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Morning Briefing Strap Line
Fri 6th Feb 2015 - Friday Opinion
Subjects: Craft beer retailing, growth for growth’s sake, reflections on the food-to-go market
Authors: Martyn Cornell, Steve Kenee and Ann Elliott


Lessons from Propel’s Craft Beer Retail Study Tour by Martyn Cornell

Considering it took in a comparatively tiny slice of inner London – seven venues inside not much more than a square mile of hipsterdom, from the Angel in Islington through Shoreditch to Hackney – Propel Info's Craft Beer Retail Study Tour last week, organised with the help of the Thinking Drinkers, Ben McFarland and Tom Sandham, left the more than 40 people from 20 or so retail operators on the tour with plenty to think about.

They saw seven distinct and distinctive approaches to selling "craft beer", all clearly very successful, from the "brew it yourself" of the new Brewhouse & Kitchen outlet just off the City Road, where weasels once popped, to the tight and well-trained set-up at BrewDog's Shoreditch bar, to the fascinating hybrid that is Mother Kelly's in Paradise Row, Bethnal Green, where, underneath the arches, Nigel Owen of Moontide combines a bar boasting 23 craft keg beer taps with an off-licence that has a huge range of chilled bottled craft beers to take away. At the Well & Bucket, just up the road from BrewDog's Shoreditch bar, at the King's Arms in Buckfast Street, Bethnal Green, at the latest Draft House, the Birdcage in Columbia Road, Bethnal Green and at the Fox in Kingsland Road, Haggerston the study tourists were shown four different ways to turn ordinary, slightly run-down East End of London boozers into attractive, inviting, 21st century bars capable – and this is important – of attracting a strong local following, as well as drawing in visitors from far-away postcodes such as NW3.
What lessons did those on the tour take away? Well, choice is good, certainly: craft beer customers seem to expect a dozen or so different draught beers to pick from as a matter of course. Price is not a problem: this may be a London thing, but nobody seemed to think that the high cost of a pint of something rare and strong was putting people off: and in any case, several of the retailers visited were very happy to sell their stronger draught beers in one-third of a pint glasses, which brings the price per glass down to something a little less toe-curling. Quality is vital: keeping the beer lines cleaned regularly should go without saying anyway, but is even more important when, as many craft beer bars do, beers are changed over regularly. Staff training is also a key part of the offer. BrewDog has been rightly praised for this, but knowledgeable barstaff who can advise and guide customers who may be unsure what they want and what they might like are going to be an essential part of the set-up for anyone who wants their craft beer offer to be taken seriously.

Everybody should hire enthusiastic staff – that was a clear message – but BrewDog, for example, goes out of its way to encourage its barstaff to study for the American cicerone qualification, and pays those who gain qualifications more money. Food, too, is going to be an important part of the offer, judging by the outlets the study tour visited: craft beer operators are seeing upwards of 50% of their turnover come from food, and if you add in the drink that is consumed with that food, it suggests that without a decent menu to attract and keep people, you will quickly be losing customers to places down the road that have thought about what they want to be doing with their kitchens and are getting it right. You don't, like the Well & Bucket, have to be serving oysters, but…
A question the study tour perhaps failed to answer is the demographic one: who ARE the craft beer drinkers? They're not all manbun-wearing bearded hipsters in their 30s with full-sleeve tattoos, certainly, since there are not enough of those people to keep any bar going outside Hoxton. This may be a question tied up with another, even harder to answer: what is craft beer? Is cask beer craft beer? Should we make a distinction between what Nick Miller of Meantime Brewing calls "traditional craft", as represented by Britain's surviving family brewers, and the many hundreds of small brewers who emulate them with beers that are much the same as those being brewed in the 1930s, and "modern craft", brewers like Meantime itself, BrewDog, Thornbridge, Siren and so on, drawing from a wide range of sources for inspiration for their beers, from the American West Coast to Belgium to Bohemia to their own fertile imaginations?
The demographic question is certainly worth asking. If you build a craft beer bar, they will not necessarily come. You can stock it entirely with "modern craft" beers, as, for example, Mother Kelly's has, with no cask ale at all, or you can stock only cask ales, as, for example, the Sussex Arms in Twickenham, West London, near my home, which has a dozen handpumps, plenty of manbun-wearing staff behind the bar and a "vinyl only" music policy, but that apart is pretty much a "traditional" pub, with no keg taps. Both have been very successful. But Twickenham's most "modern craft" oriented bar, Ales and Tails, with craft beer bar signifiers such as keg taps protruding from tiled walls, closed after barely a year. Maybe that is the difference between East London and West London: the west may be still more traditionally oriented than the other, and not ready for masses of "craft keg" yet. Looks like the next craft beer retail study tour is going to have to be around the capital's western suburbs …
Martyn Cornell is managing editor of Propel Info

Growth for growth’s sake by Steve Kenee

Whenever I issue a press release on a new investment, the first question I’m asked is usually either: "How many sites do you intend to open?" or, "What is your target list of locations?" – which is pretty much the same question but asked in a different way.
My answer tends to frustrate the questioner, as the businesses we invest in rarely have a defined list of target locations and they hardly ever set the number of openings they intend to make. Nor, quite frankly, do I think they should.
Don't get me wrong, growth is good. Growth drives business value, business value grows investor returns and investor returns grow the size of the smile on my face after my appraisal.
Growth, as a goal in itself, can also be great for driving financial returns. The private equity model is often centred on the principal of proving a business’s growth potential before selling the business on the promise of further growth potential for the next PE house to exploit.
But growth for growth’s sake can also be a dangerous thing and is not always good for a business. It can be particularly dangerous when the number of openings is moved to the top of a business’s agenda by investors trying to drive exit returns rather than management trying to build a good business.
If the principal reason behind your most recent opening is because your investors were insisting you open more sites, rather than because you have found a site which grabbed your imagination and fits your business perfectly, then you are more likely to open the wrong site. Opening the wrong site can provide a huge drain on management resources and, particularly in the case of a leasehold model, it can cause a huge financial drain as well. Many good businesses have failed because of onerous leases, which were taken on for the wrong reasons.
It is not that I don’t want to invest into businesses that want to grow: in fact it is quite the opposite. Building long-term relationships with operators who want to grow their business is the principal way we manage risk and is the cornerstone of our business model: not because our returns are driven by opening more sites (we tend to provide funding on an acquisition-by-acquisition basis) but because picking a good management team is the most important driver of success and often the easiest judgment call to get wrong.
Similarly, I want to invest in businesses that have a long-term strategy, that understand their business model/customer base and that can identify the kind of locations that the model fits. I am a firm believer in the old adage that unless you know where you want to get to, it is very hard to know when you have arrived.
Where I do get concerned is when the number of openings is set as the primary objective. or where the funding structure forces it to become the primary objective such as is often the case with listed companies or those that take on funding ahead of making acquisitions (the "war chest" approach).
To me, the primary objective should be to run a good, profitable business operating good profitable sites, sites that are not only profitable but that add something to the whole. If every site you open is opened because it fits your business, then you will end up with a good business. To put it another way, if every step is one you want to take, then you will end up where you want to go.
So to bring this musing back to where I started, what frustrates me most about questions on growth targets is not the question itself, but the fact that it is often the first thing I am asked.
If you have a business that you feel has the ability to grow but want that growth to be driven by you rather than your investors then please get in touch. Downing is very much open for business.
Steven Kenee heads the licensed sector team at Downing LLP. Downing has more than £500m under management, a significant proportion of which is invested in the licensed sector.

Reflections on the food-to-go market by Ann Elliott

Our team went to the Food to Go conference in London yesterday and took a lot out of the day, giving us plenty of inspiration to chat about today. Some of the items we have been discussing have included:
When will the growth in coffee sales slowdown?
Not any day now it seems. The general consensus seems to be that there is still considerable growth to come from the coffee marketplace, with fresh brands and concepts appearing every week, new-build sites being opened at a pace and the quality of coffee in existing outlets improving all the time. Most operators seem to have a continuous improvement policy on their coffee offer, from the beans they use to how they roast them to how they present the drink in the cup. I really like the coffee in Benugo’s at the moment and think that brand is in a really exciting phase of its development.
Are pubs dead in the longer term?
If they are dying, then it is a slow and lingering and a long way off. The better performers in this market place know that they have to compete against a much broader range of competitors than they have ever done in the past. It is not just about competing against other pubs, it is about being first choice when up against every food offer on the high street, and that includes food-on-the-go outlets. Perhaps it is an area for them to consider?
Can a motorway services area be a destination?
This is becoming a reality, as witnessed by Welcome Break moving into a totally branded environment, a game changer for them. Constantly evolving the best brand line up for its customers seems to be one of the reasons for its success. With an average customer dwell-time of 25 minutes, it looks like brands provide a short cut to consistency, reassurance, value-for-money and quality. Personally, the Waitrose brand makes Welcome Break a destination for me, but its roster of other brands, particularly in take-out, means it could be creating a destination venue for a huge swathe of customers.
Why is Subway so successful?
Subway opened store number 2,000 in Hemel Hempstead, Hertfordshire last week. There were more than 260 units opened in UK and Ireland last year alone. The secret seems to be having a strong network of development agencies handling every stage, from franchisee recruitment to opening. The company says that its four brand pillars – value, health, choice and quality – keep it focused. It is also seeking to give consumers what they want, when they want it, where they want it: hence Subway’s diversification into non-traditional units such as hospitals. It is hard to argue with success on such a massive scale.
Can EAT compete with the big guys?
Sarah Doyle from EAT talked about customers wanting to walk three paces from their office door to their lunch, actively seeking out something different to eat every day and wanting consistency and quality. EAT presented quite a compelling story on the need for innovation in order to compete in a packed market place.
How critical is speed in the lunchtime market?
Tom Weaver from Flypay once told me that, on average, it takes ten minutes in a restaurant from deciding you want the bill to actually walking out: patently painful if you only have an hour for lunch. John Vincent from Leon reinforced the need for speed when he said that it takes 45 seconds from ordering over the counter to being handed your food in Leon. The main thing is getting the food quickly to consumers so they can make the most of their lunch hour/spare time and use it enjoying their food.
How has Greggs turned itself around?
Going back to a single-minded strategy has resulted in a massive recovery for Greggs, which was in decline in 2012, and is now seeing positive growth again. The company took stock and decided what it wanted its brand to stand for. The answer: "food on the go" rather than a bakery. I also personally think chief executive Roger Whiteside is quite brilliant.
A good conference by all accounts, and lots of food for thought.
Ann Elliott is chief executive of Elliotts, the leading sector public relations and marketing agency

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