Propel Newsletter Archive Page

Morning Briefing for pub, restaurant and food wervice operators

Fri 28th Nov 2014 - Friday Opinion

Friday Opinion:

Subjects: Key challenges at Mitchells & Butlers, best of the new breweries, talking points on the conference circuit, providing the personal touch with mobile technology
Authors: Paul Charity, Martyn Cornell, Ann Elliott and Stuart McLean.

Key challenges at Mitchells & Butlers by Paul Charity

To know the Mitchells & Butlers chief executive, Alistair Darby, is to like him. But there is no doubt the clock was ticking on his tenure before this week’s results update. A full two years after he arrived, the markets wanted to see some evidence that the company was capable of moving its like-for-like sales ahead in a meaningful way. So stubbornly static had been M&B's like-for-likes that major questions were being asked. Is the job too big for him? Did he have the right kind of experience to lead the largest operator of restaurants, pubs and bars in the UK?

Chairman Bob Ivell was also under pressure. It is a full three years this month since Ivell told City analysts that M&B was “a good company, but change is required to make it a great company”. He had indicated two key internal problems: the company has not sufficiently shuffled off its Bass heritage and hence is a little too old-fashioned, and it is dogged by bureaucracy that clogs up the internal systems. The then executive chairman also noted that the competitive landscape had changed since the three or four years after the sale of Scottish & Newcastle Retail to Spirit, when M&B had grown like-for-like sales quickly. “On reflection, there was quite a period when it didn’t have a major competitor – Spirit was in disarray,” he told analysts. Ivell was at pains to list the many and varied ways in which M&B’s Birmingham headquarters had turned into what he describes as the “Command and Control” centre. Pub managers, Ivell reported, could receive as many as 120 e-mails in two hours from the centre: “It’s like a big funnel at the top and it’s been clogging up the system.” So it was that a change programme involving technology and reporting lines was set in motion. All well and good, except for three years M&B has pretty much continued to underperform its peers.

On Tuesday, the dam broke. Happily, Darby and Ivell (admitting frustration that positive lead indicators had been so slow to turn into actual like-for-like sales gains) were able to report 2.4% like-for-like sales growth for the first eight weeks of the company's current financial year, after a year that saw a flattish 0.6% gain.

With a degree of palpable relief in the air, Darby set out the five criteria by which he thinks M&B’s progress should be measured: like-for-like sales growth ahead of the market; maintaining robust margins; making attractive investment returns; whether it can reduce its net debt to ebitda; and whether it can reinstate the dividend. “Reinstatement of the dividend will be a critical moment," Darby said. Well, here are my five operational criteria by which the business should be judged:

1 One swallow does not make a summer: progress on the "good to great" journey has involved the occasional schoolboy error. Forgetting almost everything it has learned, the company twice raised prices at Crown Carveries and saw volumes slip by 20%. Generally, M&B has been losing food and drink volumes for the past two years. Now, at long last, food volumes are in growth, with drink volumes not too far behind. The first eight weeks of the current financial year suggest momentum within the business. It is a reward for patient shareholders, but needs to be just the start of sustained like-for-like gains.

2 Orchid integration: the acquisition of Orchid Pub Company offer around 100 brand conversion opportunities within the next two years. Mitchells & Butlers' record on acquisitions has been patchy, at best. The company will need to meet its two-year timetable to capture the available synergies by the end of the 2016 financial year.

3 Meaningful progress with lead brands: the growth potential of M&B's key brands has been a theme of analysts’ presentations for the past half-decade. Former chairman John Lovering set out particularly ambitious and ultimately unrealistic plans. On Tuesday, Darby claimed four brands, All Bar One (50 sites), Harvester (213 sites), Miller & Carter (35 sites) and Toby Carvery (158 sites), had the potential to grow to 1,200 sites from their current combined total of 455. There were caveats around site availability, but there is no doubting the potential here, and Orchid conversions will provide progress. But M&B has been a serial under-achiever on pushing forward with its key brands. Harvester, for example, is the company’s biggest brand, and hit 200 sites, with an opening in Peterborough, in the spring of 2012. M&B has managed to open just six or seven sites a year since then. Bill’s added 26 sites in a single year last year.

4 Better acquisitions returns: M&B's returns on acquisitions last year were lacklustre. It spent, for example, £15m, on 15 new leasehold openings, but ebitda return on investment is around 18%. A figure north of 20% would be more like it.

5 The soft underbelly: Five major brands within M&B, Ember Inns, Oaktree Pubs, Sizzling Pubs, O’Neill’s and Crown Carveries, with a combined 570 sites, are no longer where M&B will spend its growth capital. Instead, the strategy here will be “optimisation”. These are cash-generative businesses, but capital spend will be about amenity improvement. It is this part of the market where M&B has seen the strongest competitor challenge, and suffered some of its sharpest volume declines. These brands still account for well over one third of the entire estate, and the challenge will be to reinvent and reinforce their value credentials to keep collective like-for-likes moving forward.
Paul Charity is managing director of Propel Info

The eight best breweries to emerge since 2012 by Martyn Cornell

With more than 300 new breweries having started up in Britain over the past two years, how do you possibly pick which ones it's worth stocking? Here is my choice of eight of the best to emerge in the past two years:

Siren Craft Brew, Finchampstead, Berkshire, founded February 2013
www.sirencraftbrew.com
Darron Anley ran an IT company before selling it in 2011 and answering the "siren call" to start producing the sorts of beers – hop-forward, full of flavour – he had discovered in the United States. Acting on advice, he hired a professional brewer, the American Ryan Witter-Merithew, now in his early 30s, who at the time was brewing at a Danish microbrewer, Fanø, but who was happy to move to Berkshire. There he has produced some of the most widely admired brews being made in Britain today, particularly his blends, such as Whisky Sour, made of a mixture of a lemon beer and one aged in a former whisky cask, and Undercurrent, made, unusually, with oats as well as barley malt and American Cascade and Palisade hops to give a 4.5% pale ale with spicy, grassy aromas and flavours of grapefruit and apricot.

Anarchy Brew Co, Stannington, Morpeth, Northumberland, founded January 2012
www.anarchybrewco.com
Simon Miles, a certified tree surgeon, and his wife Dawn, a company secretary, were both vastly experienced home brewers (and home wine makers) and Belgian beer aficionados when they decided to end 11 years of running a specialist plant hire business, with depots across the nation. With the help of a friend who was a commercial brewer, they set up what was originally called Brew Star in a former furniture store. The name came from the six-pointed "brewer's star" used by brewers on the Continent. Unfortunately another brewery, Brewsters in Lincolnshire, slapped in a solicitor's letter claiming that the name Brew Star was too similar to Brewsters, and threatening legal action, meaning they had to rebrand as Anarchy Brew. Ironically, the publicity surrounding the rebranding brought a huge interest in the brewery's products and continues to do so. BeerX in Sheffield in 2013 brought a silver award for kegged Anarchy Lager, while in 2014 the Mileses grabbed a SIBA national gold in the Premium Strong Beers category with Sublime Chaos, a 7% abv "breakfast stout" made with dark malts, black malt, roast barley, chocolate and oats, and New Zealand hops, and infused with Ethiopian Guji coffee beans from Has Bean Coffee of Stafford.

Tiny Rebel Brewing Co, Maesglas Industrial Estate, Newport, Gwent, Founded February 2012
www.tinyrebel.co.uk
Bradley Cumming and Gareth Williams made beer on a 50-litre homebrew kit at weekends. Engineers by training, in 2010 they decided being professional brewers was going to be more satisfying, and Tiny Rebel was launched. The first few months on the road were uphill, because locally the market for the beers that Cumming and Williams were producing just wasn’t there, so they had to almost create their own market in order to become established locally. However, a year after opening, they took the Great Welsh Beer Festival by storm, winning gold (Dirty Stop Out), silver (Fubar) and bronze (Urban IPA) in the Champion Beer of Wales competition. Four months after that, Tiny Rebel opened Cardiff’s first fully devoted craft beer bar, Urban Tap House. In 2014 the company took gold for the second year running in the Champion Beer of Wales competition, with Fubar, a 4.45 abv American IPA named after an American acronym referenced in the film Saving Private Ryan, made with US hops and British malt to give a light golden ale with typical American pale ale characteristics.

Mad Hatter Brewing Company, Toxteth, Liverpool, founded February 2013
www.madhatterbrewing.co.uk
Gareth "Gaz" Matthews's journey into craft beer began in Liverpool watching his older brother making home brew from kits and selling it in his illegal bar in the family home. Matthews started brewing in earnest when he was meant to be writing up his PhD. Later, when he was working as a part-time lecturer and hating it, he started brewing in his and partner Sue Starling's garage on a 100-litre kit, and selling beer at farmer’s markets. This went really well, so Matthews and Starling moved back to Liverpool just as they were having their second child and set up a 250-litre (1.5 barrel) brewery in a tiny industrial unit in Toxteth. After just over a year the brewery moved to new premises in the Baltic Triangle area by Liverpool's docks with a larger set-up of four hectolitres, the brewery's first employee was hired, and a brewery tap was opened. In October 2014 the brewery shifted again, to bigger premises nearby, where two four-barrel (six and a half hectolitre) brewkits were installed to be used simultaneously, one to brew cask ale and "less crazy beer", the other "lots of mad beer". One of Mad Hatter's first and most popular beers (a popularity that surprised the brewers because of the beer's high strength) is their Toxteth IPA, 6.5% abv, a very pale, hoppy IPA with floral/piney/dank aromas.

The TicketyBrew Company, Stalybridge Cheshire, founded February 2013
www.ticketybrew.co.uk
Duncan Barton was an actor best known for playing the lead in the 1996 BBC children's sitcom Agent Z and the Penguins from Mars, though he also had parts in, among other series, Skins and Two Pints of Lager and a Packet of Crisps. Around 2011 he became bored with acting, however, and decided he wanted to turn his love of beer, and increasing skill as a home brewer, into a career. His wife Keri was happy to agree to run the "business" side of the brewery, and by the end of 2012 they had moved out of London and were installing a five-barrel brewery under a railway arch in Stalybridge, Cheshire. TicketyBrew's particular usp is that it uses only Belgian yeast, something that springs from Barton's passion for the beers of Belgium. At first TicketyBrew was a bottled beer-only operation, putting all the beer it produced into 300ml bottles, but eventually it moved some production into cask, and by the end of 2014 it was contemplating adding keg. Its beers include Jasmine Green Tea (3.8% abv cask, 4.0% abv bottle), made from Maris Otter and wheat malts and Target and Saaz hop, together with jasmine green tea phoenix pearls and lemon peel.

Alechemy Brewing, Brucefield Industry Park, Livingston, West Lothian, founded March 2012
www.alechemybrewing.com
James Davies has a PhD in brewers' yeast genetics, and although he worked in pharmaceutical research for 11 years, he was always a homebrewer, starting in 1995 with a kit and progressing to full mash. In 2011 he decided to take a redundancy cheque, return to Scotland and his home town of Mid Calder, Livingston, buy a big batch of shiny metal tanks from Brewfab Ltd in Fraserburgh, and shift a hobby into a profession. Adam Davies, who had worked in signalling and telecommunications in the rail industry, ending as a director of Babcock Rail, was bought in to provide half the cash for the startup, and to supply his skills in project management. Fifteen months after the brewery started, the Davieses passed their first big milestone: being confident enough to take on their first full-time employee, meaning an end to 120-hour weeks. Top beers include Ritual Pale Ale (4.1% abv), the first beer brewed, a pale, well-balanced refreshing IPA made with pale ale malt, wheat malt, and Challenger and Cascade hops.

Weird Beard Brew Co, Hanwell, Middlesex, founded February 2013
www.weirdbeardbrewco.com
Gregg Irwin and Bryan Spooner met at a beer launch at the Euston Tap bar in North London back in 2011. The pair discovered that they were both home-brewers and both wanted to open a commercial brewery. There were problems finding premises to brew in, and eventually Irwin and Spooner joined with Mike Ellenberg of Ellenberg’s Brewery to share a home. Things did not work out for Mike and Ellenberg's, however, and Irwin and Spooner ended up buying him out and employing him. Weird Beard won its first "beer of the festival" award at the Ealing beer festival in West London in 2013 for Black Perle and was ranked "fifth best new brewery in the world" in 2013 on Ratebeer. The best point on the journey so far, however, for Irwin and Spooner, was drinking the first pint of Black Perle in the Bull in Highgate, the first time their beer was available commercially, and overhearing people saying good things about it – "Oh, and that fifth best new brewery in the world thing!" Black Perle itself is a 3.8% "milk coffee stout" brewed in collaboration with the coffee roaster Has Bean and made with pale, crystal chocolate and wheat malts and roasted barley, Perle hops, lactose (unfermentable milk sugar) and coffee.

Wild Beer Co, Westcombe, Shepton Mallet, Somerset, founded October 2012
www.wildbeerco.com
Andrew Cooper and Brett Ellis felt there was an opportunity to present a unique brewery concept in the UK, concentrating on barrel-ageing, wild yeasts and unusual ingredients. Their hunch has proved correct: although there were problems with ageing a lot of beer in a start-up operation, the brewery has expanded twice in its first two years, with enough money coming in to buy a £110,000 bottling line and the beers are now exported worldwide. First-time drinkers of Wild Beer's brews are likely to react with excitement and disbelief, with beers such as Modus Operandi, 7% abv, a dark red, barrel-aged old ale, aged in Burgundy Pinot Noir red wine and bourbon barrels with brettanomyces yeast: a warm, rich, complex beer with vanilla and oak, vinous notes, and a distinct tartness, with a lovely cherry pie character from the brett.
Martyn Cornell is managing editor of Propel Info and an award-winning beer author

Talking points on the conference circuit by Ann Elliott

Last week I had the privilege of attending both the Peach and the Propel Multi Club conferences. Both were great in their different ways, with huge amounts of learning available.

Wahaca’s Thomasina Miers is a bit of a heroine of mine so it was a joy to see her speak and share her passion for the Wahaca brand and its food with the audience. She takes her inspiration from street food in terms of ingredients and cooking theatre and puts those in a bricks and mortar setting. I took out two key messages:
• Complacency is your biggest enemy. If you don’t keep evolving, then you are dead in the water.
• Understand your brand’s DNA and make sure all your team know, and live to it too.
She is a huge believer in training, not just skills but passion too, so that her team can deliver her brand (with huge attention to detail) day in and day out.

Julian Metcalfe, the founder of Pret A Manger and Itsu, is another hero of mine and I could have listened to him for hours. He was candid (“I didn’t know what I was doing half the time”), engaging and straightforward. My take-outs were:

• Never give up. Be tenacious.
• People don’t want to eat low quality food, stand in queues or waste their time.
• Spend time doing things that others cannot be bothered to do.
• Apply democracy in the workplace, particularly in recruitment.
• He love seeing "kids" running teams of people with warmth, tenacity and vision.
He was very honest and open, and truly inspirational. Who wouldn’t want to work for someone like that and want to go to work each and every day?

Steve Haslam, the founder of TLC Inns, told the Propel conference he had a real battle on his hands when he took over a site in Basildon where complaining was an accepted form of payment. It is worth going to see his Grand Central Bar and Grill site there now to see how he and his wife Jo have transformed it to a point where it is number two out of 94 restaurants in Basildon on TripAdvisor. Another great story of a hands-on operator's day-to-day struggle and resolution.

I enjoyed listening to Stuart Veale, managing partner at Beringea, on how he assesses investments. His firm wants to see:
• Growth potential.
• A proven business model – could just be on one site but must be a good concept.
• A highly incentivised management team.
• The potential to grow rapidly to significant scale.
• The potential to sell in four to five years, though the firm is happy to invest for longer.
Beringea has invested in Loch Fyne, Nectar Taverns, Ma Potters and Tossed and currently backs Coal Grill and Bar, led by John Gater. Its currently on tract for turnover of £12m and “highly profitable”. A few friends went to the Milton Keynes Coal Grill and Bar,last week and had a really good experience – Beringea seems to have backed a winning horse, based on their feedback.

The boss of New Inventive Bar Company, Mark McQuater was good too, with a real story of turnaround, in which he talked about an incentivised, positive and fun culture delivering some fantastic growth. He always talks with incredible passion and enthusiasm, and has created a team which works in the same way.

I really liked Rich Holmes and Benny Peverelli, too, from the Pint Shop in Cambridge. Like most entrepreneurs, they started with some fantastic experience (from Leon), a great idea (which they adapted as they talked to people) and not much money. The fact that they received funding so quickly and have built a hugely successful business in less than a year (selling 150,000 pints in that time, Holmes said) is testament to their commitment and hard work.

Both conferences were really awesome. I came away with a renewed respect and admiration for those who started with hope and inspiration and have created something out of nothing.
Ann Elliott is chief executive of the leading sector marketing and public relations agency Elliotts

Our mobile society wants the personal touch argues Stuart McLean

In this fast-paced, constantly connected world, mobile technology is king. We don’t go anywhere or do anything without our phones or tablets.

I recently went to India to visit a scheme run by Hope For Children, a UK-based charity that we are supporting which aims to build a sustainable future for the children and communities it serves through empowering, collaborating and learning together.

While there, I heard about a scheme launched by a former Apple boss to tackle poverty with mobile technology. In a small town called Juanga, 56 families who had never seen a phone before were given a smartphone loaded with culturally customised mobile apps and location analytics (similar to Foursquare), built around the concept of rewards and incentive. Children could earn points for attending school and mothers for attending preventative healthcare classes. Families then pool the points and redeem them for food, clothing and medicine. The results were remarkable, with school attendance increasing and healthcare improving.

Back in the UK, we all know that this fascination with technology has translated into consumer habits, with online shopping showing 18% annual growth. The dining-out sector is also sharing similar success with 7% growth year on year. Recent research we conducted with CGA Peach has revealed a growing appetite from consumers, with more than 30% keen to use mobile technology as part of their overall leisure experience.

While the appetite is there, the confidence is not, however, with most people not being in the same place when it comes to using mobile technology to eat or drink out. Awareness is low, with the majority of consumers not knowing that some of the UK’s biggest food chains offer the facility to pay by phone or PayPal. In addition, only 6% of consumers currently use online payment methods as, according to the research, they do not trust non-branded solutions.

So, what can retailers do to get people up to speed with using mobile technology to improve the ordering and payment process in a pub, club, bar or restaurant?

Our research shows that consumers are far more likely to engage with an own-brand ordering device than that of a third party. So, retailers need to think about how they can personalise their ordering facilities to make them more relevant. This will drive consumer confidence and usage.

What does this mean for loyalty? There is a real hunger for customers to have own-branded loyalty schemes that really speak to them. Over two thirds of consumers said they wanted bespoke offers that were tailored to their likes and needs. So, one size will not fit all, and retailers need to be cleverer about how they target customers. It doesn’t take a rocket scientist to work out that a vegetarian customer will not respond well to an offer for a steak night! But, that is what they are currently getting – bland offers that do not have that personal touch.

With more than 35 years’ experience in the sector, we have developed the smart technology to deliver bespoke loyalty schemes and branded payment systems to make life for our customers as easy as possible. The brands that identify the systems and processes to achieve that will be in pole position. However, if they are to win the race, they also need to raise awareness and confidence in mobile ordering and payment and give it that personal touch to make it resonate with consumers.
Stuart McLean is chief executive of Zonal Retail Data Systems