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Morning Briefing for pub, restaurant and food wervice operators

Thu 26th Nov 2015 - Marston’s – we’re looking for other avenues of expansion
Marston’s – we’re looking for other avenues of expansion: Marston’s has reported that it looking for other opportunities for expansion as it nears completion of a three-year plan to optimise its pub estate. The company reported underlying group revenue up 7% to £845.5 million in the 52 weeks to 3 October. Underlying profit before tax was up 10% to £91.5 million. It said it had achieved profit growth in all trading segments despite disposals. Marston’s said the transformation of pub in its estate is well-advanced, with average profit per pub up to £100,000. A total of 25 new pub restaurants were completed this year, creating 1,250 new jobs. Around 550 pubs have been converted to its franchise model – and its ‘high quality leased business delivered like-for-like profit and rental growth’. Average profit per pub is up 15% in 2015, up around 40% since 2012. It said its ‘market-leading beer business continues to grow strongly’ – a strong brand portfolio continues to outperform market with volumes up 15%. Hobgoblin Gold has sold circa 20,000 barrels since launch this year. The company said it is well-positioned for growth in 2016 and it planned at least 20 new-build pubs, including its first new-build Tavern planned for current year, as well as two Revere premium pubs bars and five lodges. Marston’s argued a focus on premium and craft beer driving growth and delivering market outperformance. Chief executive Ralph Findlay said: “The three year transformation of our pub portfolio towards an optimised estate is now largely complete. We approach 2016 with our business successfully positioned at the forefront of industry trends with high quality, well-invested pub assets which are fit for the future. We have great people and a growing portfolio of leading beer brands where our focus on premium and local provenance continues to serve us well. Looking forward, we remain on track to open at least 20 new-build pubs this year and have in place a carefully selected site pipeline in key regional locations for 2016 and beyond. Whilst new-build, food-led pubs remain our core growth driver, we have evolved our strategy to capitalise upon other opportunities for expansion where we see attractive returns potential. At this early stage of the current year trading has begun well and we look forward to building on this momentum over the months ahead to deliver another year of good progress for the Group.” It outlined the five key elements of its strategy: 

Building pub-restaurants: “In our Destination business, we have opened over 130 pub-restaurants since 2009, offering family dining at reasonable prices. These pubs generate high turnover, with target sales of £25,000 per week and a food sales mix in excess of 60%. We have an experienced site acquisition team, and a well-established site selection process. As a consequence this expansionary investment has generated consistent returns and we have extended our trading geography to include southern England and Scotland. New pub investment creates significant value for shareholders, as demonstrated in the pub estate valuation that took place in the financial year. We opened 25 pub-restaurants in 2015, creating 1,250 jobs, and expect to open at least 20 per annum for the foreseeable future, including our first new-build Taverns pub in 2016.” 

Broader investment in Premium pubs and accommodation: “In addition to the investment described above, we believe there is further opportunity to grow both our Premium pub business and accommodation. In 2015 we successfully converted two pubs from the existing estate to our Revere format and opened three lodges adjacent to new-build pub-restaurants. Organic room income has been consistently strong with sales growth exceeding 50% over the last three years and we anticipate similar trends in the future with growth in leisure and business visitors. Looking forward, we expect to continue this expansion with two Premium bars and at least five lodges opening per annum.”

Investment in areas less exposed to competitor over-supply: “We are operating in a market where there is currently a high level of investment in new supply, particularly in branded casual dining. It is estimated that in 2015 around 2,000 new outlets will open in the UK eating-out sector in a market that is growing moderately. Our investment is targeted in areas that are less exposed to this intense competition, particularly in market towns where there is unlikely to be significant additional investment over and above a new pub or lodge.”

Continued growth of the franchise model: “We pioneered the introduction of franchise-style agreements into the pub sector. Our view remains that the franchise operating model improves the customer experience, attracts quality franchisees to Marston’s and enhances earnings in our community pubs. In 2015, we introduced franchise-style agreements into a further 80 pubs. This year our most successful franchisees have generated turnover levels similar to those in the Destination estate and the first multiple franchisees have been appointed. The franchise model now operates in around 550 pubs and it remains our intention to convert the remaining pubs in the Taverns estate to this model over the next few years. We are also evaluating the potential for franchise-style agreements in the Destination estate. Disposal of smaller wet-led pubs. We disposed of 117 pubs and other assets during the year generating proceeds of £70 million. The disposal programme is substantially complete, although a normal level of estate churn will continue.”

Domino’s to open circa 50 stores creating 5,000 new jobs: Domino’s Pizza is to create 5,000 new jobs in the next 12 months as it opens about 50 new UK and Ireland stores by the end of next year. It said that during the World Cup finals in Brazil last year, it received an average 10% boost in sales on match days, with sales leaping by 23% alone during England’s crucial fixture against Uruguay. Domino’s anticipates next year’s Euros will generate similar demand and forecasts that it could receive more than seven pizza orders during the tournament, which will be hosted by France between June and July. The Olympic Games, which will be staged in Rio de Janeiro during August, are also expected to boost demand. The 5,000 jobs will fill the group’s new stores and will include 1,500 delivery drivers. The expansion comes as Domino’s, which already employs about 30,000 in the UK and Ireland, enjoys buoyant demand, with like-for-like sales at its UK business increasing by 14.9% during the 13 weeks ending September 27. It now has 900 stores in the UK. The company has been focusing on developing its digital business, including its smartphone app. Britain’s wet summer also gave the group an extra fillip, as consumers typically order fewer pizzas during hot weather. Scott McLeod, the operations director of Domino’s Pizza UK, said: “Our digital ordering now represents 77% of our delivered sales with nearly 50% made on our app.”

SSP reports sales increase: Travel hub foodservice company SSP has reported operating profit of £97.4m: up 17.6% in constant currency, and 10.1% at actual exchange rates for the year ended 30 September. Like-for-like sales up 3.7%: driven by growth in air passenger travel and retailing initiatives. Revenue of £1,833m was up 4.3% on a constant currency basis and 0.3% at actual exchange rates. Operating margin was up 50 basis points to 5.3%. Kate Swann, chief executive of SSP Group, said: “SSP has delivered strong results in 2015, with operating profit up over 17% and good like-for-like sales growth across all regions. We continue to focus on delivering our strategic objectives, driving sales growth in our existing portfolio and winning new contracts which are extending our international operations, whilst remaining committed to operating an efficient business. The new financial year has started in line with our expectations and whilst a degree of uncertainty always exists around passenger numbers in the short term, we continue to be well placed to benefit from the structural growth opportunities in our markets.”

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