Young’s may not be immune to the current cost headwinds but the strength of its balance sheet and the business model put it in a good place to overcome any challenges, CEO Simon Dodd told MCA.

The business reported strong revenue growth of +24.7% in its interim results for the 26 weeks to 26 September 2022, yesterday, to £186.5m, with like-for-like revenue 6.2% up over the same period in 2019.

The premium pub operator continued to invest the proceeds from the £53m sale of its tenanted business, The Ram Pub Company, to Punch, last year, with four freehold sites added over the first half of the year, and two more since the period end – at a cost of £14m in total, as well as investing around the same figure in its core estate. And it is still looking to grow through acquisitions.

“The sale of the leased company has enabled us to really focus on being a pure managed player. Although having a leasehold business did generate some cash, it was only about 5% of our profit at the end of the day,” Dodd said, describing the leasehold estate as “a bit of a distraction”.

Although Dodd said Young’s has invested “nearly all of the proceeds”, the new freehold sites have replaced the EBITDA contributed by the leased estate and freed it up to focus on its core business.

“We got a very strong balance sheet – our net debt to EBITDA is 1.9x – and we will always acquire assets and businesses,” he added. That said, they need to be right for the long term. “What we won’t do is rush out and spend a load of money tomorrow.”

Simon Dodd CEO Young-s pubs

‘Freeholds in the right locations are still scarce’

Geographically the pub operator is looking in London and the south, up to the Cotswolds and down to the South West. For a site to tick the boxes it needs to be freehold, in the right location, and either trading really well, like The Griffin Inn, in East Sussex, or a business that can be evolved and built upon, like The Bedford Arms in Rickmansworth.

“Freehold businesses in the south of England and London are still quite scarce – I’d love to buy more pubs in London but they’re very rare,” Dodd said.

“I think every acquisition we have made in the last 12 months has been off-market, and they tend to be either family businesses where they want to pass the business on or it’s people that have bought a pub thinking it was going to be a wonderful acquisition and then found it very, very tough having only one pub.”

For example, The Griffin has been owned by the same family for 40 years, and the Half Moon in Windlesham for 110 years.

Dodd said the market will always be tough, in that prices aren’t softening, but in addition to competing on price, people selling their family business really want it to go to the right owner.

“Because Young’s is a long-term business, and focused on being premium, individual and differentiated, it gives you a competitive advantage when you’re looking for these properties.”

In addition to investing in its estate, Young’s has also been doing a lot of work on succession planning and internal promotions.

Seventy-six percent of its general managers are now recruited and developed internally, and 64% of its head chefs have also come up through the ranks. “That’s a really big thing for us because once you get people in the business, if you can train and develop them, you tend to retain them a lot longer.”

Spread Eagle, Wandsworth 2

It also launched its flexible working platform The Ram Agency last year and is “really starting to see dividends”. The agency had around 50 signed up to it when it launched this time last year, and now has more than 250 people on it, filling more than 1,300 shifts each month.

“That’s become a huge lever for us because the whole sector has become about flexible working, and if you can provide that flexible working across all our pubs again it aids from a retention point of view.”

‘You can’t price your way out of headwinds’

The business implemented a price rise on both food and drink menus back in March, of around 2.5%. It has left food pricing alone since then but implemented a further rise of about 1.5% on its wet goods in September, in response to inflationary pressures. “But we don’t think you can price your way out of any headwinds,” Dodd said.

“What we’re trying to stick to is investing in our people, investing in our pubs and really trying to deliver that premium experience.”

And it’s that premium experience which has, to some extent, insulated the business from some of the cost pressures being felt by consumers. “We’re not immune to the cost headwinds […] but at the moment, we are not seeing any dramatic softening on the sales line.”

For the most part Young’s is trading like a normal business again now. If the sun comes out, so do the customers, and if it rains, the company knows about it. However, Dodd said its nice to be worrying about the weather rather than Covid and the pandemic’s restrictions.

Like all other operators it is doing its best to mitigate any costs. It fixed contracts with all of its key drinks suppliers in March, for a two year period, and its energy contract runs until March 2024, “so we don’t have any surprises”.

Its biggest barometer for consumer sentiment at the moment is Christmas. Its booking levels for the month of December are currently 54% up on last year and its Christmas Day bookings are 48% up on 2021. “That says to me there’s still a desire – people want to celebrate Christmas because they haven’t had one for three years.”

Spread Eagle, Wandsworth

Corporate bookings are also back. Last year the average party size was eight people, as most were just dining and drinking with friends and family, but this year, with the return of corporate bookings, its average party size is now 16.

Another customer base that has also been returning is office workers and tourists, with central London continuing to strengthen, with sales in the West End up 81% on last year and up 47% in the City. “Tourists are coming back and I think that working from home is starting to erode and people are starting to get back into the offices.”

For the time being the full focus is on the festive period but come January Young’s will kick off its quarter four pipeline of investments. This includes a big project at The Marquess of Anglesey in Covent Garden, which will see a roof terrace added, and another 12 or 13 investments in the period. “And we are looking at a couple of acquisitions at the moment which are at an early stage,” Dodd added.

While he admits he often uses the phrase, Dodd said he is cautiously optimistic about prospects heading into next year. “We’re investing well and we’ve got 5,000 amazing team members, succession is the best it’s been through the business and our retention is strong and so we’ll just keep doing what we’re doing.

“We’ve got a long-term strategy and that hasn’t changed – it’s tall about being premium, individual and differentiated, but with really well invested pubs and people as well,” he explained.

“So I think whatever headwinds are thrown at us, we’ve got the balance sheet and the business model to get through it.”