What we all need to know
What's the most significant event in our sector this week — apart from the election? I'd give my vote to Mitchells & Butlers' decision to sell its 300 high-street and town-centre wet-led pubs. It's an historic moment — it's decided to peg its future largely on food-led pub formats and will be much more relaxed about signing up to commercial leases as it expands its food brands. It's the latest stage of M&B's 20-year retreat from pub formats and sites relying too heavily on value-priced beer.
The decision to test the market for the pubs follows a review of strategy completed earlier this year. Some results were a re-statement of pub fundamentals. But they are worth hearing again. So here are five themes, arising from the underlying thinking behind the sell-off decision, that anybody running a pub should be aware of.
1. The eating-out market will return to growth in the next 18 months. The on-trade beer market will continue its long-term decline — volumes are 50% of what they were 20 years ago. (Lesson: anybody focused on a drinks-led offer will need to think about quality and value to grab business away from competitors in a declining market).
2. M&B's food-led pubs have lower margins than wet-led pubs, but overall cash profits are much higher at foodier pubs. (Lesson: selling food is labour-intensive, but creates bigger and more profitable levels of business overall if offered successfully.)
3. Even wet-led offers need to be able to support a viable food operation. Its expanding brands are either food-led (Vintage Inns, Toby Carvery, Harvester) or are positioned in parts of the drinks-led market where it's possible to achieve healthy margins and a strong food business — All Bar One, O'Neill's, Nicholson's. (Lesson: wet-led brands need to be able to support premium pricing and healthy margins, and be capable, increasingly, of sustaining a compelling and distinctive food offer.)
4. Any given community will have a large number of non-pub-users who can be converted into pub-users if the offer is right and marketed properly. M&B has set about a renewed marketing drive through print and television mediums. (Lesson: the eating-out market is still very fragmented and there are lots of potential customers to recruit.)
5. Discounting isn't everything: a Toby Carvery marketing campaign that stressed its Sunday roast credentials actually charged customers 50p more than usual prices and saw like-for-like sales rise by 6%. (Lesson: customers are looking for comparative value above all else. To a large degree comparative value comes down to quality.)
The challenges of recession have led many companies to examine the very fabric of their business models — and work out ways to do things differently. There's rapid change going on at virtually every major company — the same challenge needs to be met by each and every licensee at the moment.
