Making a big splash at Pebble

Just over a year ago Ted Kennedy was running three mid-market pubs-with-rooms under the auspices of Pebble Hotels, with the tagline: “making a little splash every day”. Now, with the collapse of several lower-end pub groups, such as London Town and – last week – Pubfolio, the pub veteran finds himself in addition running an estate of almost 500 tenanted pubs under his Pebble “Management” arm. The development speaks of just one of the ways that experienced management teams are being valued in this recession. Kennedy got the banks out of a hole some years ago when he took some debt-laden pubs into his Mill House Inns business, with the enlarged business eventually sold to Punch Taverns. Anglo Irish, the troubled bank on the hook at London Town and Pubfolio, as well as two smaller freehold tenanted concerns, Goldtry and Inndeed Group, has turned to him to help them on this occasion. These bottom-end estates are like poison to the banks. The alternative use market is in many parts of the country closed for business, with little sign of life returning, so shutting these pubs is not an option, given the hideous costs. Better to put an experienced pub operator like Kennedy at the helm and take the medicine slowly – sell what you can, when you can and trade the operating businesses in the interim. In reality the banks won’t make anything, but the help of Kennedy, and others like him, will help stem the losses, getting them out of this situation as painlessly as possible. The banks, private equity groups and professional services firms all have their preferred suite of experienced industry professionals. In the absence of deals, and opportunities to take equity positions in growth businesses, management contracts with banks offer another way for strong operators to crystalise their expertise. Last orders for the pub? Last week an autumn debate hosted by the Association of Licensed Multiple Retailers (ALMR) returned to some favoured ground by posing the question: is it last orders for the traditional English pub? It is a perennial debating topic and one always guaranteed to get the blood running. Those in favour of the motion argued that traditional pubs were a dying breed, a victim of Britain’s march to café-bar culture. Defenders of the faith countered that there would always be a place in society for this cornerstone of our culture. For what it’s worth, my take on this is that it evidently is last orders for pubs that are out of touch – as it has always been – with the often-better invested and more appealing breed of cafe-bars / bar-restaurants / restaurant-cafes offering big clues as to why some pubs are losing market share. The convergence of pub and restaurant is a fascinating area. Consumers prefer the informality of the pub so those that get it right are quids in – witness the scores of brilliant food-led operators that populate the Morning Advertiser’s MA200 – an index of leading multiple-site pub operators. Much of the work of out-and-out restaurant operators is to make it feel more informal – to make customers think they’re eating at the bar or eating in the kitchen (witness Drake & Morgan or the regeneration of TGI Friday’s). If 'traditional' is a by-word for 'irrelevant' - old, tired, out-of-touch or poor - then yes, it is indeed last orders for the traditional English pub. Leap of faith at Geronimo? One of the clearest examples of what happens when you combine great food with a great pub offer in a traditional pub building is the multiple-site business Geronimo Inns. The Penta-backed firm operates almost 30 managed pubs, virtually all inside the M25. It is difficult to get a clear line of sight on what exactly is happening at Geronimo, but it seems change is afoot. Industry musings vary from those that say a process to bring about a tweak to the structure is underway to facilitate a cash injection that will allow the business to get its hands on more pubs, with Penta possibly taking a little bit of cash off the table, to those that suggest PwC is running a full sales process, issuing detailed trading information to those that can prove they have the purchasing firepower, as Penta wants out. What is clear to me is that the founders Rupert and Jo Clevely are in a powerful position and clearly have the appetite to remain in place and oversee further expansion. What is also clear is that whoever it is that comes onboard at Geronimo will want to keep the Clevelys firmly at the helm. They sprinkle just a bit too much of their own magic dust on these venues to make a purchase of their business without them quite as appealing. So the obvious play is for another private equity firm to come in alongside Penta, in the same way that 3i came onboard at Giraffe alongside Risk Capital. Whatever may or may not be happening, if I were an M&B or a Greene King, I would be trying to muscle in on this process, and seeking to tie in the Clevelys to work their magic on a raft of pubs. The work of Lovely Pubs’s Paul Salisbury and Paul Hales at M&B – they helped the company build the Premium Country Dining Group – may offer a blueprint to those running a sliderule over Geronimo. The entrepreneurs had a 50-50 profit share agreement for every pub developed. Why shouldn’t an existing operator with lots of urban pubs buy a stake in the business, with a call option in three to five years’ time, and give the Clevelys as many pubs as they can handle?