MA150 seminar's issues of the day

The first MA150 seminar of 2009 took place at Claridge's recently. The PMA Team reports on some of the topics covered.

Training boosts staff retention​

The Living Room brand has managed to reduce staff turnover to 15% per year by spending £1m a year on training, former Premium Bars & Restaurants chairman Mark Jones told the MA150 seminar. The brand, which achieved sales of £83,000 per site excluding VAT in the three weeks running up to Christmas, spends 3% of sales on training. Jones explained that all tips go to the staff, which means there's often around £4,000 to £5,000 a week to distribute per site. "It's important that everybody participates," he said. "The industry suffers because too many employees pay the minimum wage." The Living Room brand outperforms the market because of high service standards and high levels of staff retention. Staff are also given 50% off food and drink prices at all times to encourage them to use outlets when off duty. Staff are recruited for personality with everyone required to do a trial shift, which cuts turnover by 25% straight away. General managers also have bonuses linked to staff turnover. Managers are trained to be "paranoid" about the retail environment. "Managers walk around constantly, doing a figure of eight," said Jones.

Pub prices becoming realistic​

City analyst Paul Hickman, of KBC Peel Hunt, said that he thought the major pub companies would sell £200m of property per year for the next three years. He predicted a further 15% fall in pub prices: "Prices are now realistic, but I've got a feeling they're going to become even more realistic." Hickman also reported that major cost pressures in the sector were slowing but are still present. He also told the MA150 that he thought there was a potential share price gain of 346% in Punch Taverns and 181% in Enterprise if debt can be paid down as forecast over the next three years. This also depends on existing presumed values of the companies being "right" — that the value of the companies' estate is not weakened by deterioration of trading or a further major softening of the pub property market.

The 'weekend millionaires'​

Customers in the high street pub and nightclub market are coming out less frequently but spending more when they do, CGA chief executive Jon Collins reported. The trend was described as the "rise of the weekend millionaire" by Collins. "The decline in footfall has made the single "big night out" key in certain segments of the market. "Whilst frequency of visit and drinks consumed have both fallen, total spend has increased with just under half of respondents (49% of respondents in 2008 compared with 36% in 2005) spending over £40." The on-trade beer market offers multiple opportunities, Scottish & Newcastle trading director Les Murphy reported. Fridge planning, premium products, building outlet traffic through things like darts and horse racing and cask ale were among the areas he highlighted. Murphy described cask ale as a classic area where pubs can offer something that can't be replicated at home. Cask-ale sales had risen from 38% to 44% of all ale sales in the pub in the past year. Murphy argued that pubs could do much more to promote themselves — less than 3% of pubs currently have their own website. A former Scottish & Newcastle staff member has launched a new website called www.useyourlocal.com that, among other services, drives traffic in pubs by allowing members of the pub to have their parcels delivered to them for pick-up later.

Pros & cons of private equity​

Two MA150 members, InnBrighton and Realpubs, highlighted the costs and benefits of private equity backers. InnBrighton won backing from Graphite Capital in 1997 — it runs 43 managed pubs and see annual sales of £20m, chief executive Gavin George said the process of due diligence had been very complicated with multiple sets of auditors and accountants "poring over everything", a process that had cost in excess of £500,000. However, the company had benefited in areas such credibility and greater opportunity. Nick Pring, founder of Realpubs, which has backing from Brockton Capital, described the process of finding private equity backing as a "good trial run for the exit process". He listed "obtaining cash in a cash-starved market and greater credibility with the banks" as among the benefits of private equity backing.

Soft drinks are on the up ​

Soft drinks sales in licensed premises are now about 50% of lager sales, and greater than cask ale, Britvic business unit director Paul Linthwaite told the seminar. Soft drinks' year-on-year performance is also superior to all other categories, at a 1.4% decline against -5.9% for lager, -4.5% for wine, and -14% for flavoured alcoholic beverages. Linthwaite argued that there is considerable potential to market soft drinks to kids, based on promoting the second and third drinks — all parents know that kids finish their soft drinks in the first five minutes. Soft drinks are especially important in the lunchtime and early evening slots, accounting for nearly half of all orders. Linthwaite reported that families and soft drinkers are a key area for pubs to attract, with their average spend per occasion almost 60% higher than the overall on-trade average.

Price levels to fill venues ​

Former Mitchells & Butler executive Chris Gerard, who now runs seven pubs in his Innventure business, told delegates that he thought prices should be set to fill premises. Customers understood, he said, that the same carvery meal, for example, would cost radically different amounts according to the time of day and occasion. Gerard, who ran Vintage Inns between 1995 and 2000, also revealed that he managed to match the buying terms that he had enjoyed during his career at Mitchells & Butlers. Innventure, which was founded in July 2003, now has a turnover of £5.7m and "is debt-free and shareholder-free".

Management companies​

In the recession of the 1990s, around 10% of the UK's licensed leisure sector was being managed by a third party management company, Mercury Inns managing director Mark Butler told delegates. Butler and his partners set up Mercury Liquid last year to manage distressed assets for tenanted pubcos and others. Butler argued that using an external management company to keep pubs open can help owners to "achieve higher value" in the long run. He reported 45% of all pre-pack administrations fail in year one. Employing a pub management company rather than an insolvency practitioner means pubs are "being driven forward not just held".

Keep track of cost and quality​

Quality monitoring equipment supplier Brulines claims a 170% return-on-investment for its equipment, by improving conversion of product to cash, group commercial director Stewart Darling told the audience. Its i-draught technology platform monitors key parameters of draught dispense quality to drive increased yields and improved quality. And the Coin Metrics platform monitors key parameters of AWP and gaming machine usage rate to help reduce operating costs. "Our aim is to help retailers take cost out of their business and improve site profitability," he said.

Everards' Project William​

Titanic Brewery boss Keith Bott told delegates about his company's unique relationship with Leicestershire brewer Everards. Titanic has four pubs, three of which belong to Everards. Bott said Everards had realised that the 450 UK microbrewers make natural high-quality pub retailers. There was also renewed consumer interest for cask beer and freehold property opportunities. Microbrewers were largely unable to raise enough capital to buy freehold pubs so Everards set up Project William to assist with site acquisition. Everards also provided strong after support in areas such as technical services, laboratory testing and health and safety.