Big Interview

Ei Group eyes 100 managed sites a year

By Nicholas Robinson contact

- Last updated on GMT

Managed expectations: Ei Group's James Croft sets out his plans for the future
Managed expectations: Ei Group's James Croft sets out his plans for the future

Related tags: Ei Group, Managed pubs

With a growing portfolio of managed businesses under its belt, how does Ei Group strategy and retail director James Croft view the future?

After launching around 100 sites a year, surely the novelty of a new opening would have worn off by now? But for Ei Group’s strategy and retail director James Croft, the thrills keep coming as the managed arm of Britain’s biggest pubco continues growing.

Soon-to-be sold to Stonegate, Ei Group has c4,000 pubs under its belt with no fewer than 470 in its ever-growing managed estate, which increased by more than 100 last year.

The whole estate is broken down into several facets, including tenanted and leased, commercial and managed. The latter can also be segmented into three parts, with Craft Union topping the bill at 340 sites, followed by 60 within Bermondsey (both part of Ei Managed Operations), while Ei Managed Investments has 11 partners.

In simple terms, Craft Union is the bread and butter, entry-level offering that is mostly wet-led and community-based; Managed Investments focuses on partnering with experienced and creative multiple operators; and Bermondsey is the mid-tier, more premium offering.

Bermondsey is an area Croft is particularly animated about, and he is raring to show off the brand’s latest launch – the Marquis of Westminster, in Pimlico, near Victoria – where a new food offering is being trialled. The prospect of a new menu may not be noteworthy for many in the sector, but this one is a potential game changer for the brand.

As a rule, Bermondsey doesn’t have a standard food offer across all of its sites. Some venues don’t serve food at all and others focus on pies, pizzas or classic pub dishes. But the Marquis of Westminster has taken a different, more premium, route, which could lead to more in the chain following suit.

Elevated food offering

The Marquis is the first in the chain to have an elevated food offering, made from fresher ingredients and delivered with a fine-dining edge, which is likely to be rolled out in at least two other sites in coming months.

“We’ve been keen to develop this menu because, for this site, we need this offer, then it’s a case of where else in Bermondsey is right to have this proposition?” says Croft of the group’s future.

“We’ve got pubs that just do pies, pizza or our core menu like fish and chips and scampi, and some that do no food at all. It’s a broad church. But this pub is an example of where we’ve raised the business to.

“We are studying what happens here religiously – it continues to be well received. We expect to take it into three more pubs over the next three or four months, then test and iterate it and keep that going.”

The development of the managed operation began when Ei understood the need to flex the money-making muscles of its properties harder. There was a clear opportunity to push the profit potential within many of its tenanted and leased sites further, he says.

“Going back five years, we only had a handful of managed sites and thousands of leased and tenanted, and part of the strategy was about how do we look at our business,” he says.

“The team started pulling its thoughts together on how you put a pub to its best use and maximise the potential.

“We recognised we needed more than one way of operating pubs, and we needed a variety of offers. That’s what led us to develop the different divisions. It was the answer to the question: ‘How do you put every asset to best use?’.”

Sometimes that means making a pub free-of-tie, having it as tenanted or leased, or making it one of the pubco’s managed brands, he summarises.

Asset optimisation

Opportunities are identified by what Croft calls the recently created asset optimisation panel, which looks across the pubs within Ei’s estate, from the commercial to tenanted and leased.

“We look at pubs and ask what can Ei and leased and tenanted generate, what can the commercial property team do, and what can the managed business team do?

We then look at how much cash it will take [to convert a site] and in what time scale and try to objectively work through each site [in the estate].”

Ei had two core brands under its belt – Craft Union and Bermondsey – but it wasn’t about to rest on its laurels in believing those could cater for the wide range of consumer needs out there.

“On top of that, we said we’ve got such a diverse portfolio we need more than those two to put everything [in the estate] to best use.

So we created Managed Investments to try to encourage the best operators in the industry to partner with us because we believed that was the most efficient low-risk way to create and maximise those pubs.”

How sites are identified

This begs the question of how sites are identified for repurposing into a managed operation and whether current successful tenants should be worried about whether the mother company could snap a thriving operation back for its own means.

While Croft doesn’t dismiss the fact that sometimes sites have been taken back – after a contract is up and in a wholly legal way – he does say it is often to the benefit of the current licensee.

“Because we’ve been doing this for a long time, we’re much more confident in being able to predict how a pub will trade,” says Croft. “We know which pubs are becoming available and which might be coming on the market, so a tenant might not want to resign their lease, and we take those pubs and we take them through a rigorous process and ask the business unit what can be done with the pub.

“All of our managed pubs were, in the past, leased or tenanted and, in the time of our strategy, we haven’t acquired pubs. We started with all leased and tenanted and looked at closed ones or ones on temporary agreements. To many [industry] observers it wasn’t a surprise because, going back five years, 800 of our pubs were run with multiple operators and already part of a group, demonstrating that they had the potential to be operated on that basis.

“But, more increasingly and frequently, pubs have come into the managed business because the tenant in the pub has told us they think it could be a good Craft Union – they have seen it’s been successful, and they would like to be part of it. Or a tenant might put their lease on the market to sell it and when leases are up for sale, we will always appraise them and ask if we would be the natural buyer.”

Continued growth

Such a situation can be a good opportunity for a tenant, he claims, saying: “We’re a good buyer for a tenant because when they sell to us, that’s total closure. There’s no privity of contract, it’s a clean break. People will often come to us after five or 10 years, wanting to move on to another opportunity, and we will have a look at those businesses.”

Things have moved quickly over the past four or five years since the strategy towards a more robust managed estate was launched, but what’s going to happen in the next 12 months, say?

According to Croft, there are plans to grow the number of managed sites by over 100 in the next 12 months. “We were trying to convert 100 into managed a year and we have a lot of confidence we can do it and expand our abilities in the area that we can continue to grow at that rate.”

Although the entire Ei estate is chunky, there is a finite number of pubs in the group and making more than 100 a year into managed businesses isn’t an insignificant number, which would lead many to question whether the strategy is to have an estate with the majority of its businesses managed.

Croft refutes such a suggestion. “No – the engine of our group is the leased and tenanted operation. That has been the majority of our business to date and it’s at the heart of what the group does. Trying to be a brilliant partner to a tenant is what the group is always striving to do.”

That’s probably just as well, since converting sites into managed operations isn’t cheap, especially when you’re moving at a rate of more than 100 a year.

The minimum average cost to switch a pub into a Craft Union is £150,000, while it is roughly £200,000 for Bermondsey and often significantly higher for a Managed Investments proposition. For example, and although this is an exception to the rule, Ei spent £3m on the Bedford in Balham with multiple operator Three Cheers under its Managed Investments arm.

“We spent £300,000 on the Marquis of Westminster to bring it into the Bermondsey group. But Craft Union is the least expensive and probably the most replicable for economy of scale because of the simplicity of the offer. The larger they are the more you have to spend. The Bedford is 24,000sq ft with a club room and a cocktail room, a ballroom, saloon bar and main bar – that’s a big proposition.”

Nothing set in stone

Croft is also adamant that scaling the managed operation has allowed the company to learn, which has benefited current tenants because, ultimately, the managed properties are also customers of Ei Group. This means things like the support functions have been made 24/7.

“Having the managed arm brings a sharper focus on retailing and retail standards, range of products and price and, for us, the increasing importance of technology and how we use it,” he says, adding it has also allowed Ei to broaden its skill set and allowed it to better understand how to maximise such things as live sports in its sites and other events and occasions.

Nothing is set in stone, of course, as the group is about to be bought by Stonegate as soon as the sale has been cleared by commercial watchdogs. That said, Croft and the business appear optimistic about the future of the group under Stonegate boss Simon Longbottom. For instance, it has been noted by both sides that Stonegate admires the recent work carried out in Ei’s managed business.

With the distinct lack of a crystal ball on all sides, what will happen next is the ultimate question that’s yet to be answered.

Related topics: Ei Group

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