Subjects: Growth of food sales at managed pubs, reviving the high street, passion and generosity in the sector and the structural challenge of falling alcohol sales among the young
Authors: Paul Charity, Professor Chris Edgar, Ann Elliott and Dr John Foster
The growth of food sales at managed pubs by Paul Charity
In 1996, Bass executive Tony Hughes wrote a hand-written letter to an American capacity management firm called Deterministics asking for help. Hughes wanted expert assistance in improving systems at his company. Bass sensed the huge latent demand for moderately priced good quality pub food from the dual income middle classes, but knew it needed to restructure its back-of-house systems to cope with greater volumes.
It had a chargrill concept with 122 sites called Harvester where 80% of the menu items were cooked on a single piece of equipment. Deterministics president Brian Sill recalls: “You can imagine the amount of grill cooking and holding taking place in the heat of the rush, and the amount of overcooking as a result. To minimise kitchen impact, guests were told there were no tables available despite many open tables in sight of the host stand. The conclusion of our assessment identified the need for new operating procedures, new service structures, new cooking platforms and new staffing deployment systems.”
The point of this digression into the mists of time is to underscore how comparatively youthful organised foodservice is in the pub sector. But the recent report by foodservice company Horizons serves to show how the pub sector is fulfilling its potential. Managed pubs have grown market share by four percentage points in five years to account for 22% of the total spend. Not unreasonably, Horizons extrapolates and forecasts an extra 4% of market share coming the way of managed pub operators by 2016. Interestingly, Horizons calculates the combined managed pub universe at 17,000 pubs, which is around 9,000 more than the figure which is usually quoted. The Horizons figure counts in all those large pubs operated under a leased and often tied contract but directly managed. On Easter Saturday, we travelled to Whiting & Hammond’s Stanmer House, near Brighton, which, although on a commercial free-of-tie lease, is typical of the managed pub sector’s capacity expansion of recent years. Formerly largely used as a wedding venue, it now chalks up £30,000 of sales and is still moving up the sales growth curve.
The development of pub food is an unfolding story that has at least ten years to run its natural course. Horizons predicts that it will be a whole decade before food sales account for 50% of managed pub sales across the board. In global terms, this 50% level is actually at the lower end for food sales in the integrated food-and-drink sales mix. (In the US, a bar concept like Tilted Kilt, as wet as concepts get in the States, still sees food account for 50% of overall sales).
The further growth of pub food will be underpinned by three main drivers. First is extra capacity. Whilst smaller pubs have seen net closure rates, large managed pubs have been in net growth every year since the recession. My calculation is that around 250 large capacity managed pubs have opened a year in each of the past three years. JD Wetherspoon, Mitchells & Butlers, Greene King, Marston’s and a host of independent multi-site companies have been opening new-build sites – or sites so transformed by capital expenditure that they are new-build in all but strict definition.
The second driver is capacity utilisation. A lot of the UK’s pub stock was built big, with gardens to match. The last few years, in particular, has seen operators putting these assets to better use to capture food spend. Spirit Pub Company, for example, has set about transforming under-utilised but good quality community pub assets with branded food offers. It’s been a process of catch-up elsewhere in the estate, with Chef & Brewer modernised. Its major job-in-hand is to apply the same focus to its good quality leased estate. This expansion into food is being followed by tenanted operators. A host of tenanted operators such as Punch, Star Pubs & Bars, Greene King and Enterprise Inns are keen to apply capital spend to their larger assets in partnership with good quality multi-site operators (and independents) to capture food spend.
Last but not least among the market share drivers is the motor of organic expansion. The current sales mix of many large managed pubs carries the legacy of over-weighted beer sales. The past 30 years have been a story of this legacy unwinding, propelled by an unfriendly tax regime. JD Wetherspoon is at least a decade away from gravity asserting itself fully here and arriving at a natural 50/50 food and drink split. Food sales have grown from 23.2% to 32.5% of sales in the past decade. The first half of 2013 saw a remarkable 13.4% jump in food sales. The company, as well as others, will know that this direction of travel needs to be pursued relentlessly. If growth continues along the current trajectory, managed pubs could well control one-third of the UK eating out market in ten years’ time.
Paul Charity is managing director of Propel Info
Reviving the high street by Chris Edger
The narrative surrounding the debate about the ‘decline’ of the high street has pointed the finger at a number of ‘guilty parties’, supposedly responsible for the chronically high levels of vacancy rates of some town centres (40% in some cases – the national average standing at 14%). Who are these miscreants?
At the beginning of the debate the supermarket multiples were cast as the evil villains of the piece in the 1990s, stripping out independent retailers through price (grocers, butchers, bakers etc). Their movement into non-food areas such as clothing, books, audio, electrical in the early ‘noughties’ was also cited as having a further ‘hollowing’ out effect.
More recently the debate has turned to behemoth on-line retailers who – not having to pay rates for space in the ‘cybersphere’ (or in some cases UK domiciled tax rates!) – can undercut their ‘bricks and mortar’ cousins. In both instances the rise of edge-of-town hypermarkets and cyber trading) the government and its local agencies have been accused of taking a lax approach to planning and an inflexible attitude to making the costs of doing business on the high street more equitable for independents who (let us not forget) make up 67% of high street tenants! Initiatives such as providing small regenerative grants have been derided as using ‘peashooters against tanks’; particularly when these grants fail to be properly or speedily allocated due to ‘treacly’ bureaucracy!
But let’s get beyond the blame game! What are the solutions? As with most issues that involve ‘paradigm shifting’, moments within industries (in this case the move to omni-channel retailing) – choices are not binary but multi-agency/party. But who are the players involved and what can they do?
Landlords: The party which actually owns the space on the high street must take a more realistic view on yields, covenant strength and onerous clauses/conditions (‘put and keep’, duration, upwards only reviews, quarterly rent collection etc). Although many landlords are taking far more pragmatic approaches (particularly during renewals) they often wait for tenants to ‘hit the rocks’ before they act flexibly. The good times are over; landlords must take far more creative approaches to retaining and enticing tenants (turnover rents which reflect seasonality, monthly collections, maintenance/insurance assistance etc).
National government: Most commentators agree that instead of instigating publicity-related grandstanding ‘nursery’ initiatives, the government of the day could do two things that would be of material benefit to the high street. First, give the banks that they own sufficient license and liquidity to lend to small entrepreneurial local businesses – fast! Second, create a level playing field by either making the costs of doing business for those that occupy non-dom tax-free cyberspace more expensive and/or reduce the structural costs of doing business on the high street (taxes and rates).
Local authorities: These parties must take more effective strategic and operational approach to managing the high streets under their aegis of control. From a strategic point of view, they need to draw up coherent long-term plans that will facilitate revivals through infrastructure regeneration (transport hubs, cheaper car parking, integrated redevelopment). At an operational level their high street management teams should focus upon environmental improvements (ie ‘clean and green’) and footfall generation through marketing points of difference and showcasing special events. Local authorities are also pivotal in granting planning approvals and licenses for tenants (such as hospitality and food service) who will provide a balanced/sustainable ‘mixed’ economy (ie day and night-time traffic).
Retailers: Both chain retailers and independents must adapt to the new commercial reality of the high street induced by an interconnected ‘disruptive trinity’; straitened economic conditions (reducing levels of discretionary spend), technological innovation (rapid ‘hyper digitalisation’) and changing consumer behaviour (promiscuous searching for quality and value). Chain retailers must be adept at combining both ‘click and brick’ – going multi-channel whilst leveraging their core land-based estate in a different way; more ‘experiential stimulation’ and ‘retailtainment’ to drive traffic combined with a broader means of providing customer access (click and collect, drive-throughs, immediate delivery.) Independents must also drive a multi-channel approach, showcasing their differentiated service offers alongside providing customers with more efficient order and collect/delivery systems.
Consumers: The final party in the high street revival process is the consumer. In essence the consumer – whilst sympathetic to the plight of retailers – will vote with his or her feet. What is preferable – a one-stop shop retailtainment experience at a regional mall or a rummage around amongst thrift shops and dime stores in a tertiary location with high car parking charges! In the end the consumer will determine the plight of the high street so the parties listed above (especially landlords, local authorities and retailers) have to understand what the (local) consumer values above all else and then satisfy their needs! To date, many solutions have – whilst being well-intentioned – been insufficiently attuned to what the customer really wants. Surveys and reports on the high street have produced voluminous amounts of data but few insights. High street commentators and analysts perhaps need to reach beyond the rational ‘alibis’ that people give for abandoning the high street to understand the real reasons for their flight!
It’s not too late for many of the solutions outlined above to be applied and – indeed – many of the cited interventions/innovations are being implemented in places. The point is this - stop the blame game! The parties that have a vested interest in the high street surviving should get their skates on to create a new vibrant and thriving high street model where it stands a chance of succeeding;- or get real and turn the space over to alternative commercial/residential use!
Professor Chris Edger, the author of ‘Effective Multi-Unit Leadership – Local Leadership in Multi-Situations’ and ‘International Multi-Unit Leadership’, is Professor of Multi-Unit Leadership at Birmingham City University where he researches and teaches the ‘art and science’ of high performance service-based retail, hospitality and leisure
The sector that combines passion and generosity by Ann Elliott
“We want to see a bunch of exciting and innovative pub and bar concepts when we are next in London- can you show us around?” That was the request from one of our lovely clients a few weeks ago. Where to take them became a real challenge as our team threw out suggestion after suggestion.
We had 12 of them to guide around London including their board directors, marketing director and ops director – the night after The Publican Awards. So a bit of a challenge in more ways than one. The first, and easiest, decision was to hire a coach as directing this group was going to be a bit like herding cats and I didn’t want to lose any of my precious party on the underground. That would bring a new meaning to the phrase ‘we lost that client’.
Our first stop was my old favourite, the Parcel Yard in Kings Cross where Elton Mouna, PR guru at Fuller’s (a fantastic and generous person) told us about the awesome history of the building and gave the team a quiz which stretched us all a bit. We were shown front of house, back of house, upstairs and downstairs- a superb full-on tour.
Next stop was The Lowlander in Covent Garden where the manager, Rich, served us beer (well most of us hadn’t had one for at least eight hours) and coffee talking at the same time about his range of 150 plus beers. I know it isn’t a new concept but it’s unique in its range and is still going strong - bumped into Jim McQueen there, too, which was a great pleasure.
The Yummy Pub Company pub, Somers Town Coffee House, near Euston, was next and Anthony Pender and Tim Foster (joint founders) pulled out all the stops in terms of food and drink. They spent a huge amount of time talking about their pubs and how they generate covers - it was a real lesson in creativity and innovation. I love their idea of cinema room where mums come in the morning with their children to watch films and chat. They just seem to be prepared to give everything a go.
Ed Martin was exceptionally kind at the next stop, The Jugged Hare in Chiswell Street, and spent time taking the party round the pub – again front and back of house. I think this is just a brilliant pub and I use their private meeting room quite a bit for events. The service is never less than fantastic and the food just great.
Our next stop was The Thirsty Bear from The Robot Pub Group which really did push the boat out in terms of using IT to best effect in cutting down labour (to around 16%) but delighting the customer at the same time. Their income from the juke box, where songs are ordered by the customer on iPads on the tables, can exceed £400 a week. Again the manager, Mark, spent a lot of time with us and was absolutely brilliant.
We stopped off at a BrewDog pub on the way around – difficult to see, at 3pm on a Tuesday afternoon, what made it so successful but I suspect the range and strength of beers has a lot to do with it. Again the manager was really great and spent time (unplanned) with the group.
Finally to The Phoenix in Victoria via The Phoenix in Chelsea to meet Ed Turner who took us all through the Geronimo way with pubs. He was superb and rounded off an absolutely brilliant day.
Interesting that in each and every case, a superb retail offer was personified by individuals with self-evident passion. No coincidence, of course. Equally remarkable, as always, is the generous way our leading retailers are keen to share their knowledge. Where would you recommend I take my next tour?
Ann Elliott is chief executive of Elliott Marketing and PR
Is reduced alcohol consumption a structural threat to pubs and restaurants by John Foster
Recently I wrote that I felt no matter how influential the public health community became it would always be a secondary consideration for policy makers because of the centrality of alcohol in the UK. There are now some seismic shifts taking place that suggest this may, in time, be no longer the case. The impetus for these changes is largely economic and I suspect the recent public health debate around alcohol is in reality something of a side show. In retrospect, historians may conclude that behaving as they did in the 1990s and early 2000s, by promoting cheap alcohol alongside a message that alcohol equated to fun, that different facets of the alcohol industry had begun to kill the goose that laid the golden egg. Policy makers slowly began to perceive that certain aspects of the alcohol culture had become problematic and had to be addressed.
Readers who are familiar with my writings will know that I come from a perspective that public health considerations have to be regarded as equally important as commercial ones. I make no apologies for this as I feel that the much demonised public sector have been left to mop up the excesses of UK alcohol culture, mainly in the form of the police and medical professions. The need to reduce the level of alcohol related harm will remain paramount for at least another 20 years. But, thereafter, I suspect the situation may change because slowly alcohol may take a less prominent role in many people’s lives. I am beginning to question the need for minimum unit pricing as I think there is little doubt that consumption is falling overall. However, I think it is important to understand that this not a uniform across all age groups.
I will largely confine my comments to the 18-65 age group, though even the most cursory of glances will confirm that much of the spending that drives the UK economy is driven by wealthy pensioners. Much of this spending is by virtue of generous public and private sector pension schemes and the historical accident of being able to make obscene profits merely by buying and living in property. These opportunities will be denied to future generations.
Alcohol consumption for those aged 40 to 50 is largely stable. There are people in this age group who have reduced their drinking but equally this is the group that seems to be most resistant to public health messages. Many have lived through years of plenty and see little reason to change their behaviour. They have also been the group that has lived through a time when the alcohol industry was able to provide an unequivocal message that alcohol was intrinsic to having fun. It is not very scientific but my recent experience of a night out may be illustrative. My wife and I went out to a local restaurant and the majority of people there had more than a little grey hair. The amount of alcohol being consumed by both genders was very noticeable. In short this is a group that will continue to sustain the current pub/restaurant model probably for another decade as they have disposable income and are part of a culture where excessive alcohol consumption is the norm. However I feel it would be dangerous for pubs and restaurants to believe that younger generations will behave in the same way.
I am aware that some of these comments are generalisations and there will be exceptions that prove the rule but they contain more than an element of truth. There is now a group of adults 30-40 who probably would have been inculcated with the message “alcohol is fun” and I expect would like to behave in the way described in the previous paragraph. However this is the group who are truly facing the consequences of the money for UK PLC having run out. Many are on low wages, short-term contracts, high rents and unlike previous generations unable to join the great property owning democracy. Also there appears to be a marked reluctance to make provision for the future. I may be wrong but I suspect in time one of the areas of their lives that will become of less importance, because it will be regarded as unaffordable, will be regular trips to the pub or restaurant.
The 18-30 age group present an even greater challenge for publicans and restaurateurs. Despite what some of the media would have us believe alcohol consumption in this group has been on a significant downward trend for a number of years. Some writers have dubbed this group “The New Puritans”. This is a bit misleading as they have not stopped drinking but often regard alcohol as less central to a night out than previous generations. There may be many reasons for this, the distractions are greater - most notably the internet and social networks. Money is tight and possibly the behaviours they have witnessed on the part of their elders they now regard as embarrassing rather than fun.
There is another possibility - that what is offered by the pub and restaurant may alienate some of this group. Research now suggests that one of the reasons driving pre-loading is that pubs and restaurants do not provide an atmosphere interviewees regard as conducive to socialising. It is also noteworthy that whilst pubs have become less appealing to this group drinking coffee and expensive afternoon teas have become increasingly popular.
I make no apologies for wishing to see alcohol consumption on a downward trend but I think the amount of drinking taking place at home needs to be addressed. My focus would be on reducing discount offers, and alcohol advertising and promotions but I would like to see the pub thrive. It strikes me that there is an over-reliance on generations 40+ to sustain the current pub/restaurant model and this is short-termism. To be brutal, the money will run out and in time this group will die out. One possible reaction is to regard the current behaviour of young people as a statistical blip and they will in time return to the “alcohol is fun” fold. They may, but this is a high-risk strategy and I am sure the alcohol industry does not need me to remind them of the importance of hooking them when young. If this behaviour is maintained it is likely to be long term and possibly cross-generational.
Thus far much research has focused upon cost as a prime driver of diminishing alcohol consumption. It is clearly important and I would like to see measures that reduce the price gap between pubs and supermarkets but I also feel it is important for pubs and restaurants to consider that they may now offer a service some young people no longer want and possibly now find alienating. I suspect if the fall in alcohol consumption in young people continues and is reflected in life-long behaviour then arguments concerning minimum unit pricing will be seen as diverting but of largely symbolic importance compared to wider cultural and economic changes.
Dr John Foster is Principal Research Fellow at the University of Greenwich-School of Health and Social Care
