Whitbread's new plan to pursue pub diners
Whitbread's position in the pub restaurant market reminds me a little of Mitchells & Butlers (M&B) before it was mercifully cut free from its corporate Siamese twin, the Six Continents hotel business. M&B's progress seemed impeded by a lack of vision or operational focus at the top of Six Continents. The years since the demerger have seen M&B seizing the massive opportunity within the booming casual-dining market and merrily grabbing handfuls of market share.
Exactly the same opportunity has been available to Whitbread but its performance has been lacklustre to put the kindest of glosses on it. In the summer, Whitbread took decisive action and sold 239 of its Beefeaters and Brewers Fayres to M&B, an admission that it could not compete in a way that would satisfy shareholders at well over one-third of its sites.
M&B was the obvious buyer as it was selling, on average, a massive 725 meals a week more than Whitbread at its own pub restaurant venues - and was confident it could ramp up Whitbread's comparatively dismal 1,200 covers a week average by rebranding sites. Whitbread adopted a co-location policy at the remaining 395 pub restaurant sites, arguing that those pub restaurant sites that did or could accommodate a Premier Travel Inn - more than 100 of the latter - would deliver the kind of returns that made the business worth keeping.
One fundamental problem remained. How to sell more food to more people and begin to give M&B a decent run for its money. Last week, Whitbread chief executive Alan Parker explained in detail the future he saw for his Beefeater and Brewers Fayre brands. But first he detailed the enormous market opportunity. He quoted Mintel statistics that reveal the pub sector's dominance of the eating-out market - it has a 23% share. He noted that the total pub-food market grew from £4.9bn five years ago to £6.4bn today (32% up) - and should hit £8.2bn by 2010 (another 22% rise).
"It's an expanding market to be in," he said. His analysis of Beefeater and Brewers Fayres past performance highlighted their limitations. He reported that Beefeater still enjoys extraordinarily high levels of customer brand awareness - the highest in the sector at 78% - and was a sustainable brand. But he conceded that its food volumes were too low compared to site potential. (M&B had, incidentally, made exactly the same assertion during the summer).
Parker argued that Beefeater had failed to achieve regular repeat business and was seen as a special occasion venue. The solution was stretched price points, more variety, more modern decor - and a spend of £400,000 per pub.
"New Beefeater" has more grilled food and not just steaks, for example, stylish menus, lighter dishes. The cheapest meal is now £5.95 rather than £7.50 with the most expensive - a steak and lobster dish - costing £19.99. The sites converted so far are producing a 25% sales uplift to hit £25,000-a-week per pub and are selling 33% more meals. So confident is Parker of his re-modelled Beefeater that the conversion programme is being accelerated and will be complete by Easter 2007.
Parker thought Brewers Fayre lacked "differentiation" and was a brand that had "not added value". Crucially, it had not attracted enough customers from local markets, and "new contemporary concepts" would replace it. The company would introduce a new modern look and better quality menus with a wider price range - £4.75 to £13.99.
The remaining 223 Brewers Fayres would convert over the next two years according to their potential. Whitbread has a new plan and new management for its pub restaurants. Now it needs results across the board. It's the last chance saloon for Whitbread in the pub restaurant business. The whole world will be able to compare its performance in the remaining estate to M&B's performance at the sites it was happy to take off Whitbread's hands. Some M&B executives believe it may not be long before they bid for the rest of the Beefeater and Brewers Fayre empire.
