Greene King climbs rungs of managed-pubs sector
It's startling to note that Greene King is poised to become the UK's second largest operator of managed pubs, reflecting the volatility of pub ownership in the past decade.
With 720 managed pubs (prior to the integration of Hardys & Hansons), Greene King Pub Company will be marginally bigger than Spirit, with 650 pubs in its slimmed-down form, although Spirit's smaller estate won't become a reality until all 750 pubs due to be leased have been converted by some time next year.
Greene King's ascent in the managed world owes much to steady consolidation - gobbling up Laurel's neighbourhood estate two years ago gave the biggest boost.
It also comes about because Scottish & Newcastle Retail was deemed surplus to requirements by S&N in light of its ambition to become a global brewer. The reduced managed ambitions at Spirit is, of course, a direct result of its acquisition by Punch. The tenanted giant clearly believes that no less than 40% of Spirit's managed pubs would make more money as leased venues.
Greene King's results and a recent day out in Cambridge with managed boss Mark Angela gave me useful insights into the estate's current trends, where on a macro level, the company has borne the same crushing cost pressures as everyone else.
By my calculations, as many as 86 pubs have been transferred to tenancy since 1 May 2005.
The 720 remaining pubs average a weekly take of £12,670, up 6% and thanks, no doubt in part, to the tenancy transfers. Like-for-like sales are up a modest, but respectable, 1.9%. More impressive is a mighty 9% leap in division operating profit to £102.1m for the 52-week reporting period to 30 April. Profit has been aided by a 0.9% increase in operating profit margin to 19.8%.
In short, Greene King has been generating a lot more profit per pub from takings only slightly up, despite increased costs. It's no mean feat and boosted operating profit per pub by 11% to over £130,000. It's worth noting that Greene King's managed division has a lower average take and site profit than many managed operators. There are two ways of seeing this.
Detractors might claim that Greene King is wasting energy on pubs better turned over to lease. Enthusiasts would argue that Greene King's lower takings and profit averages show great retailing confidence. The company believes that its bottom-end managed pubs, those that some operators might give up on, can still be run in a highly-profitable fashion or have upside potential that can be realised in the near future. It's certainly having great success at containing costs, the key factor in preserving a small pub's managed status. (Interestingly, Greene King's super-regional rival, Wolverhampton & Dudley, is preparing for the smoking ban by moving 90 or so wet-led managed pubs, where developing a food trade is not possible, to tenancy.)
My day visiting managed pubs in Cambridge showed the retail innovation going on at Pub Company.
Angela is driving service standards through mystery customer visits tied into manager bonuses, food development (14 menu relaunches in a year and a late-night food offer at 200 pubs), and training and technology (automatic banknote-counting machines and the introduction of broadband are saving managers up to two hours a day). London sites have been revived with a new brasserie format, and a new coffee-shop concept is being trialled at the Fountain, Cowes, on the Isle of Wight. A strength at Greene King has always been its willingness to allow its managers and business development managers the freedom to trial new ideas. (Even JD Wetherspoon, as rigid a managed operator as you can imagine, has begun to see greater merit in this in the past two years).
In the Cambridge area, BDM Melanie Hare is buzzing with marketing and retail ideas (I loved the cream teas at the Anchor, Mel).
Her managers are a lively bunch, who, like the rest of the estate's managers, are staying in their posts far longer than the industry average for tenure - always a fantastic sign.
