director, added: “This was a complex deal but we worked with our customers and local professionals to structure an arrangement that was suitable for all.”

Two more Hungry Horse sites unveiled: Two more Hungry Horse new openings have been revealed. Greene King has unveiled the opening of a Hungry Horse pub at St. Modwen’s new multi-million pound urban community on the A426 Leicester Road in Rugby. The pub is part of the second phase of the 70-acre Leicester Road scheme which St. Modwen is developing on the former Alstom industrial complex. The Leicester Road scheme is located within two miles of the M6 motorway and is close to existing shops, services and Rugby train station. Meanwhile, Capital and Regional revealed it has a Hungry Horse site lined up to move in to its renovated Hemel Hempstead LeisureWorld development.

SA Brain opens latest Coffee#1 site: Cardiff-based brewer and retailer SA Brain has opened its latest Coffee#1 site in Weymouth. The brand has opened at the Albion House Hotel, which has more recently been trading as Bargain Booktime shop on Mary Street. The opening brings estate numbers to 32 – the brand had 15 sites when it was acquired in October 2011. Brains chief executive Scott Waddington said last year: “The research suggests that the coffee market is going to continue to grow at 5, 6, 7% for the next five years, which is pretty much what it’s been doing for the last five years. Coffee in the UK, despite more and more places opening, still has a long way to go to catch up with more developed markets, like the US.”

Independent – Graphite in exclusive talks with Hawksmoor: The owners of Hawksmoor, the four-strong London steakhouse chain, are in exclusive talks about selling a minority stake to Graphite Capital, the former owner of the Wagamama noodle chain, according to The Independent. The food entrepreneurs Will Beckett and Huw Gott opened the first restaurant in 2010 nearly tripled pre-tax profits to £1.2m over the year to December 2011, according to its latest accounts. The restaurant’s turnover rocketed from £3.7m to £10.6m over the period.

Euro Car Parts entrepreneur plans Manchester hotel: A company backed by Sukhpal Singh Ahluwalia, the entrepreneur who sold Euro Car Parts for £225m two years ago, is planning a 340-bed four star hotel at the derelict Employment Exchange in Manchester. His company Dominvs has bought the Employment Exchange on Aytoun Street which has been on the market since 2010 following the collapse of Liverpool-based Albany Estates. It wanted to build a 44-storey tower with a mix of apartments and hotel rooms. The company moved into hospitality in April with the acquisition of the Hotelier Group which operates hotels in Sheffield, Darlington and Dumfries under the Aston brand.

Shopping centre owner hopes major foodservice brands will provide a boost: Costa Coffee, Greggs, and Subway could all be opening new shops at Gallagher Retail Park in Cheltenham. Owners of the out-of-town centre say the recession has hit shops hard and they are hoping to get the gambling and food outlets to move in. The Gibraltar Limited Partnership, which owns the suffering Tewkesbury Road site, has asked planning bosses to change the use of one of its outlets to let the chains in. The four high street names have expressed interest in opening up in the Swindon Village park, which opened 20 years ago and is currently more than 20% empty.

Coca-Cola marketing campaign delivers sales benefit: Coca-Cola’s “Share a Coke” campaign looks to delivered sales benefits in the UK as data shows growth of the firm’s master brand outpacing rival Pepsi by a clear margin in the weeks since launch. Retail sales of the Coca-Cola brand jumped 2.9% year-on-year to £292.93m in the three months to 23 June, according to IRI data. The increases are a contrast with the same period last when value and volume sales fell 2.2% and 5.8% respectively. The brand appears to have gained at the expense of rival Pepsi. The rate of increase in sales growth for Pepsi was less than half that of Coca-Cola’s at 1.1%. The volume of Pepsi sold fell 2.4%. The quarter contrasts with the same period in 2012, when Pepsi outperformed its rival growing value sales and volume by 5.5% and 10% respectively. In the year to 23 June, sales of the Coca-Cola brand rose 2% year-on-year to £1.22bn, according to IRI, while volumes rose 1%. Sales of Pepsi were up 1.1% but volume was down 0.1%. Pepsi’s sales growth outpaced Coca-Cola in both the on and off-trade in 2012, according to the Britvic Soft Drinks Report. 

Subway franchisee adds 21st site: Subway franchisee Owen Bradford has added a 21st site – he has opened a site in Gateshead’s new Trinity Square development. Bradford said: “Subway customers are looking for a convenient, healthy option. This brings a healthy fast food option to Trinity Square. In the last twelve to eighteen months we’ve reduced the salt content in our products by 33% and, for a healthy lifestyle, customers can see the calorie content of each of our products.“

Spirit wins food waste innovation award: Spirit Pub Company has been recognised for its waste management after being named winner at the AD & Biogas Industry Awards 2013.The pub company, which operates around 800 managed pubs across the UK, has won the Innovation in Food Waste Collection for its successful partnership with Convert 2 Green (C2G) in removing used cooking oil and food waste from each depot and converting the waste into another usable energy source. Spirit partnered with Kuehne + Nagel and Convert 2 Green, a leading waste to energy group, to develop a process where used oil collected from the food distribution depots is then returned to C2G’s biofuel production plant in Cheshire and, after treatment, sold as bio fuel. The food waste is taken to anaerobic digestion where gases produced are captured for use in electricity production. To date more than two million litres of biofuel and more than 2,500,000 kilo watts hours of electricity have been produced thanks to this process.

St Austell’s Proper Job beer named best in the region: Austell Brewery’s Proper Job ale will be competing for the title of Champion Beer of Britain 2013 this summer after being judged the best in the South West region. Cornwall’s premier independent brewery is celebrating winning a haul of awards in the CAMRA South West beer competition, which included a gold medal for Proper Job, judged Champion Golden Ale of the South West for both cask and bottled ales. The recipe for Proper Job IPA (India Pale Ale) was inspired by the nineteenth century British beers which were brewed with extra hops to keep them fresh on the long journey to India and other outreaches of the British Empire.

Burger King franchisee opens fourth site: Burger King franchisee Kaykem Fast Foods has opened its fourth Burger King, a 80-seat site on West End Road in Ipswich. The surrounding landscape has been regenerated by improving the river walkway access, and staff are encouraged to walk or use public transport to get to work as part of environmental measures at the site. Guilherme Ruschel, marketing director for Burger King North West Europe, said: “The team have worked extremely hard to create a restaurant experience that delivers both inside and out. At Burger King Ltd we are committed to ensuring we meet our customers’ needs every time, and are proud to have played a part in helping to regenerate such a picturesque part of Ipswich that families can enjoy.”

Third Jamie’s Italian to open in Australia by end of the year: A third Jamie’s Italian will open in Australia, this time in the capital Canberra, by the en of this year. The restaurant is being built in the site of the former Kingsley’s Steakhouse on the ground floor of the Canberra Centre - the Pacific Restaurant Group, which owns Kingsley’s, has the rights to Jamie’s Italian in Australia - opening on to Bunda Street. Demolition began last week and the restaurant will be open before the end of the year, with exact dates depending on progress of the building work. The 180-seat Sydney restaurant, opened in late 2011, does about 800 covers a day. A second Jamie’s opened in Perth earlier this year.

Tesco plans ten Giraffe openings in a year: Family-friendly restaurant group, giraffe, will open its first site within a Tesco store on 5 August in Watford Extra. With its own separate entrance, as well as access from the store, the 3,424 square feet, 170-cover restaurant will trade all-day from breakfast through to dinner, serving its signature comfort, global food. Value for money remains an integral part of the concept and the brand’s signature ‘Lunch for Less’ (£6.25 for a main course) and ‘Feel Good’ dinner (£9.95 for two courses) remain. The design by Harrison uses a palette of earthy natural tones, wood paneling throughout and booth seating surrounded by rows of potted plants. Two 10ft tall giraffes flank the entrance and enclosed booth and alfresco seating for 30 diners completes the modern look. Russel Joffe, co-founder and managing director of Giraffe Concepts, said: “We are delighted to be opening our very first Giraffe within a Tesco store. This is an exciting first step in the growth of the brand and allows us to introduce Giraffe to a wider audience. Over the next 12 months, we plan to open ten restaurants in Tesco stores and five new restaurants on the high street.”

JD Wetherspoon must show margin stabilisation – Geof Collyer: Deutsche Bank analyst Geof Collyer has argued that JD Wetherspoon, due to report fourth quarter results tomorrow, must show margin stabilization to attract investors. He said: “It has been a more than usually volatile year for JDW. We started the year off requiring circa 2% like-for-likes to stand still and are now looking for around 4-5% like-or-likes for the full year and +8.3% total sales to deliver broadly flat (+1.3%) EBITA. This dynamic remains the enigma of JDW. Going back to the bank refinancing in March 2010, JDW’s margins have fallen from 10.01% to our forecast of 8.43% for the 2013 financial year and although the total sales have risen by 30% over the past three years, EBITA has only grown by 9% despite 16% more pubs trading. We think the group must begin demonstrating margin stability to persuade investors to buy into the longer term growth profile. Without margin stabilisation forecast upgrades will be difficult and the market may be disappointed by potential downgrades to the consensus view. The opening programme is again back-end loaded and there has been some discussion about stepping up the rollout again, which is important for cash flow in a business that benefits from negative working capital. We estimate that there is a positive cash inflow of circa £100,000 for each new pub opened.”

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