Finnishing touch - S&N moves into Finnish and Russian beer markets

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Scottish and Newcastle has recently acquired a big stake of the Finnish and Russian beer markets. Mark Stretton finds out what comes next.Scottish...

Scottish and Newcastle has recently acquired a big stake of the Finnish and Russian beer markets. Mark Stretton finds out what comes next.

Scottish & Newcastle's (S&N) plan for world domination recently moved forward a notch with its £1.2bn acquisition of Finnish rival Hartwall.

The deal included a 45 per cent share of the Finnish beer market, primarily through the brand Lapin Kulta, and, more significantly, a 50 per cent stake in BBH, a joint venture with Carlsberg in Russia, Europe's second largest beer market.

BBH brews Baltika, the biggest selling beer in the Russian market, and also operates in Estonia, Latvia, Lithunia and the Ukraine. To finance the deal, S&N took its debt up to about £3bn.

The big question is where does this deal leave S&N's pub operations? The company is believed to be under greater pressure than ever to sell its 1,450-strong pub estate to focus on being a truly global brewer. After the Finnish deal, one Sunday newspaper said the entire pubs division would be sold within a year.

The speculation dogged S&N long before anyone had heard of Hartwall.

But for Bob Ivell (pictured)​, S&N Retail's chairman, it is not an issue. "This speculation is something we have to live with," he said. "We don't take any notice - it ain't going to happen.

"Of course we are not the only company to face this pressure from the City - Six Continents are always being told they should concentrate on running hotels.

"At the end of the day the results speak for themselves. As long as investors are happy, that is all that matters. It's a shame because our Retail people are doing a great job. For me, it's water off a duck's back, although it's not always good for the morale of staff. But you always have to live with speculation."

It is understandable that Bob, who sits on the S&N main board, would rather not contemplate the issue having spent recent times getting his own house in order.

Following the integration of 780 pubs from Greenalls, the company off-loaded scores of pubs in major deals with Noble House Leisure and Enterprise Inns last year.

"Both estates, S&N and Greenalls, had a large tail of low-performing pubs," he said.

Now, with the estate some 900 pubs lighter, the Retail boss says the division is extremely well-placed. "We are well positioned to ride out any storm," he said. "We are more highly focused and have better direction.

"It seemed the right decision to dispose of those pubs 12 months ago. Now, after September 11 and with a possible downturn looming, it appears to be a bloody good decision."

Bob says the company now has the right portfolio - good size outlets and a quality estate.

Chef & Brewer, the top-end restaurant-pub concept, is taking £100m a year. "It's a great brand - it has bigger sales than Kellogg's Cornflakes," he said.

Other successful outlets in the Retail estate include John Barras (JB), the 130-strong community pub chain. The outlets contain facilities for locals such as pool, darts and sport on television. "It's great value - not cheap but competitive," he said. "The reason for JB is that there were lots of community pubs in a poor condition.

"The key to getting JB right is good quality people - we need a licensee in there who wants to be a part of the community.

"We also have to respond to what the local community wants - be it Sunday roasts or sponsoring the lads' football team or whatever."

Some other notable concepts in the portfolio include the midmarket pub-restaurant Miller's Kitchen (61 outlets) and the town pub T&J Bernard (54).

One concept that Bob is particularly excited about is Baja Beach club. The company recently opened its second outlet in the UK in Leeds town centre. The first, in Newcastle, which has a 1,500 capacity, regularly takes £120,000 a week.

"It's great fun," said Bob. "Clearly, it has a beach theme, we have girls in bikinis behind the bar serving drinks, there's lots of dancing, karaoke en masse and a great atmosphere.

"If the second one in Leeds works for us we will look to roll it out across the country, given the right locations."

With the number of brands in S&N's locker well into double figures, the company should know what makes a good concept.

"Many companies will trial a new offer by converting their very best outlets," said Bob. "That's not the answer. To have a clear understanding of any potential product you have to worry it to death as much as possible - stick it in some fairly standard outlets and see what happens.

"Sometimes the hardest thing is to say no to a potential concept. You have to be objective and disciplined - there is no room for ego."

But, the S&N man adds, given the best will in the world, you cannot always get it right. "I believe if you don't get something wrong, you're not trying hard enough," he said. "The key is recognising when you've made a mistake and putting it right quickly."

The chairman says that Premier Lodge, with 120 outlets, is also proving a winner in the budget hotel market. "We've worked hard at the concept and it's really working," he said. "It's like Michael O'Leary of Ryan Air says - once you have tried the budget experience, you always want to come back.

"Why would anyone want to pay £100-a-night, when they can have good food and a decent rest at a budget hotel and pay £40?"

The Retail chairman says it has been a great past 12 months for the company.

"We have got our position absolutely spot-on," he said. "We undertook a full estate review with the aim of focusing on top-quality pubs. We wanted clear brands with longevity." S&N plans to invest about £150m this year on refurbishments and acquisitions.

For now, he says he and his troops will keep getting the right results through developing the right estate and ignore the speculation about pub disposal.

"You can never please the City," he said.

"If we were to sell all our pubs, which we never will, next we would be hearing that we had all our eggs in one basket and that we were over-exposed to brewing - you can't win."

Bob Ivell on....

Campaigning:​ "The industry's problem is that it doesn't speak with one voice and the Government uses that as an excuse. It's too fragmented and we move too slowly. We need someone with the authority of the entire industry."

Recruiting:​ "It's interesting that we may soon see tourism GCSEs and A-levels. Our industry is starting to be recognised as a major source of jobs and opportunities. People are starting to realise that you can get on, with responsibility, at a young age. It's blue-chip companies like Scottish & Newcastle that can encourage graduates to come into the industry."

Lowering Beer Duty:​ "We should be lobbying the Government but the trouble is we've been living with it for a long time and we're used to it."

Related stories:

S&N in raid for £1.2bn Finnish brewer (14 February 2002)

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