Toad's in a hole
Many pub operators have flirted with the idea of a high street bar chain, but Eldridge Pope's Toad concept is an example not to follow, says Mark Stretton.
Watching some of the more conventional pub operators trying to do trendy nightclubs and hip style-bars is a bit like watching your dad dance - apart from the sheer embarrassment, you know he shouldn't be doing it for the sake of his health.
The majority of regional brewers and traditional operators have grasped the harsh truth and stuck to their knitting. A number flirted with concepts before quickly retreating to more familiar territory.
Wolverhampton & Dudley, arguably one of the best community pub operators, realised years ago that its strengths were not on the high street. The company had inherited bars and leasehold sites through various deals in the 1990s. It sold Lloyds No.1 and Varsity a couple of years ago and, despite its best protestations, seems to be baby-sitting Pitcher & Piano until a buyer comes forward.
Often, it's best to stick to what you know.
West London brewer Fuller's embarked on an entertainment bar concept called Broadwalk but quickly called time on the chain, having opened just two venues. The "dancing dad" analogy is probably unfair in the case of Fuller's - it has seen success with its upmarket bar chain Fine Line.
"We found that the high street had very little regard for quality," said Fuller's retail director Simon Emeny. "For a company that bases its reputation on good quality retailing, it was very frustrating that customers were dominated by requirements of price and loud music, so we took the decision, despite it being a good operation, to exit the Broadwalk business."
Fuller's had not anticipated the fickle and price-sensitive nature in that part of the market and was not prepared to slash prices to get people through the door.
The experience points to another issue on the high street - supply and demand. In any market, be it gold, coffee, chocolate or pubs, if there is a scarce supply of product, prices will rise. If there is an over-supply, the values plummet.
To be highly valued in a market with ample supply, you have to separate yourself from the competition. If a concept is the same as many others it will be viewed as a commodity, and therefore, customers will be influenced by price.
In the wider market, there is saturation from other leisure pursuits such as Sky Sports, fitness clubs and cinemas, not to mention all the supermarkets that sell alcohol at a heavy discount to pubs.
The fact is that most of the paying public don't care where they drink because they can't really tell the difference between rival concepts. They are, therefore, preoccupied with price.
Practically every managed house company in this saturated market from Mitchells & Butlers to Laurel to Spirit to the original discounter JD Wetherspoon, has slashed prices. There is Luminar with its £8-and-all-you-can-drink offer and Tiger Tiger with early-in-week pricing promotions.
Regent Inns has made strides in separating itself with its trading concepts. Both Jongleurs and Walkabout are well differentiated and Regent has therefore been able to maintain its margins. The same could be said of Inventive Leisure and its chain of Revolution vodka bars. Not so Eldridge Pope and its Toad offering. Last week the company announced it was in talks with another group that may or may not lead to a sale of the entire business. The prospect of £500,000 losses in the first half of the year has led the Pope family to ponder such a move.
The company operates about 174 sites - a mix of pubs, bars and hotels. Recently the company has focused more on the high street with the roll-out of its Toad concept.
Many industry experts believe the Toad chain of chameleon bars is a "poison pill" and could hinder a possible deal. Eldridge Pope has signed a raft of high street leases for Toad at the top of the market which consequently contain onerous upward rent reviews.
"The core business would seem quite attractive," said one expanding operator. "They have a chunk of freeholds and pubs with steady trade. The Toads are definitely the problem, the rest looks fairly bulletproof.
"Some of the Toads aren't in very good positions and I think the company has been a bit ambitious with its levels of investment. The new sites are cavernous and must cost a fortune. It's all about matching the investment to what you think the pub can take over the bar."
Toad is a chameleon bar with the slogan "three moods, one brand". The three moods are Lunch, Liquid and Living. Lunch runs from 11am to 2pm and is aimed at office workers, shoppers and tourists, with a "fresh ideas, fresh food" theme. Liquid is from 2pm to 8pm, with the main proposition being liquor or coffee. This is aimed at shoppers, local people, office workers and tourists. Living is the main driving session and is "all about celebration". This is from 8pm until closing and the audience are circuit drinkers, clubbers and partygoers.
Analysts believe that the concept is not differentiated enough. "Toad is in the same market segment as Yates's and Bar Med," said Douglas Jack of WestLB Panmure. "It is stuck in the middle of the market and hasn't got anywhere to go apart from competing on price.
"Mysteriously, the company has stopped supplying information to us about the performance of Toad. The company now says it will make losses for the first half of the year, which is clearly due to woeful trading. You cannot tell where the losses are being made but it's not hard to draw conclusions."
It has been suggested that a solution for a buyer would be to convert Toad into a food-led or restaurant concept. Noble House would seem like the most likely suitor but any potential bidder would not pay much goodwill for the 22-strong chain.
Eldridge recently opened a Cuban-themed nightclub in Plymouth. The £2m Bongogo would, the company said, be "flirty, funky, fresh and full to the brim with Hispanic flavour".
That most other operators pushed, or at least experimented with, the Latin and Hispanic theme years ago makes you wonder where Eldridge Pope has been. It is not terribly flattering to management - which has delivered four profit warnings in 18 months - that the company appears to be rushing to another "me-too" market.
SFI has been trying to sell its Latin-themed venues, presumably due to poor performance. The irony of these disposals by SFI, hardly the current yardstick of the trade, should not be lost. "The Eldridge Pope management seems to be trying to make the business unsellable," said another operator.
SFI Group also recently put Bar Med up for sale but then withdrew it after bids of £10m against a £30m asking price.
There is a perception that Eldridge Pope has been in and out of sale talks for a couple of years. When it was forecasting full-year profits of £9.1m, the Pope family rejected an offer of £3 per share for the company. The business is now unlikely to attract an offer of more than £2 per share but the family's hand could be forced.
One prominent managed operator went as far as to say: "The issue for the family now is not getting enough money per share. It's selling the business while it is still solvent."
Related articles:
Eldridge Pope in sale talks (14 April 2003)
SFI scraps plans to sell Bar Med (10 April 2003)
