Orchid has the ideas to match the cash

- Last updated on GMT

Related tags: Gi partners, Jon moulton, Thai cuisine

Many an eyebrow was raised in not-so-mild disbelief earlier this year when GI Partners splashed out £571m to buy 290 Spirit managed pubs from Punch....

Many an eyebrow was raised in not-so-mild disbelief earlier this year when GI Partners splashed out £571m to buy 290 Spirit managed pubs from Punch.

The rumour was that GI Partners' offer was tens of millions more than the next best. How could GI Partners justify its sky-high bid, especially when it had to create an £8m-a-year head office function from scratch? Surely the private-equity world was going mad in a rush to buy freehold pubs.

As always, one man's over-priced hospital pass is another man's fabulous opportunity. Last week, Orchid Group boss Rufus Hall lifted the lid on GI Partners' strategy for its 290 or so former Spirit and Noble House venues (it paid £21m for the latter). For a neutral observer, it's a heartening tale - a private equity company intent on investing in under-loved pubs rather than biding its time on the property merry-go-round.

GI Partners refers to its Orchid project as the billion-dollar start-up - a company springing into life to run a substantial managed estate in less than six months. The starting point for Orchid management is the opportunity provided by Spirit's centralised and over-complicated management approach. Hall argues that Spirit's price mechanic - its discount-to-grow-volumes approach - was overworked, the only lever left in a poorly-maintained estate. He reports low morale among pub managers resulting from an excessively top-down approach.

The keys to improving performance will be empowerment - managers given operational freedom on pricing, for example - and investment. Every pub will see capital investment in the next three years, ranging from £1000,000 to £750,000 per pub. Already, 23 refurbishments have been completed and Orchid has ended the transitional service argreement five weeks early so it can crack on to complete another 25.

Orchid inherited 30 trading segments and 42 menus, which will be simplified into seven coherent trading formats. What is exciting is the determination to innovate in retail terms to lift sales and margins. Hall says: "GI Partners firmly believes there is an opportunity here to create a completely different kind of pub company."

Take the Contemporary Carvery and Contemporary Dining segments, for example: the former, with 17 sites, will see the inherited Country Carvery branding disappear. Orchid is intent on re-inventing the carvery concept for the modern age. Spirits will be on free pour, decor will be modern, the wine range will be extensive, with a choice of Thai duck, pheasant and guinea fowl dishes alongside more traditional carvery protein choices. Mitchells & Butlers' (M&B) massive success with Toby Carvery and Pub Carvery - each achieving 2,500 covers a week - indicates the fertile ground offered by the pub carvery for those operators prepared to embrace it.

The Orchid carvery dares to step towards modernity and slightly higher price points. The first two sites open this week and the plan is to double sales to at least £25,000 per week.

Plans for Contemporary Dining - Orchid's rival for M&B's Project S gastro-scheme - are a little more unformed. But it seems likely that it will try to lever its top-end Asian food expertise into a classy pub setting. I met Hall and commercial director Simon Dodd at Orchid's Hokkein Chan restaurant on the London Wall: top-quality freshly-prepared food is being rewarded with sales of £35,000 per week. More generally, Orchid Asian and Pacific Rim food expertise will be used as a dining point-of-difference - its five existing Dragon pubs (Thai food in an English pub) take £22,000 per week each.

Alchemy Partners boss Jon Moulton once warned me that there would be fewer companies to write about as consolidation stepped up. Thanks partly to his own endeavours, he was wrong on the managed side, which has seen both consolidation and fragmentation. Orchid seems determined to attempt the genuine innovation more usually associated, regrettably, with the restaurant sector.

Related topics: Marketing

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