Cannon: spending to accumulate at Pope
When entrepreneur Michael Cannon bought Eldridge Pope last October his team began an immediate refurbishment programme. The PMA Team met operations director Tim Bird to find out how the company is faring
Tim Bird describes Eldridge Pope's new owner Michael Cannon as "our knowledgeable venture capitalist", adding, "he is probably the best pub entrepreneur this country has ever seen." For the past 20 years or so Cannon has never been far from his next major pub deal.
Before the Beer Orders triggered the dismemberment of the major brewers' pub estates, Cannon had established himself as a quality publican with a company called Inn Leisure. In a kind of reverse takeover, Inn Leisure merged with JA Devenish, the Weymouth brewer. Devenish was taken over and Cannon departed to begin the Magic Pub Company, subsequently sold to Greene King. (It was at Magic Pub Company that Cannon originated the Hungry Horse concept that has since become Greene King's lead food brand). More recently he bought, and then sold, Morrells of Oxford to Greene King. This series of major deals has seen him amass a personal fortune of around £160m according to The Sunday Times.
Cannon fired up over US food
In recent years, Cannon has devoted most of his energies to running restaurant businesses in the United States he runs the Fuddruckers, Koo-Koo-Roo and Hamburger Hamlet chains. But the sale of Morrells saw him retain five Que Pasa bars and there was no doubt that he had further ambitions in the pub industry. Two years ago, there was a rejected £10m offer to buy SFI Group's Bar Med chain he wanted just 18 of the 31 sites. And for almost two years Cannon's SDA acquisition vehicle was an ominous presence on ailing Eldridge Pope's share register.
The inevitable move on Eldridge Pope came last October with a 171p-a-share offer valuing the company at around £43m plus debt of £40m. Cannon's offer was underpinned by Eldridge Pope's assets and potential, rather than current profits it posted a £900,000 half-year loss last June. But Cannon's protracted pursuit of Eldridge Pope allowed his management team, including chief executive Paul Beadle, time to perfect its action plan for the retailer's 152-strong estate.
So by the time of the acquisition, for example, operations director Tim Bird had already written new menus for most of the estate. "We had a plan in mind and hit the pubs with refurbishments almost immediately," says Bird. "There are two sorts of company the quick and the dead." One Cannon trademark in the past has been the speed and efficiency with which capital is used to refurbish pubs. A total of £14m has been earmarked for pub refurbishments at Eldridge Pope. Within the first six months of ownership, 26 pubs had seen sparkle or refurbishment jobs with a team of builders completing one pub each and every week (two of the company's 45 tenancies have also seen refurbishment work). The entire investment programme for the 108-strong managed estate will have been completed well within the first two years of ownership. The traditional pub part of Eldridge Pope is 90% freehold, a major aspect of its attraction for Cannon.
The company's faltering leasehold Toad chain, which accounted for 20 venues in its 25-strong bar division, presented a different kind of challenge: the high-street-bar market. Its indifferent performance was to dog Eldridge Pope through its last few years as a publicly-listed company. It even assigned two sites Rugby and Milton Keynes on a nil premium to stem losses. Industry observers rank Toad as one of most ill-conceived of the me-too high street brands developed in recent years.
Toad makes way for Que Pasa
For Bird, consigning the Toad brand to history has been one of the key jobs in this first year of ownership: all retained sites will have been converted to Que Pasas by October. "The Toad brand was about boys going for it in a big way," he says. "It was too focused on night-time. The bar business wasn't making a lot when we took over. The best-performing Toads Southampton and Chelmsford still take great money we're paying for the demise of the rest of them. I don't want to totally dismiss Toad, but a lot of our public relations has focused on the strapline Kissing the Toad goodbye'. Toad isn't the most female-friendly of names and the brand wasn't differentiated."
Que Pasa, Bird insists, has proven itself as a concept that offers customers on the high street an all-day experience with a quality food offering and strong service ethic. The first site was established six years ago in Oxford and grew to five venues with the acquisition of a tranche of four Yates sites. These original five sites, now merged into Eldridge Pope, saw 7% like-for-like growth last year. Early Toad conversions to Que Pasa are producing strong sales growth. The Swansea site has seen total sales grow from £8,000-a-week as a Toad (with £400-a-week of food sales) to £18,000-a-week (with £2,700-a-week of food sales) post conversion. The new Que Pasa site in Staines, Middlesex, is achieving a brand best of £7,000 a week on food sales.
There will also be an unemotional approach at one or two other bar division sites where rents are sky-high or long-term trading prospects are poor. The ill-fated Bongogo nightclub in Plymouth definitely the most bizarre opening in the old Eldridge Pope high-street expansion phase has already closed to save £400,000 a year in operating losses. "It's Bongogone," jokes Bird.
More generally, food and accommodation are being targeted as major growth areas in the managed estate. Bird has come up with one menu template based on a Dickensian character, called HJ Wellfed, where the emphasis is on quality but affordable pub food served in generous portions. "One site was selling £3,000 of food a week despite itself and is now selling £9,000 of food a week," reports Bird. The 40 or so pubs that have new menus have seen food sales rise by £45,000 a week an average of £1,000 a week each and an increase of 75% on previous levels.
The acquisition of 46 espresso machines for the managed estate is another indication of the stress being put on quality. Managers' bonuses are heavily weighted towards high scores in mystery customer visits. "If we get all the parts of the retail offer right, profits should follow," says Bird.
Room occupancy given a boost
The Eldridge Pope estate also offers around 500 rooms and occupancy rates have risen from 42% last year to 56% this year. Bird stresses that progress here stems purely from encouraging managers to focus on this side of their businesses. "There has been no big spend. The key thing has been to achieve a high standard I won't accept rooms that are dirty."
Occupancy rates are likely to improve further as Bird introduces a central reservation function and a website. All in all, there is a feeling that Eldridge Pope's new management team are moving through the gears quickly. The obvious long-term outcome, given Michael Cannon's track record, is a sale of Eldridge Pope to a company like Greene King or Wolverhampton & Dudley once profits have been restored. Naturally enough, Bird is unwilling to speculate on who will be providing Michael Cannon's next big payday. For now all he will say is: "We wouldn't be here if it wasn't a great opportunity. It's such a good company with so many great people."
Tim Bird on:
Michael Cannon: "I see Michael about once a month he's great to have around and is still very driven. He's probably the best pub entrepreneur this country has ever seen. He spends about a month a year in the United States and sends us over there once a year to see what he's up to and to pick up new ideas. We went to Los Angeles last March to have a look at Koo-Koo-Roos, his new chicken restaurant brand, and we saw Fuddruckers and loads of fantastic bars. He's our venture capitalist with knowledge."
Eldridge Pope's former management's "Back to Basics" credo: "It flows off the tongue n
