SFI Group continues Bar Med's success

SFI Group has admitted mistakes in the development of its Bar Med brand, however, the company is continuing its success. Mark Ludmon reports.

SFI Group has always claimed that one of its strengths is that it's not afraid to admit to mistakes.

"We are very self-critical," Andrew Latham, the retail managing director, has said in the past. "We are not perfect. We are always looking at ways of improving all aspects of our business."

So it was no surprise when chairman Tony Hill admitted that it had made mistakes in the development of its Bar Med concept - and he was quick to point out that these were now being tackled.

"Where we got it right, Bar Med is proving to be consistent and exceptionally profitable," he said. "In a few cases, it is clear that we made wrong location choices and we will consider rebranding these sites in the future."

Bar Med had expanded from 22 to 32 sites since last summer, but Mr Hill admitted that the chain's performance had been "uneven, ranging from outstanding and industry leading to disappointing".

His explanation is that SFI tried to stretch it across too many trading styles, but now it is confident it knows how to evolve the concept into what the customers want from it.

"The brand's real potential is not as a modern continental-style café-bar but a large multifunctional bar offering quality daytime food and a mainstream late-night entertainment venue in which to party," he said.

But, despite this confession, SFI does not have much to worry about. Last month, it reported a 67 per cent increase in pre-tax profits to £16.4m for the year to May 31. Turnover was up 87 per cent to £115.2m while earnings before interest, tax, depreciation and amortisation (EBITDA) were up 80 per cent to £28.4m.

SFI says it has given up trying to predict how the markets will react to its success, since the share price fell from 248p to 175p in the last three months of 2000 despite analysts predicting excellent growth. This year, the price has climbed and, after last month's profits came in at the top end of analysts' predictions, it jumped back to 248p.

One of the drivers of growth is the acquisition of the Slug and Lettuce Group last year, which gave the company 31 high street bars with a "strong brand awareness".

SFI has opened one more Slug and Lettuce since then but, after a revamp by its previous owners in 2000 - inventively called "Slug 2000" - SFI has come up with a "new-look brand template" with the code name of "Slug 2001".

This week, it unveils the new face of Slug and Lettuce at its outlet in Shepherd's Bush, West London, where it has begun to introduce some of the warmer, softer touches which will offset the overpowering pine effect that has been at the core of previous designs.

In Liverpool, SFI has established the template for developing its Latin bars which it bought from Capital Radio Restaurants two years ago.

The new Fiesta Havana bar has gone down well with Liverpudlians, so it is set to be rolled out to existing sites, such as Havana in Fulham, West London.

"Liverpool is trading considerably above expectations, and there is an excellent prospect that the new name will be appropriate as an identity to brand the other Latin bars," Mr Hill said.

SFI's other major acquisition of last year was the Mexican-themed Break for the Border venues from Capital Bars, which included sought-after sites in central London. At present, they continue to trade in their original form - except they are now making more money under the tighter controls of their new owner.

SFI continues to hold on to the tableside dancing venues For Your Eyes Only after it failed to complete a deal earlier this summer. It is believed that the clubs' management team came up with a buyout offer, but it was unable to find enough private equity in time or raise funds through an enterprise investment scheme.

It is now looking for an "alternative exit" and, for now, the four venues have been transferred into a company separate from the rest of SFI's business, with its own board of directors and chairman.

SFI is the first pub company to introduce central distribution, which is estimated to have saved £1m for the group since last year.

"In all mainstream areas of retailing, multiple operators need to control product selection and distribution. This has not been the case in licensed retailing," Mr Hill said.

"The historic role of the major brewers typically means that the products available to pubs were dictated by the stocking policies of the brewers who supplied them."

This improvement in gross margins has been helped by the launch of SFI's own energy drink, Demon Red, which has replaced other brands such as Red Bull.

Trading has continued to be "encouraging" in June and July across the group, which has grown to 143 branded and unbranded outlets.

Last year, it opened 12 more of its high street pubs branded as The Litten Tree, increasing the chain to 45. Their average net weekly sales were £17,689 while like-for-like sales were up by 5.4 per cent.

Over the next 12 months, SFI plans another 30 new outlets for its four brands after opening 24 in the previous year - an increase of 25 per cent.

It also continues to look at buying some of the many packages that are coming on to the market. It is believed to have stayed out of the battle for Wolverhamptons & Dudley Breweries' Pitcher & Piano bars, which are expected to fetch about £70m.

"The land bank to support the group's organic growth through new openings is stronger than ever," Mr Hill said. "The platform for the business to continue its historic rate of growth is in place and we are confident of continuing to deliver in future."

(pictured l-r: SFI Group's Clive Eplett, development managing director, Tony Hill, chairman, and Andrew Latham, retail managing director)​