Subjects: Health professionals’ guess work, SA Brain’s coffee shop venture, and benchmarking
Authors: Paul Chase, Philip Lay and Kate Nicholls
Health professionals and “guess work” by Paul Chase
What struck me when I read Dr Foster’s reply to my article on the Westminster Policy Briefing was how lacking in substance it was. Insofar as he made any substantive points he got even the most basic of facts wrong and then misunderstood the points he was replying to. But I’m here to help: firstly, as a lifelong atheist I’m not sure I recognise his characterisation of me as an Old Testament prophet proclaiming from the desert – maybe I should grow a beard!
But to attend an event like this makes you aware of just how polarised the position of public health professionals and the drinks’ industry really are. Did this make me feel “marginalised”, as he suggests? A recent Mori poll revealed that four out of five adults don’t like politicians and public health professionals telling them what to eat and drink. I think that says all that needs to be said about which of us is marginalised.
His states that the public health community have become effective lobbyists, over the past 15-20 years, because “they have amassed a body of evidence that has convinced policy makers that they can no longer ignore the costs of alcohol”. These calculations, he assures us, are not done “on the back of a fag packet” and even whilst some are “guestimates”, they are guestimates “based on robust epidemiological data”. So….“our guesses are no ordinary guesses, they are M&S guesses!” How reassuring.
Certainly, NHS Information Centre statistical evidence is carefully compiled. But their misuse by “the public health community” – or those elements of it with an ideological anti-alcohol obsession - has been nothing short of scandalous. Even the Department of Health now realises that the use of ‘alcohol attributable fractions’ has created a false counting methodology that inflates the number of alcohol-related hospital admissions by a factor of at least five.
Dr Foster goes on to state that from the early 1990s to 2004 there was a steady increase in alcohol consumption. He attributes this to the “fact” that over this period local authorities were not able to refuse licensing applications on the grounds that areas were already “saturated” with licensed premises – hence the need for cumulative impact areas. In other words it was the growth of alcohol’s availability that made people drink more of it.
Actually, local authorities didn’t assume authority over licensing until November 2005, but never mind! It was the Licensing Act 1964 that applied during this period and licensing justices, sitting in the Magistrates’ Court, heard applications for new licences. There was a presumption that new applications would be refused unless the applicant could prove need. This ‘proof of need’ provision meant in practice that new licensed premises were about as common as hen’s teeth. It was only around 2001, with the publication of the White Paper ‘Time for Reform’, that licensing justices began to take a more relaxed view of new licence applications.
The fall in alcohol consumption began in 2004. Consumption has reduced 17 per cent since then. This has precipitated a reduction in the number of licensed premises – with pub closures peaking at around 54 per week, together with a collapse of the stand-alone off-licence sector. It is consumption that drives availability, Dr Foster, not the other way round. Cumulative impact areas were introduced to deal with a particular problem in the night-time economy, not as a whole population measure to reduce alcohol consumption.
On the issue of minimum unit pricing (MUP) Dr Foster suggests that those wanting a 70p MUP are “unlikely to succeed”. At the Westminster Policy Forum the keynote speaker, Professor Lindsey Davies, President of the Faculty of Public Health said this: “So I would suggest let’s get on with the consultation, let’s have a minimum unit price of at least 50p and ideally be bold and go for 60.”
Dr Foster contrasts the evidence gathering of Medical Temperance with the industry case: “The case for the alcohol industry is almost entirely based upon a commercial case.” Here he betrays the inherent snobbery and economic illiteracy that characterises his view. Below, I paraphrase one small aspect of that case, presented at the Westminster Policy Forum by Douglas Meikle of the Scotch Whisky Association:
“Scotch Whisky is exported to 200 countries around the world and this accounts for 25 per cent of the UK’s food and drink exports – worth some £4 billion; the UK is the industry’s third largest market; a health-based trade barrier (MUP) will lead to copy-cat action for protectionist not health reasons.”
For Dr Foster the industry case is dismissed as a mere ‘trade objection’, not to be taken seriously. The livelihoods that will be damaged as a result of MUP and other neo-prohibitionist measures is, in his eyes, a price well-worth paying if it brings the realisation of his public health utopia even a little closer.
Finally Dr Foster reminds us that he and most other public health professionals are not teetotallers, but friends of the pub! He asserts “some of our best collaboratives have taken place over a few pints.” Picture the scene: Dr Foster and like-minded souls ruminating over a few pints about how much other people need to reduce their drinking! I can only express the hope that he doesn’t conduct these soirees as a reward for a hard days’ work, or he might find himself transported to the top of a slippery slope!
Paul Chase is a director of CPL Training and the UK’s leading on-trade commentator on alcohol policy
Why we expanded into the coffee market by Philip Lay
That was the first word that came to mind when I started to think about what I would write for this column. Mind you, it is generally the first word that comes to mind for most of us in the hospitality sector, most days. They are the opportunity. They are the problem and the solution. They are the most interesting and most important thing that we invest in, no matter what environment we put them in to.
With that thought the most asked question by my peers, following our move into the Coffee shop business, is almost rhetorical - ‘Why Coffee?’ I am most surprised, not by the question but, that so many people think it has been such a bold move. OK, they don’t sell alcohol, but then that actually represents a lower proportion of income in pubs than ever before. Apart from that the environment and core skills have many similarities – most of which are around the people.
We work very hard in the pub sector to deliver excellent, wide ranging experiences for our customers. We recruit and train people constantly and have developed skills to get the right people into the right businesses. Every operator will recognise that if you get that right, the chances of delighting the customer more often are massively increased. The challenge in a pub remains that we are expecting our people to be impossibly good: Great at real ale; pull a perfect continental lager; have a knowledge of wine; be able to know and make cocktails; host a function; deal with a troublesome customer; know the law and be accountable for customers who break it; be great at table service; have full knowledge of food and hopefully, also serve a decent coffee.
Given all of that then, it should be much simpler to just do the coffee and service bits shouldn’t it? It is, but simpler does not mean simple.
When looking at the Coffee #1 business we quickly recognised that the business offered us an opportunity to move into a new sector that had great growth potential. It was totally aligned to our company mission statement of ‘Delivering outstanding customer experiences, with pride and passion, across the UK.’ We could see how we could expand the business quickly – much quicker than pubs – as the site criteria was clear, there was plenty of space on the high street and new shops were nothing like as contentious as trying to get a new liquor licence. It highlights to me the lack of joined up thinking in government when I can open a new coffee shop within about two months of identifying the site, creating about eight to ten jobs, but if I try to open a new pub creating about 15 to 16, it will certainly take six months and probably a year!
If expansion is the plan, the key limiting factor to doing it successfully is, again, people. We have so far grown the business from 15 shops to 26. This has been delivered over about a seven month period. Although we have a great core team in the business, who are passionate about serving great coffee and experiences in the shop, trying to match the speed of roll out with their uncompromising standards has of course been a challenge. We would never have achieved what we have so far, if the people in the business had not believed in the vision. Growing pains? For sure, but when you keep really focused on a few key things it is amazing what can be achieved.
Have we compromised the offer to grow it? Absolutely not. Winning ‘UK coffee chain of the year’, for the fourth consecutive year is endorsement of that if we needed it, but more importantly our customers remain massively engaged with the brand, helping guide any changes that are needed. The focus on social media in Coffee #1 has helped us understand what we need to do better in the core pub business.
The journey so far has been as exciting as it has exhausting for many of the team, but the pride, passion and enthusiasm for delivering excellent customer experiences will enable us to continue to grow a ‘strong coffee’ business.
Philip Lay is the retail director of SA Brain
Benchmarking the sector by Kate Nicholls
Back in 2007, the Association of Licensed Multiple Retailers decided to launch a new initiative to develop Key Performance Indicators (KPIs) around common operating costs in the sector. The aim was to work out what the average cost of running the average pub was – to help operators measure, assess and benchmark their own performance.
The data soon took on a far greater importance, however. As the sector slid early and fast into recession hard on the heels of the smoking ban, cost control became an even more important component of profitability. The results also highlighted how out-of-synch rents and valuations were across the sector as a whole.
Unlike much of the rest of the hospitality industry where rents are set on a more straightforward, commercial basis, pub rents are still based on business performance and estimated trading. An accurate indicator of operating costs is therefore a critical determinant in that calculation. Today, the survey is recognised and approved by the Royal Institution of Chartered Surveyors and industry codes of practice for use in rent setting.
Controllable costs are broadly similar between freehold and leasehold sites, but within the leasehold sector there are big variations. Industry tied leases have far lower operating costs at 42 per cent of turnover, compared with 48.4 per cent for free-of-tie leases, usually commercial agreements.
But it is also a truism that the level of rent – expressed as a percentage of turnover – is a good rough and ready indicator of the health of the business. There are many in the sector who have always maintained that 12 per cent of turnover is a profit fulcrum – above that, and the business will struggle; further below that you are, the more profitable your business is.
The Benchmarking Survey shows rents averaging just over 11 per cent of turnover for the past three years. So the sector generally appears to be on the right side for the time being. But rents have been gradually creeping higher – up almost 11 per cent since 2009. So for how much longer will this remain the case and are we reaching a tipping point?
Not unsurprisingly, there are considerable variations depending on trading style – with town centre outlets commanding the highest price with rents at 12.7 per cent of turnover. But the band has narrowed and there is a far tighter range of rents (9.8 per cent – 12.7 per cent) around the average. In previous years we have seen considerable variance, with rents ranging from a low of eight per cent to a high of 14 per cent. There was also a variation according to the size of company. Premises in a company with fewer than ten outlets reported lower average rents, at 9.9 per cent of turnover compared with 12.5 per cent for companies with more than 30 premises.
For the first time, too, we have seen a significant increase in rental costs in the tied sector. The Benchmarking Report provides a limited amount of analysis comparing tied and free-of-tie leases – although with just one per cent of industry leases surveyed being free-of-tie, in reality this is a comparison between industry and commercial leases.
Although the gap between the proportion of turnover accounted for by rent in the tied and free-of-tie sector had been narrowing as well over the last three years, this year rents for tied outlets averaged 12 per cent of turnover – breaching that crucial tipping point for profitability – compared with 10.6 per cent for free-of-tie leases.
This is perhaps a reflection of the state of the commercial property market and the appetite and desire to do deals with good operators to fill empty properties. Survey returns certainly gave an indication of a number of peppercorn rents and first year deals, a far higher proportion than we have seen in previous years. And, of course, this segment of the market remains in ruder health – lower operating costs and rent as a proportion of turnover, better margins and like-for-likes and stronger capex.
The Report is based on information supplied to us by companies and individual outlets – not just ALMR members, but operators across the industry. This year’s survey is based on information provided by over 2,000 outlets – the biggest, broadest and most representative survey of this type carried out to date. It forms an integral statistical underpinning to our lobbying and campaigning work on matters such as gaming machine duty, national minimum wage as well as graphically demonstrating the impact of red tape on business profitability.
The headline results are freely available on the ALMR website and the full report – including a detailed breakdown of all cost lines, turnover mix and business performance KPIs by trading style and company size - is available to order.
Kate Nicholls is strategic affairs director of the ALMR
