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Morning Briefing for pub, restaurant and food wervice operators

Tue 22nd Oct 2013 - ETM Group, La Tasca, M&B, Spirit results and Whitbread results

Story of the Day:

Spirit reports like-for-likes up 1.6% in full year; launches reschedule of debt plan: Spirit Pub Company has reported like-for-like sales rose 1.6% in its managed estate in the 52 weeks to 17 August with average weekly takings now £17,300 per pub across 777 sites. Managed like-for-likes have risen 4% in the first eight weeks of this financial year. Its leased estate of 452 pubs saw like-for-like net income down 2.1%, but risen by 1.2% in the most recent eight weeks. Chief executive Mike Tye said: “I am pleased with the further progress we have made this year in what have been tough trading conditions. Our continued focus on the execution of our strategy to deliver hospitality excellence for our guests has delivered a strong financial performance with growth of 6% in profit before tax and earnings per share up 9%. As a result of this performance the board is recommending an increase in the full year dividend of 5%. Our strong portfolio of managed brands has achieved further growth in sales which, coupled with sustained productivity and efficiency gains, has driven significant expansion of Managed margin. The performance of our leased pubs has stabilised and, through a combination of investment and innovation in our operating agreements, we are confident of returning the leased estate to growth in the year ahead. We have entered the new financial year with good momentum in the business and remain confident in our strategy for future growth.” The company increased its dividend by 5% to 1.37p per share – profit before tax was up 6% to £54m. The company has launched a plan to re-profile its debt amortisation in relation to its A1 and A3 bonds. The company stated: “Bondholders are being asked to tender their existing A1 and A3 bonds which will be settled by the issue of new A6 and A7 bonds respectively. It is proposed that these new bonds will have a slightly higher coupon, which will increase the group’s interest cost (the quantum of the increase being dependent on participation level) and a longer amortisation profile which will provide greater short and medium term financial flexibility.”

Industry News:

LGA – outdated licensing system needs to be reviewed: Pubs and restaurants are among the businesses that need to be freed from outdated and complex licensing rules and needless red tape, council leaders have warned. The current system is deterring people from setting up and running a business in their community, they claimed. Analysis by the Local Government Association (LGA) has found that a small family restaurant might need to put in as many as eight separate licensing applications before being able to open for business. The LGA, which represents more than 370 councils in England and Wales, is calling for a ‘rewiring’ of the current system to remove and update licensing regimes across at least five Whitehall departments. The LGA noted a community pub serving food, playing recorded music and with a couple of fruit machines could need six separate licences from different national and local authorities, leaving them ‘mired in an expensive and complicated maze of differently timed renewals’.

Office of Fair Trading warns councils over minimum pricing: The Office of Fair trading is warning local authorities of the competition issues involved in going it alone on minimum pricing, according to The Grocer. The move comes after a number of councils, including Newcastle, Manchester, the City of London and Bristol, announced they were pressing ahead with plans to make minimum unit pricing a condition of alcohol licences. An OFT spokesman told The Grocer: “We are talking with other government departments and local authorities to make sure they are aware of competition issues.”

Private equity dividend recapitalisations reach a peak: Private equity firms dividend recapitalisations, used to take payouts from their portfolio companies, is at the highest level since the onset of the financial crisis, according to Dealogic figures. In the first three quarters of this year there have been $8.2 billion worth of dividend recapitalisations for 20 private equity-backed deals in Europe, the highest level since the same period in 2007, when $38 billion worth of recaps were done for 36 deals. In June, Bridgepoint paid itself £150 million through a recapitalisation of sandwich chain Pret A Manger. Readily available capital in the credit markets has made it easier for private equity firms to tap the market to refinance companies and return capital to investors. This has become particularly appealing as differing price expectations between buyers and sellers of assets have stalled the mergers and acquisitions market.

Circuit bars led sales growth in September: Circuit bars within the M25 led sector sales growth in September with like-for-like sales up +5.3% with food at the heart of the success with like-for-likes at +9.5%, according to the CGA Peach’s Trading Index. A CGA spokesman said: “Circuit bars are now more than just late-night operators, particularly in London. We see share-steal coming from branded restaurants thanks to their increasingly sophisticated food-offer and improved operational standards on trade-ups. This is no more evident than in the sales of starters, sides and mains with combined like-for-like growth of 33%. This evolution in food and service dramatically increases dwell times in this style of concept, producing extended occasions beyond traditional wet-led circuit behaviour.” Scott Elliot, director at CGA Peach, added: “Anybody who goes into trade will recognise that circuit bars are changing. Led by changing consumer expectations, many circuit bars now have the ability to meet more varied needs via all day operations, distinct day part strategies and a better food offer. These types of flexible outlets are increasingly a threat to informal dining operators and provide consumers with both food and drink experiences in line with the latest trends.” 

Company News:

Whitbread reports Costa like-for-likes up 5.5%: Whitbread has reported sales up 12.2% to £1,144bn in the six months ended 29 August. Underlying profit before tax rose 12.6% to £216.1m. Chief executive Andy Harrison said: “Whitbread has delivered another good performance with double digit growth. The combination of organic network expansion and good like-for-like sales growth, drove a 12.6% increase in underlying pre-tax profits. Since the onset of the recession in 2008/9, Whitbread has grown its sales and underlying pre-tax profits by 11.1% and 12.0% per annum respectively, demonstrating the strength of the business and our leading market positions. Our two growth engines, Premier Inn and Costa, performed well. Premier Inn, the UK’s leading hotel chain, continued to win market share, opening 12 new hotels. This contributed to a total sales increase of 12.2%, with especially strong growth in London where sales grew by 18.4%. Like-for-like sales grew by 3.3% with an increase in occupancy to 80.3%. We also opened three new joint site restaurants and our restaurants business performed in line with a challenging market, with total sales up 2.9%. Costa continued its excellent performance, opening 153 net new stores worldwide and growing total system sales by 19.5%. UK system sales grew by 19.6%, with strong consumer demand driving a 5.5% growth in UK like-for-like sales. We celebrated the opening in Bangkok of our 1,000th Costa international store.”

Douglas Jack issues ‘Buy’ note on M&B after Convivial four-site acquisition: Numis Securities leisure analyst Douglas Jack has issued a ‘Buy’ note on Mitchells & Butlers (M&B) shares, with a Target Price of 500p, after the acquisition of four Convivial London freeholds. He said: “M&B is spending in excess of the £13.3m guide price to acquire four freehold London sites from Convivial Pubs. The sites, which will join M&B’s Castle estate, are to be included within the expansion target of 30 new pubs in 2014, so there is no need to change forecasts at this stage. However, this and our recent meeting with the company point to increasing growth ambitions, with positive implications for 2015, in particular. M&B will not provide details on the exact price and EBITDA multiple. Also, the transaction is too small to require forecast changes. However, the deal does point to increasing growth ambitions. The target for 30 new sites in 2014 could be beaten, with 40 expected in 2015 and 50 in 2016. Our expectation is that M&B’s turnaround will be gradual (in 2015), but when it occurs, the upside could be considerable. From a base of 9% earnings growth in 2013 with minimal expansion and like-for-like sales growth, the company should be capable of double-digit, self-financed growth in 2015E (hence upgrades), by which time the dividend should be reinstated and the £600m pension deficit (£1.50/share) should be falling.”

Orchid Pub Company and Moleface Pub Company make shortlist for Apprenticeship Awards: The Hospitality Guild has unveiled the shortlisted nominees for its Apprenticeship Awards 2013. The awards, which are held in partnership with People 1st, recognise and celebrate the achievements of apprentices working in hospitality and emphasise the vital role employers, providers and mentors play in apprenticeship delivery. Orchid Pub Company is a finalist in Large Employer of the Year along with Lancaster London and Hilton Worldwide. Moleface Pub Company is a finalist in the Small Employer of the Year along with The Bonnington (Cavendish Hotel) Ltd.

Soho House plans BBC Television Centre club: Soho House is in talks to open a hotel and club at BBC Television Centre, according to The Times. The BBC sold the Television Centre to developer Stanhope last year for £200m. Stanhope wants to turn the inner ring of the doughnut in the middle of Television Centre into a boutique hotel and serviced apartments. Soho House would operate a 50-bedroom boutique hotel with a club offering the company’s trademark swimming pool on the roof. 

ETM Group flagship opening next Monday: The opening of ETM Group’s new £2m flagship site, One Canada Square, will be next Monday (28 October). It was due to open in the middle of October but suffered a postponement because of delays to a shipment of Italian marble. One Canada Square, the company’s 11th site, in the eponymous office block in Docklands, will be followed by two new openings within nine months, one a pub and the other a bar and restaurant. Expansion will be funded by cash flow, and support from its bank, Lloyds. Turnover at ETM Group has risen to £25m this year, which is £500,000 above budget, and is forecast to rise above £30m next year.

Nine mainly freehold nightclubs on the market: Nine mainly freehold former Atmosphere nightclubs are being marketed for sale through joint agents Fleurets and AG&G. The clubs are available singularly or in packages and all but one of the clubs are offered with vacant possession. The properties are located in; Northampton, Llandudno, Barnsley, Halifax, Luton, Wrexham, Leicester, Bedford and Banbury, and prices range from £400,000 to £1,000,000 for what amounts to some substantial landmark buildings in town centre locations.

Luminar to relaunch Romford nightclub this Friday as a multi-faceted entertainment venue: Luminar, the UK’s largest nightclub company, will relaunch its Liquid and Envy nightclub in Romford, Essex, this Friday (25 October) as a multi-faceted entertainment venue after a £350,00 investment – it will be called Fiction. Manager James Hall said: “The biggest thing we have done is re-instate the stage, taking the venue back to the auditorium days. This means changing it from just a nightclub to a multi-faceted entertainment venue. The weekends will still be our core trade with club nights and DJs. The sound will be coming from the stage so that the stage is the main focus, rather than surround sound. We will be offering live bands, tribute bands, comedy nights and will also be able to do product launches and we will also be hosting white and blue collar boxing nights.”

Chop’d changes format for latest two more openings: Chop’d, the London salad bar chain, is opening up two new store formats. The first, opened on 14 October in Selfridges newly re-developed Selfridges Kitchen on 4, is a full sit down restaurant and offers a more premium dining experience. This format still incorporates a ‘create your own’ option but includes a greater selection of gourmet menu items, plus a selection of high end juices and smoothies. Chop’d retains its existing concession in Selfridges Food Hall, which will continue to provide a take out option. The second new store is situated in Unit 3,The Arcade at St Pancras. The new 300 sq ft store opened last week and offers freshly made gourmet salad, soups, stews, wraps and flatbreads. It will focus on its ‘grab & go’ option only to cater for the transient commuter market and travelling public. Eddie Holmes, managing director of Chop’d, said: “We’re confident both stores will be a great success and it shows just how diverse and adaptable the Chop’d product offering can be. These are two high footfall, prestigious locations but rather than simply forcing our existing set up into these sites we’ve thought long and hard about what our customers would want and how we can ensure the formats would be right for the location.” The new openings take the Chop’d estate up to nine stores across London.

Pizza Hut plans personalised offers: Pizza Hut Delivery is bringing its analytics and mobile platforms closer together to drive online sales through personalised offers. Steve Ash, director of information technology at Pizza Hut, said the move is about “tuning” the customer journey to ward off the digital advances of smaller take-away services in the online space. More than 50% of orders are now online, and of that 30% is from a mobile device, he reported. Ash said: “As a company we’re regularly changing our menu and developing a suite of apps would not have been effective as a result. By focusing on building a more tailored online experience spanning different devices we’re able to use a more feasible model to expand the brand. Better use of marketing is one of the key things we’re trying to achieve through our upcoming plans. The tools we’re putting in place will allow us to be far more relevant to people as oppose to just sending out blanket promotions that have no real business value.”

Roy Ellis steps down from the board of Inventive Leisure: Roy Ellis has stepped down from the board of Inventive Leisure, after 22 years with the business. Inventive chief executive Mark McQuater said: “We would like to thank Roy for his huge contribution to the success of the business over the years and wish him all the best for the future.”

Hall & Woodhouse tenant blames “market saturation” for site closure: Hall & Woodhouse tenant Andrew Crompton has blamed market saturation for the closure of Crompton’s at The Olive Branch in Horsham, which he ran for 21 months. He said: “July was strong, August was solid and September was dire, and October wasn’t looking much better.” He added: “The whole market’s so saturated and this is nature’s way of thinning it out. I took a risk and it didn’t come off. If I never had a go at it I would have regretted it. I gave it my best shot and it’s time to move on.”

500 people march in protest at JD Wetherspoon pub plan: Around 500 protestors took to the streets of Guisborough’s at the weekend to protest against a move by Redcar and Cleveland Council to sell the former Westgate register office to JD Wetherspoon for £275,000 for conversion to a pub. Earthbeat, a theatre group for adults with learning difficulties, wants to bring a new arts venue to the town at the register office. Its cause has been backed by a 4,000-signature petition and politicians, including Middlesbrough South and East Cleveland Labour MP Tom Blenkinsop. Earthbeat is in the process of launching a judicial review, claiming their bid has been treated unfairly.

La Tasca launches new menu with gluten-free accreditation from Coeliac UK: La Tasca, led by Simon Wilkinson, has won accreditation from Coeliac UK for the 34 gluten-free dishes of its new menu. New dishes include a selection of five gluten-free desserts and first gluten-free bread to accompany tapas. There is also new gluten-free aiming to make the brand more accessible to the one in 100 people in the UK who have coeliac disease.

Nando’s launches advertising campaign for new loyalty card: Nando’s has launched an integrated advertising campaign to promote its new electronic loyalty card. The campaign, created by 18 Feet & Rising, spans radio, outdoor and press advertising and uses the tagline ‘It only works in Nando’s’. The ads are set around a series of situations where people try to use their cards in the wrong places, such as coffee shops, libraries and nightclubs. Andrew Barnard, account director at 18 Feet & Rising, said: “A brand like Nando’s has to be handled with care given the high expectations its customers have. This campaign is the first step in a long-term journey we have planned which seeks to build a unique advertising voice out of the brand’s special sense of fun and irreverence.” The loyalty card launched in September.

New McDonald’s launches with digital play area: A new McDonald’s drive-thru restaurant is opening in St Helens town centre, creating around 50 jobs, that offers enhanced facilities for children. The two-storey restaurant, which seats 142 customers, features a digital play area where McDonald’s states that “games and activities are projected onto the floor, encouraging kids to interact and get active”.

Benito’s Hat secures fifth site: Benito’s Hat, the London-based Mexican restaurant chain has secured its fifth restaurant in the capital in an off market deal – it’s new site is 12-14 St John Street in Smithfields, which formerly traded as Piada and is due to open mid November. Benito’s Farringdon will allow customers to pre-order via their website, a mobile app or on in-store ordering screens. Another new addition will be a bespoke ‘Salsa Bar,’ allowing customers to choose from over ten homemade salsas. Benito’s have recently secured £1.4 million investment with a target of ten sites by the end of 2014. To further aid in this expansion, Fordham has been joined by Jay Travis and Graham Ford, former operations directors of Wagamama and Strada respectively. Selsian, acted on behalf of Benito’s Hat who have taken an assignment of the existing lease of the 1200 sq ft venue at a passing rent of £67,500 per annum together with an un-disclosed premium. Selsian, acting on behalf of Benito’s, is also in legals on a further two sites, one in the City of London and another at Lakeside shopping centre, which will be Benito’s first outside the capital. 

New Wagamama autumn and winter menu launches today: Wagamama is launching its new autumn and winter menu today with the re-introduction of Kare Lomen, subject of a low-key Facebook campaign aiming to force its return. A new fish dish is the mahi mahi curry and there are two new ramen dishes – vegetarian mixed mushroom and grilled duck. New on the dessert list are half moon pancakes served with a date and orange sauce hidden within the fold. Wagamama is also exclusively introducing Iki beer. “The new autumn winter menu gives an authentic and seasonal twist on some Wagamama favourites,” said Steve Mangleshot, Wagamama executive chef.

Hollybush Hotels falls into administration: Hollybush Hotels, which operates five properties, has been placed in administration. The company operated the Russell and Prince Regent hotels in Wymouth, Dorset, The Sherborne in Sherborne, Dorset and Harrisons hotel in Shepperton, Middlesex – as well as the Sands Bay Leisure Resort in Weston-super-Mare, Somerset. Zolfo Cooper has been appointed as the administrator of the company, which employed 300 staff. Each individual business will continue to trade while being prepared for sale through property agent, GVA. Nick Cropper, partner at Zolfo Cooper, said: “We believe the hotels are attractive to a range of potential buyers and welcome expressions of interest from third parties to acquire any or all of the hotels and the leisure park.”

Stonegate Pub Company changes its mind on Welwyn pub name at the last minute: Stonegate Pub Company has changed its mind about renaming The Cork in Welwyn Garden City after the town’s founder Sir Ebenezer Howard. The move came after being told that Howard took a “dim view” of drinking. Dr Dennis Lewis said: “I think that it is a diabolical liberty to name a drinking establishment after someone who, so far as I know, abstained from alcohol and took a dim view of those who didn’t.” The pub will now be called The Two Willows.

Community venture company looks to buy Punch Taverns pub in Suffolk: A community venture company is to issue shares so that Suffolk villagers can raise funds to buy their local pub. The Case Is Altered, in Bentley, near Ipswich, closed in March and its owner Punch Taverns has put it on the market for £240,000. A committee of seven people has formed Bentley Community Pub Ltd to raise the money to buy and refurbish it with the aim of reopening it next spring. People can buy a minimum of five shares for £50 each. David Westley, chairman of the new company, said: “We believe we are able to turn things around here. Evidence shows that when people do buy their pubs the community has a much greater sense of ownership and people tend to go more.” Westley said the new company was a not-for-profit industrial and provident society and people could buy a maximum of £20,000 worth of shares. Punch said that, although the pub was on the market, it was still looking for a new licensee to run it.

McDonald’s reports solid third quarter: McDonald’s has reported global sales rose 0.9% in its third quarter to the end of September. In the US, comparable sales increased 0.7% in the third quarter while operating income rose 5%. For the quarter, Europe’s comparable sales rose 0.2%. Operating income increased 11% (up 8% in constant currencies) reflecting strong performance in the UK and Russia and solid results in France, partially offset by Germany. Throughout Europe, ongoing efforts to recalibrate “key market value platforms and enhance the McDonald’s experience through menu innovation and marketing are designed to strengthen the business for the long term”, the company stated.

Starbucks hires new UK managing director: Coffee company Starbucks has hired Mark Fox as UK managing director, starting work on 6 January. Fox has over 20 years of retail operations and franchise experience, and is currently managing director of Yum UK overseeing circa 700 dine-in and delivery Pizza Hut sites in the UK and Ireland. He became managing director of Pizza Hut Delivery in December 2009 before stepping up to oversee the combined Pizza Hut operation in November 2012 when Rutland Partners bought the franchisee rights to the restaurant business. He’s also worked with Compass brands in the UK and Ireland for nine months and prior to that worked as an international franchise director for Yum restaurants across Europe. He said that he has “always loved Starbucks coffee” and is delighted to be joining the UK team. He will replace Kris Engskov, who was named as president of Starbucks EMEA in May. Engskov said that the company is “very pleased to welcome Mark to Starbucks” and that “Mark’s prior experience couldn’t be more relevant in supporting where we are headed at Starbucks”. Meanwhile, Starbucks has started training 350 apprentice baristas in the UK. A further 150 baristas are expected to start by the end of the year wit another 500 to be hired in 2014. Last month, Starbucks reported that it has negotiated an exit on 46 costly leases in the UK so far – and wants to exit another 30 this year. One store opposite Selfridges on London’s Oxford Street had a rent bill of £850,000 a year. A move around the corner slashed that to £160,000 a year. Its franchise division has completed agreements on 15 deals so far, and is aiming for as many as 200. It plans to have 100 vending machines by the end of the year. 

Castle Rock Taproom and Kitchen set for airport site: A branch of Leon and an innovative Castle Rock Taproom and Kitchen are among new openings scheduled for East Midlands Airport as part of the £12 million redevelopment (EMA). The move to open a Castle Rock Taproom and Kitchen stems from a desire by Autogrill Catering UK to showcase regional operators – brewer and pub retailer Castle Rock is based in nearby Nottingham and has been named Camra Beer Guide Company of the Year on several occasions. Castle Rock chairman Geoff Newton told Propel: “We have had some initial discussions and meetings with Autogrill and this is at a very early stage. It’s a very exciting development and one that are delighted to get involved with - it would certainly put Castle Rock and its beers in a very prominent place in East Midlands Airport. Logistics still have to be resolved and the scheme is very much in its infancy but I’m hoping things will move forward before Christmas and we are working towards a Spring opening.” Autogrill Catering UK, part of HMSHost International, is to spend £3 million refurbishing and rebranding seven outlets at the Castle Donington airport. HMSHost has already opened a Pork & Pickle English delicatessen in the departures area, selling coffee and regional food. It is also opening two Flat White coffee shops, as well as a revamped Burger King and a ‘GrabandFly’. The outlets will be built in phases and all will be open in the next six months. A spokesman said: “By introducing these brands, as part of the airport’s £12 million redevelopment, we are hoping to combine culture and regional taste with innovation and we are confident these outlets will deliver a unique experience for our passengers.” Meanwhile, Castle Rock has increased its real ale output with the refurbishment of a redundant piece of kit to add a new five-barrel fermenting vessel to the existing brew plant set. “It’ll allow us to be even more innovative and widen the boundaries of the beer flavours we present to our customers,” said head brewer Adrian Redgrove. “With it in place we can add more distinctive and interesting flavours being sought by a broad spectrum of beer enthusiasts including younger people and women.” The more varied array of beers will include those with extreme hop flavours or those fermented with fruit or other ingredients including herbs, spices and botanicals. Added Redgrove: “This expansion works well for us - it’ll allow us to express ourselves with new recipes - and even the odd traditional medieval one - without moving Castle Rock away from the core in which we pride ourselves. This is the brewing of high quality, consistent, popular and very suppable beers.” Castle Rock first started brewing in 1998. “In many ways it’s a step forwards by taking a step backwards,” said managing director, Colin Wilde. “And it’ll mean we can brew some very big flavourful and high impact beers out of a very small vessel.”

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