Propel Newsletter Archive Page

Rent review expert – new RICS guidance creates transparency: New RICS Guidelines on rent reviews have broken with the past by recommending that experts provide reasons for their decisions. The move is actually a u-turn on RICS plans to order members to avoid disclosing reasons for rent review outcomes. Nigel Ball, senior director at rent review experts BNP Paribas, told Propel: “The return of rental growth means there are likely to be more rent review disputes over the forthcoming years. Following a consultation exercise last year, and the feedback that I submitted in October, the new RICS guidance note has been changed so that it now recommends that independent experts DO provide reasons with their determinations. This is a welcome 180 degree about-turn, and raises hope that if you choose to resolve a dispute using an independent expert, there will be much greater transparency moving forward. For pubco leases, this may now make it a viable alternative to the PIRRS process, which although likely to be cheaper, provides no explanation as to how a decision has been reached.” More broadly, Ball argued that “this small step towards greater transparency can only help further demystify the rent review process”. In his submission to the RICS consultation, Ball, whose clients include JD Wetherspoon, argued that the proposed non-explanation of rent review decisions was inconsistent with members’ professional standards. He told RICS: “The draft document encourages experts to act in a manner that is essentially in breach of the RICS’ own professional and ethical standards. This is because it discourages experts to give reasons (thus being opaque), whereas if the expert was to act in accordance with RICS professional and ethical standards, he should in fact give a full explanation as to how he has made his valuation (thus being transparent).”

Industry News:

Taco Bell breakfast ads star ‘Ronald McDonald’: Yum! Brands’ Taco Bell fast food chain is airing a series of advertisements that feature men and women called Ronald McDonald, or a variant thereon. The campaign is to publicise the chain’s new breakfast menu, and its new 7am start. The ads feature around two dozen real-life Ronald McDonalds praising the food. Tiny print at the end of the advert declares: “These Ronald McDonalds are not affiliated with McDonald’s Corporation and were individually selected as paid endorsers of Taco Bell Breakfast.” A Yum executive has said breakfast accounted for just 4% of sales when it was being tested at Taco Bell stores – Taco Bell president Brian Niccol said the goal was to get the figure to a level “much greater than that”. At McDonald’s, breakfast accounts for about 20% of the company’s US sales.

Irish planners refuse permission for KFC outlet next door to schools: Planners in Ireland have refused permission for a KFC restaurant next door to two schools. The decision came just days after it was revealed that the Irish government is to publish a “no fry zone” law aimed at keeping new fast food restaurants up to 1.5 km away from schools, playgrounds and children’s sports facilities. Meath County Council, north of Dublin, had originally agreed to allow a KFC drive-through to be built at Brews Hill, in the town of Navan, close to the entrance to the St Joseph’s Convent of Mercy primary and secondary schools. The Irish planning board has now overturned the county council’s decision after protests from parents and school management groups. However, the board ultimately rejected the proposed fast-food restaurant on “visual amenity” grounds.

Restaurants advised to cut portion sizes: The government has been criticised for apparently advising restaurants how to cut portion sizes to help fight obesity – without cutting their prices. Stopping free poppadoms in curry restaurants, serving take-aways in smaller containers and making smaller pizzas are among ideas available online from the Department of Health’s Responsibility Deal programme. The voluntary scheme advises restaurants on how to make the food and drink they serve less fattening, with one tip for pizzeria owners saying: “Thinner bases – bigger profits!” Ranjit Mathrani, who runs the Masala World chain of restaurants, told The Mail On Sunday he supported drives to reduce obesity. But he added: “The idea of cutting portion sizes and charging the same is unethical. It is unethical and disreputable and likely to backfire because it is encouraging restaurants to pull a fast one over customers.”

Company News:

M&B pub managers get live feedback on customer loyalty: All Mitchells & Butlers (M&B) pubs are now getting live feedback via “dashboards” in the back office showing how that pub is performing against its measures of customer trust and loyalty builders. Chief executive Alistair Darby, speaking at a conference in London organised by the City firm Numis Securities, said the data comes from on-line customer feedback, which totals 700,000 items a year, TripAdvisor and other social media, so that at any time of the day the pub manager and other members of staff can see what people are saying about the pub, and how they are getting on with the trust and loyalty builders. The system has been in operation for the past three to four months, and unsurprisingly, Darby said, M&B is seeing a real correlation between those pubs where managers are paying regular attention to what is being said about the pub via the live dashboards, the net promoter scores and like-for-like sales. Darby also revealed that M&B is upgrading all its electronic systems, having been running on pub systems that are up to 20 years old. “Well done to the guys who designed it – it’s stood the test of time,” he said. “But none of us is operating a phone that is 20 years old. We are now in the midst of upgrading all of our pub systems, it’s a huge project, £33m over two-and-a-half years. It’s not just about tills, it’s about hand-helds, it’s about kitchen order management systems, it’s about upgrading the whole systems architecture in the pubs, which allows us to add new stuff as we go forward. We’re in 500 pubs already, and one of the immediate things that’s coming out of it is time saved, for managers and for waitresses interacting with their guests.” Darby said the new systems enabled M&B to automate offers like gift cards, with the result that gift card sales are 80% up year-to-date.

Novus to invest £20m in estate: London bar and nightclub company Novus Leisure will invest £20m in refurbishing its 47 sites over the next two years after like-for-like sales fell 3.1pc in the year to 30 June 2013 at uninvested sites. Private equity group LGV Capital and Hutton Collins bought Novus Leisure in July 2012 for £100m. Accounts for Novus’s parent company, Survivor Group Holdings, show the company generated sales of £116m in the period to 30 June and made a loss on ordinary activities before taxation of £40m after finance charge and exceptional items – Ebitda was £8.4m. “There has been much change at Novus both during the year to June 2013 and following the year end. The statutory accounts of Novus to June 2013 recognise these changes and a difficult trading period for the company,” Novus said in a statement. “There is now a totally new management team in place that has restructured the business and has begun implementing a strategy for growth through investment in the prime sites that the business operates. The investment strategy for the business will see circa £20m invested in the group’s sites over the next two years.” Novus is led by Tim Cullum, previously of TGI Friday’s, while former Tragus Group chief executive Graham Turner is executive chairman.

McMullen ponders future of ex-Bramwell pub: Hertford-based brewer and pub owner McMullen & Sons is pondering what to do with a pub formerly let to the Bramwell Pub Company. The Old Crown pub, housed in the former post office in Baldock Street, Royston, Herts, closed just before Christmas when Bramwell went into liquidation. The opening of JD Wetherspoon’s The Manor House, in nearby Melbourn Street, last year hit The Old Crown’s trade, and the pub was not among Bramwell sites snapped up by other firms. The lease on the building, which has been used as a pub for more than a decade, has reverted to McMullen’s who own the site’s freehold. Peter Furness-Smith, McMullen’s managing director, said: “We now have the option as to whether to re-let it to another pub company, individual or restaurant group or to manage the pub ourselves. We expect to finalise the options shortly and will then make a decision. It is possible we will decide to make an investment and upgrade the offer to make the pub more appealing to those who live in Royston. If that is the case we will take it under management and possibly review the name. In the meantime we will be making a planning application to extend the ground floor space to the rear and try and get more light into the building from the side elevation windows.”

Jamie Rollo – “we’re underweight on Spirit shares”: Morgan Stanley leisure analyst Jamie Rollo has issued an ‘underweight’ recommendation on Spirit Pub Company shares ahead of first half results on 24 April. He said: “Our underweight on Spirit’s shares reflects several factors. Firstly, while Spirit has some good-quality pubs with a southern bias, and should benefit from a pick-up in the UK economy, managed like-for-like sales may slow as capex levels are being cut sharply. Secondly, Spirit no longer offers any margin catch-up potential to peers, and it looks as though it would have missed FY13 guidance without the exceptional summer weather and non-repeatable central cost cuts, suggesting conversion margins or cost control is worse than it appears. Third, the leased pubs have been weak for many years, and despite signs of stabilisation, they are likely to remain a drag on growth. Finally, although the debt re-profiling eases the short-term risks, PLC cash generation still seems insufficient to cover liabilities and the dividend in the medium term.”

Enact set to buy West Cornwall Pasty Company: Investment fund Enact is in exclusive talks to buy West Cornwall Pasty Company, according to The Sunday Times. West Cornwall Pasty Company was founded in 1998 by Ken Cocking and his sons Gavin and Arron. In 2007, they sold the business to private equity firm Gresham for between £30m and £40m. It reported a fall in turnover of 11.1%, to £21.22m in the 53 weeks ended 1 March 2013, from £23.99m the year before. Losses on ordinary activities before tax were up 37.3% to £833,000 from £606,000 the year before. There was an exceptional cost of £1.52m, which was lower than the £1.97m booked the year before. The company, which sells eight million pasties a year, has 45 sites and is reported to have over-expanded, meaning it is struggling to make rental payments at some sites.

Tesco to open first Giraffe in north east of England: Tesco is to open the first Giraffe restaurant in the north east of England at its Kingston Park store in Newcastle upon Tyne. The restaurant opening is part of a multi-million pound revamp at the Tesco Extra store, which was Europe’s largest supermarket when it opened in 2002. Up to 30 new jobs will be created in the new restaurant, while the in-store cafe will close. Tesco plans to open Giraffe restaurants in ten Tesco Extra stores, after buying the restaurant chain for £48.6m in March last year. Its first Giraffe site opened in Watford last year, where it has outperformed expectations. Meanwhile, Giraffe Concepts has appointed of Charlotte McCarter as head of recruitment. She joins Giraffe from Addison Fowle, the recruitment specialist, where she was managing consultant for four years. Before that she was managing partner at Eureka Executive Search and head of recruitment at Lister Charles Partnership. Charlotte will lead the resourcing strategy that will allow Giraffe to expand. Co-founder Russel Joffe said: “We are delighted to welcome Charlotte. She is bringing with her a wealth of experience with over ten years in recruitment and will be aiming to step up our openings strategy.” Giraffe operates 51 restaurants in the UK, five of which are located in airports and one restaurant in the UAE.

Shepherd Neame re-opens Thanet hotel after £1.4m refurbishment: Shepherd Neame has-re-opened The Fayreness Hotel in Thanet, acquired from Thorley Taverns in September 2011, as The Botany Bay Hotel after a £1.4m refurbishment. All 30 en-suite bedrooms have been refurbished in natural sand and blue-green colours, and include coastal artefacts and pictures reflecting the Thanet coast. Shepherd Neame chief executive Jonathan Neame said: “We are thrilled to unveil this exciting new development overlooking Botany Bay, one of the most beautiful beaches in Britain. This significant refurbishment is not just about investing in the hotel, but the coastal area of east Kent. Not only have we have created a significant number of new hospitality and catering roles, but the presence of a stylish destination hotel will provide a boost for the local tourism market.”

Domino’s wins award for best digital activation: Domino’s UK has been was awarded the ‘Best Digital Activation’ award for its digitally pioneering sponsorship of the X Factor in the Hollis Sponsorship Awards. The Domino’s X Factor app allowed viewers to become the ‘Fifth Judge’ of the reality TV show, enabling them to vote for their favourite acts straight from their mobile device as the show aired. The app clocked up a total of 1.6 million downloads and allowed users to not only vote but make predictions on who would go through to the next round, while testing their knowledge of the X Factor in real-time. Users were further incentivised with tickets to the live shows to encourage engagement and maintain audience interest. The app also delivered content that kept users up-to-date with their favourite contestants, provided backstage interviews and offered exclusive video content and pictures. Users could also order their favourite Domino’s pizza directly from the app. Nick Dutch, head of digital at Domino’s Pizza, said: “The X Factor sponsorship was a great campaign to work on with ITV and allowed us to reward and entertain our core target audience.”

Food pubs gaining on restaurants: Pubs are gaining on restaurants in the share of the British eating out market with a rise of 5.3% in total food sales last year, to top £8bn – quick-service restaurants rose 4.4% to almost £12bn, figures from Horizons show. The rises come as the whole eating-out market rose 3.4% in 2013, to £44.9bn. Horizon’s figures show part of the gain for pub-restaurants is down to a narrowing price gap between meals in pubs and meals in restaurants, from £4.57 in 2009 to just £1.99 in 2013. Peter Backman, speaking at a conference in London organised by the City firm Numis Securities, said pubs are raising the level of their offering to restaurant standards and appear confident enough to pass on the cost increases. For 2014, Backman predicted a rise in food sales in pub restaurants of 3.7%, against 2.6% in quick-service restaurants and just 0.4% in other restaurants. Meanwhile, CGA Strategy is predicting a rise in the number of food pubs of 7% by 2018, and a rise in restaurant numbers of 5% over the same period, versus a fall of 10% in wet-led pubs. Current on-trade drinks trends, CGA said, showed volumes in wet-led pubs for the first four weeks of 2014 were down 8.1% compared to the same period in 2013, with their value down 4%. In food-led pubs, drinks volume was up 3.4% and value up 7%. In branded food outlets, volumes were up 4.1% and value up 6.2%. In restaurants, volume was up 4.4% for the period, and value up 0.9%, suggesting a battle on prices. In town centre pubs, drinks volume was down 7.4% and value 2.4%, in circuit pubs volume was down 7.9% and value 3.9%, and in wine bars volume was down 5.7%, though value was up 1.4%.

Craft Beer Co. secures prime Punch site – hopes it’s ‘the first of many’: The Craft Beer Co. has secured a new ‘flagship’ site in its first venture with Punch Taverns, taking on ‘Rudy’s Revenge’ in London’s Covent Garden. This latest deal marks a “tipping point” for the group, according to managing director Martin Hayes. “We have always wanted to take our business into the West End, but, until now, we have had to look at sites that most operators couldn’t see a future in, or, sites where we were confident that our unique offer could work where others might fail,” he said. “Thus far, we have built a well respected, five-unit business, with each outlet showing strong growth. This move into the West End is a ‘game changer’ for us. As many operators will know, when you start out, it’s difficult to get freeholders to take you seriously. We lost out on many sites early on because I believe we were seen as a young business that may not stand the test of time. However, we are now trading really well across our estate and we are attracting, not only people who understand what ‘craft beer’ is really about, but also people who are seeking a great quality drinking experience in a comfortable environment. I’m delighted that we have been able to do this deal with Punch. I hope that it’s the first of many ventures together.” The Craft Beer Co. will operate their lease agreement from 2 April, when it will change the pub name to ‘The Craft Beer Co. Covent Garden’. The Craft Beer Co. will re-open after refurbishment on 9 May.

Crown Estate signs up Milos for Regent Street development: The Crown Estate has agreed a lease with renowned Greek seafood restaurant Milos for a new 8,000 sq ft flagship at No 1 Regent Street. Milos, which offers a contemporary, fine dining experience, was founded by Costas Spiliadis in 1979 with its first restaurant opening in Montreal, Canada. Milos now also has critically acclaimed restaurants in New York, Las Vegas, Miami and Athens. The deal marks the latest major flagship restaurant to sign up to St James’s, following in the footsteps of Philippe Le Roux’s Villandry, Angela Hartnett’s Café Murano and San Carlo Group’s Cicchetti, all of which have opened in St James’s over the last six months. As well as bringing new, flagship restaurants to St James’s, The Crown Estate’s investment is creating new restaurant space through redevelopments of its properties. Along with its joint venture partner, Oxford Properties, it is currently delivering the £320m St James’s Market redevelopment between Regent Street and Haymarket, which will create a 10,000 sq ft public square as the centrepiece of a new shopping and dining destination in the heart of St James’s. Head of the St James’s Portfolio at The Crown Estate James Cooksey said: “This is another great addition to the restaurant mix in St James’s, emphasising the momentum we have behind our plans to develop the area’s reputation as one of London’s top dining destinations. Milos will offer a fantastic new experience for London’s restaurant goers.” Costas Spiliadis, owner of Milos said: “London is the natural destination for our expansion and we are really excited to bring our fresh contemporary take on Greek seafood to the UK. St James’s was the perfect choice for us, representing the kind of cosmopolitan, refined characteristics that we think fit perfectly with our own brand.”

Stonegate launches staff reward card: Stonegate Pub Company is launching an employee Reward Card scheme, the Stonegate Reward Card offering discounts on food and drink purchases, as well as free door entry, across its estate for its 12,000 staff. The card enables all employees to benefit from a 25% discount on all food and drink purchases across the company’s 623 pubs and late night bars, all day, every day. The reward card scheme was developed from idea originally put forward by a group of four general managers on the company’s Aspirations Programme, which is for high achieving general managers looking to take the next career step. An element of the course involves developing strategic ideas that may benefit the Stonegate business. Tim Painter, human resources director, said: “The Stonegate Reward Card is a fantastic way for the business to say thank you to all of our 12,000 employees who work so hard to give our millions of customers a great time. The card gives each employee a 25% discount on all food and drink in every Stonegate site – and if they take their friends and families with them, then they also receive the discount. We have many towns and cities with several Stonegate businesses in them, so now our people can have an even better night out across our different sites.”

Douglas Jack issues share price recommendations after conference: Numis Securities leisure analyst Douglas Jack has issued share price recommendations after his conference last week where major companies presented. He said: “Domino’s Pizza (Buy / TP 710p): Almost all of the UK’s recent 14.6% like-for-like sales growth was volume. Margins should continue to grow even if food gross margins are flat over the next two years. Higher franchisee Ebitda should encourage faster expansion, driving up volume, advertising and like-for-like sales, in a virtuous circle. No franchisees (are leaving) the system for other opportunities (Domino’s returns are hard to match), but Domino’s has reduced the number of franchisees from 180 to 112. This number should now increase slightly. In Germany, losses are starting to fall and capex is close to zero. With no rent and minimal debt/capex for the group, the company now intends to return almost 100% of Profit After Tax to shareholders; Fuller Smith & Turner (Add / TP 1050p): Like-for-like sales, up 7.7% in Q1-3, have been equally strong in and outside London (half the estate is outside the M25, south of Birmingham). It is benefiting from growing customer demand for premium products: it has extended its premium portfolio; and continues to raise staff quality and service standards. Food sales growth, which has been particularly strong, reflects attractive value and a quality that competes with restaurants; Marston’s (Buy / TP 185p): (The company) is stepping up its new build pub restaurant expansion programme, which is consistently achieving the 16.5% freehold COCCE target. This and next year’s pipeline are complete; and there is good visibility on 2016E and 2017E sites, with 30% of new openings likely to be in the south of England and 25% likely to have adjoining accommodation. The company envisages further upside from utilising new hand-held technology and kitchen software, taking share from restaurants, narrowing the service gap; Mitchells & Butlers (Add / TP 525p): (The company’s) main focus is on improving staff quality (now recruiting centrally; better training and customer feedback) and operational execution, with the latter helped by new IT systems (hand-held devices, kitchen management software and table management), which are now in 500 sites. Despite expansion picking up (to 40-50 new sites per annum), the company will reconsider its dividend policy once the “cordial, but challenging” negotiations with the pension trustees are complete; Spirit Pub Company (Buy / TP 110p): (The company) has the right brands, in the right segments, to target having 1,500 pubs, a 25% increase, over the long-term. Flaming Grill has the potential to double in size (from 93 sites), especially having generated high returns from capital-light conversions. Management believes more value can be unlocked from new pub IT systems, increasing efficiency, service speed and the use of e-marketing.”

Technomic and Propel Info partner to launch UK and US foodservice perspectives conference: Leading insights and research firm Technomic has partnered Propel Info to launch the first ever full-day conference that compares and contrasts current eating out trends in the UK and the US. The day will look at some of the most innovative foodservice launches in the US in the past year – and provide analysis of the US brands currently looking to enter the UK market. Technomic’s vice-president Darren Tristano will examine best practice in menu, concept and service among growth concepts. There will also be insights on today’s foodservice consumer, current key UK industry metrics and forecasts and beverage trends in the UK and the US. Panel discussions include leading UK and US culinary directors and consumer insights directors, as well as a case study of a new beverage menu roll-out. Technomic’s Patrick Noone will provide insights on current UK trending menu flavours and preparations and consumer priorities and attitudes. Don Fox, chief executive of Firehouse Subs, the 750-strong US-based, fast casual restaurant chain that specialises in hot subs, will offer lessons from a leading US growth chain. Propel managing director Paul Charity said: “The conference offers a great way to understood both UK and US foodservice trends, with panel discussions involving leading operators from both countries.” The conference takes place on Tuesday 10 June at Stationer’s Hall, Ave Marie Lane, London and tickets are priced at £345 for operators and £395 for suppliers. Those attending will also get a free copy of a Technomic report on the performance of the 250 leading US restaurant companies and the UK’s leading 100 foodservice brands. To book a place e-mail jo.charity@propelinfo.com

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