ALE February 1999 No. 293

Here We Go Round the Mulberry Bush

What Roger Protz, the well-known beer writer, calls "death by retailing"

As the national breweries switched to keg in the 1960s, the majority of smaller players sought to ape their superiors (albeit in size only!). The growth of lager in the 70s saw similar sheep-like manoeuvres with millions of pounds of investment into own-lager brands. Eventually smaller brewers lost the battle, dropped their own brands and bought the more heavily supported brands of their big brothers.

Currently some of the smaller breweries are trying to copy the nationals in the race to develop nitrokeg brands but it is not hard to foresee the demise of Spencers, Lambtons and XS Smooth.

Seemingly many lessons are simply not learned by everyone. Is it fear of failing to impress shareholders or City analysts with a progressive and forward-looking management? Is it simply ego that drives some to ape the big brewers?

Whatever the reasons, the same issues appear in the growth of branded and megapubs - the drive to comply with "the expert opinion of analysts" and conform to perceived standards of acceptable excellence.

Demographics tell us that in 2005 there will be a boom in the age groups 18-24 and the over-50s. Already these are the groups using pubs and spending most. Presumably the corporate thinkers are well aware of this and this is driving the two main strands of development: large, noisy theme pubs for the young and quiet, food-oriented pubs for the mature.

What follows is just a selection of the goings on - there has been a tremendous churn in the industry in 1997-98 and it's certain to continue in 1999.

Not so easy

Cambridge is currently being developed by the big boys, which at this stage will leave us with a second Rat & Parrot, Hogshead, All Bar One, Firkin and a Wetherspoons. This is not a large development (yet!) compared to other cities: it is up to a decade behind in such developments. Cardiff, Bradford, Sunderland, Tyne & Wear, Coventry are all experiencing a change of attitude of the licensing & planning authorities after their recent bad experiences.

In late 1998 Brighton planning committee rejected two major licensed complexes yet JD Wetherspoon got planning permission for The Regal, Norwich, against residents' objections. A recent York licence approval required no TV or video games, adequate staff to be on duty, CCTV and Pubwatch membership. A Hogshead in Redhill was refused by a planning inspector due to recent public disorder and the loss of retail space. Two of the largest specialist estate agents, Fleurets and Christies, believe the high street superpub boom is over.

With the ball now rolling in Cambridge, the name of the game is to prove one's progressive credentials. Thus a "dynamic retailing concept" appears such as The Rattle & Hum - "Cambridge's premier night spot" already on day 1, it claimed.

Playing the game

Examples of brewers & pub groups taking up the game are everywhere:
Greenalls
Is looking to sell its franchised and leased pubs in order to switch investment into hotels and other "leisure concepts" such as health clubs and hotels. It sold 1241 pubs to Nomura in late 1998.
Vaux (now the Swallow Group)
E.g.
Led by recently-recruited retailer Martin Grant, it wants to dispose of two breweries & 350 tenancies to concentrate on its branded outlets.
Marstons
E.g.
Were about to sell their 549 tenancies to the Premier Pub Co. for £137.3M with financing arranged by the UK's largest pub operator - that well-known Japanese bank Nomura - to raise cash for investment in branded managed operations (and to give £60M to shareholders). Marston's have spent over £6M on the Nomura deal.
However Wolverhampton & Dudley Breweries mounted a £267M takeover bid for brewery plus all its pubs, subsequently increased to £289.3M.
Greene King seemed to be interested in bidding too at first but W&D allegedly discouraged this by offering to sell 170 pubs to GK.
Then Marston came back with a spoiling bid for W&D, which would close the Camerons (Hartlepool) and Bank's (Dudley) breweries and divert production to Bass' M&B Birmingham brewery. It would sell off W&D's 1000 tenancies and 200 managed pubs. Fortunately the Office of Fair Trading is investigating this bid.
W&D sees no future in regionals and wants to grow. It's fully committed to community pubs. If it gets its way, the other regionals will almost certainly have to follow suit and merge, with drastic consequences and a reduction in consumer choice. They also then become targets for the national groups.
Regent Inns
E.g.
Have always succeeded running what can only be regarded as traditional pubs, now find themselves under scrutiny from "expert City analysts" and in an effort to prove what a forward-thinking company they are, have drawn up a portfolio of branded concepts.
Morrells of Oxford
Recently purchased by Michael Cannon (of Devenish & Magic Pub Co. fame), aided by Paul Beadle (Greenall Managed House fame), has clearly stated that concentration on food is the wise option for its 132-pub estate. Its beer is produced under contract by the Dorset Thomas Hardy Brewery. It completed its first pub refurbishment 40 days after the takeover (The Village Inn, the sole pub in Berinsfield, Oxon.).
Wolverhampton & Dudley
Plans 40 more Varsity "student-friendly" pubs, making 49. They concentrate on food, drink & conversation, with no discounted drinks, big TVs or video games.
Bass
E.g.
Has just opened a Wetherspoon-style venue in Manchester, The Goose: smoke-free areas, quiet, food oriented, and low beer prices.

Star City

Moreover all these appear small fry when considered against Birmingham's planned £75M Star City Leisure complex - a 25 acre site next to Spaghetti Junction. It is a multi-million pound reclamation programme funded by Birmingham Heartlands Development Corporation involving the removal of 100,000 tons of rubble with new access roads & roundabouts already built.

The site will feature from Scottish & Newcastle alone four outlets:

It will also have from First Leisure a Heroes Sports Bar, supplied by Scottish & Newcastle.

In a project of this magnitude only the big can compete. No small pub chain or individual Free House will be able to exist alongside the giants. No micro brewer (certainly) or regional (probably) will be able to strike up supply agreements if the nationals so choose.

Follow-up April 2001

The alternative

However, as concerning as these developments are - which must be viewed collectively - there are signs that some companies are beginning to reassess or simply never sought to play the game.

Whitbread
Is about 400 pubs under the 4312 Beer Orders limit which would require it to sell some off. It has announced (less than 6 months after proclaiming the great plan) a switching of expenditure away from megapubs into other leisure concepts. Some has even gone to Whitbread Pub Partnerships, its tenant and lease division, to secure 14 new pubs after years of disposal. It's planning to turn the closed Flowers brewery in Cheltenham into a £30M leisure centre and perhaps a micro-brewery. It's just announced the sell-off of 75 of its smaller pubs to the Alehouse pubco and it's one of the retailers experimenting with linked retail chains, e.g. having a Costa Coffee cafe within a Hogshead. For a while it seemed to have an interest in taking over Regent Inns but that's not a themed chain.
There's a rumour of a possible takeover by Granada and of a bid for First Leisure (currently run by Michael Grade).
Allied Domecq
E.g.
One AD executive, Tony Hale, said at the recent AGM that huge investment into megapubs only diverts money from one outlet to another. (Surprise! It's not "new money".) Another executive, Andrew Knight, said AD believes passionately in the future of unbranded and community pubs.
Their "Going for Growth" programme has trained over 1000 managers in pub leadership skills.
As an aside, they get the prize for silliest Internet domain name in the industry: allieddomecqplc.com (why not allieddomecq.plc.uk, for instance?)
Morland
E.g.
Are planning to pull out of town centres in favour of community and tenanted pubs. They bought the Newt & Cucumber youth-oriented chain from Unicorn Inns in 1995 but now plan to sell or convert them.
JD Wetherspoon
Tim Martin now talks of "individualised pubs", accepting he has built some too large & needs to give "architects more freedom with design". He plans to spend £100M on 80 new outlets (creating 2000 jobs).

Small is beautiful

Some of the smaller companies appear very bullish, enough to buy and strengthen their traditional base.
Shepherd Neame, Kent
With profits up 9%, is to raise investment in its pubs and is interested in strategic purchases.
Cains, Liverpool
Has purchased and is looking for a few more sites to sell its successful brews outside its immediate trading area.
Mitchells, Lancaster
Has reinforced its commitment to its core business by announcing a 5-year plan to double its estate to 200 and a £750,000 project on its existing brewing site of a museum and tourist centre.
Charles Wells, Bedford
Has developed Cox's Yard, Stratford-Upon-Avon, as a pub, museum, brasserie, tea shop and conference centre. The brewing kit from the Ancient Druids, Napier Street, Cambridge was transferred.
[Follow-up]
The uniqueness of the British pub is celebrated by everyone. The variety in style of outlet, the variety of product, the variety of people have long been central to the pub's success. The growth of the branded and megapubs tends to go against this tradition. The McDonaldisation (literally in the case of The Churchill, Madingley Road) or the Firkinisation of the brewing & pub industries helps only the very big player.

See also Back to Basics and Brewery and Pubco News.

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