Growth potential for Greene King pub brands

There has been much already written about the CKA bid for Greene King. The key factors that appear to lie behind the approach include the stability of expected earnings, undervalued assets and the integrated business model. I would like to add a fourth – growth potential. Greene King is not a business that has been fully firing on all of its pub brand cylinders. Whether a fresh approach to addressing some performance shortcomings can be found under new ownership is another matter, but certainly looking at a number of competitor and consumer insight metrics, there is scope for improvement.

Just to help map out the lay of their managed landscape, Greene King operates more than 1,700 pubs, with the previously unwieldy multiple brand strategy now being optimised through a tighter four-cylinder approach comprising Greene King, Hungry Horse, Chef & Brewer and Farmhouse Inns. Greene King is the largest component with c.1,000 drink-led local pubs; then comes price-led value chain Hungry Horse with c.270 outlets; Chef & Brewer has c.150 food-led pubs aimed at the mid-market; and Farmhouse Inns comprises c.70 carvery-led pubs (but without accommodation).

In overall terms, Greene King generates £20k of weekly turnover on average per managed pub. This figure remains some way short of the £25k comparative at Mitchells & Butlers, and further still from the £36k average of Wetherspoon. Admittedly, Greene King pubs are typically not so physically large and have a lower food share than key rivals, but nonetheless, the ambition has got to be to narrow the differentials.

Over the past year the brand optimisation programme has seen pub numbers of all the Greene King brands slightly increase, with the exception of a small contraction at Hungry Horse. This is useful detail to help contextualise brand performance regarding share of visits. Encouragingly, MCA’s Eating Out Panel finds that the shares of pub lunch and dinner visits, over the period y/e July 2019 vs July 2018, have increased at all brands, bar Chef & Brewer. Some concerns about the performance of Chef & Brewer are also highlighted on a wider set of consumer metrics.

Greene King has previously enjoyed trumpeting their improving Net Promoter Scores (NPS). However, MCA’s NPS tracking suggests this is not universal and will have been boosted by some ‘easier’ wins at the historically low, Greene King chain. In a generally improving pub channel, scores at Chef & Brewer were conspicuous for declining, and at 39, were below the 42-average mark for all pubs.

Favourable perceptions of value for money are typically a cornerstone of most pubs. With the exception of Hungry Horse and Farmhouse Inns, no other Greene King brand exceeds the pub channel average, with year-on-year ratings declining at Chef & Brewer. Moreover, despite modest overall pub channel improvements also evident in food quality and friendly service, ratings at Chef & Brewer and Farmhouse Inns, were also down in this area. Of some concern on food quality is the finding that no single Greene King brand exceeds the channel average, despite the mid-market positioning of at least two brands. This is disappointing but should be addressable with some more focused attention. More positively, the relative quality ratings of the drinks offering are more encouraging.

Should, as appears likely, CKA’s acquisition of Greene King goes ahead, it will be buying a business that is work in progress. There is attention required on strengthening the food offer and revitalising the Chef & Brewer brand in particular. Both of these initiatives would boost average pub sales levels, though are likely to have a short-term impact on profitability. However, CKA appears keen to be talking up the medium-long term, and on this basis, there is clear and sustainable business growth potential that will strengthen the investment case.