Greene King chief executive Rooney Anand talks to MCA about his strategy for ensuring that Greene King is “Britain’s best pub company”.
He talks about progress so far in consolidating and evolving the company’s brands and says that by 2019 around half of the managed estate will operate under the Greene King banner as it seeks to further promote the company name as a brand for pubs as much as beer.
Speaking after the publication of the company’s preliminary results for the 52 weeks to 1 May, Anand also talked about a “year of innovation” within the tenanted and leased estate and a focus on seasonality and internationalisation in its food offer.
Anand said that by 2019 between 800 and 900 of what is currently a 1,823-strong retail estate would be run under the Local Pubs formats, with the majority branded as Greene King. The remainder of the estate will be split between four brands with Hungry Horse the largest, followed by Flaming Grill, Chef & Brewer and Farmhouse Inns. These growth brands will be complemented by Greene King’s hotel business as well as by the Metropolitan and Loch Fyne businesses.
He told MCA: “These five brands are the focus but ultimately this is about looking at the pub as a property asset and asking what is the best brand for it. It’s from each of those decisions that we aim to build the best pub company in the country.
“We are investing in Metropolitan. That will continue to be the premium format. We also have, in bringing together Old English Inns and Good Night Inns, a very successful and meaningful hotels business. They may not be the focus in terms of brands but they are still a very important part of a growth.”
So far there have been 24 brand conversions and Anand said the group had seen strong sales uplifts and returns. He gave an example of the Bees Knees in Leicester where average weekly takings have risen from £19,400 to £27,500 since the pub was changed from a Fayre & Square to a Hungry Horse.
Greene King plans to complete between 300 and 350 brand conversions over the next three years with total capex investment of £120m to £150m with 100 in the first year. Anand said while most of these would be Fayre & Square to Hungry Horse, some would be Fayre & Square to Farmhouse Inns, some Old English Inns to Chef & Brewer and various brands to Flaming Grills.
The group plans to dispose of up to 75 managed sites in the coming financial year, as well as 50-60 tenanted and leased sites, but Anand stressed that the company has no plans to sell off any of its brands.
The focus on brands so far has included trailing improved zoning in Hungry Horse, “allowing more families to dine in a comfortable environment, while other customers enjoy the option to watch sport”.
During the year there was a relaunch of the value-orientated breakfast offer in Farmhouse Inns, extended breakfast service hours in Hungry Horse and the introduction of a ‘Grab ‘n’ Go’ price point for a coffee and a pastry in Local Pubs. Including the Spirit estate, the proportion of sales generated before 5pm increased by 7.6%, including by 8.6% in the five retail growth brands.
On the subject of whether the company would be targeting further acquisitions in the medium-term, Anand said: “To put it in context, we have owned Spirit for a year and a week. The longer we have the business the more confident we become around what we think the combination can deliver, both strategically and financially. We want to go further than the £35m we have identified in synergies to create a war chest to deploy in three main areas - marketing, HR and IT. In addition, we expect strong growth in earnings from conversions. I want to garner the real and full potential of Spirit and I think that will be the majority of our focus going forward. However, you just never know what opportunities are round the corner.”
Anand said the integration of the 400-strong Spirit Leased estate and 800 Greene King tenancies had been completed ahead of schedule and that best practice was being shared across both side.
He said it had been a “year of innovation” within the estate, focussed on the evolution of turnover agreements; work to improve the food offers and social media support for tenants and lessees.
On the latter, he said that Twitter followers for its pubs had increased by 75% and traffic to the Pub Partners website had increased twelve-fold.
Anand said: “The two estates that were merged represent slightly different businesses. You have what are essentially short term tenancies, which are largely or partially tied but well invested and then you have got a very different scenario around leases. The teams have looked at what each other are doing and taken learnings from each other.
“Local Hero is something Clive Chesser and his team developed as a kind of soft brand – a franchise format, which I think can become a much bigger part of what we do. It’s gaining a lot of traction with licensees, who see it as giving them the back-up of a larger pub companies but also quite a lot operating freedom to show creatively and entrepreneurially what they can do.
“Spirit have done certain things that have been very successful in getting food supply to be taken up by their partners using their logistics supply chain capability. It’s something we’re very keen to continue.
“Bringing those two together has given us options and flexibility that we didn’t have before.
Anand said 42% of direct sales come from food with an estimated 15% to 20% of drink sales driven by food custom.
He added: “That hasn’t been achieved by setting targets around food but it has informed the pubs we have bought and built. We have structurally driven food in the way we have evolved the nature of the pub estate.
“You could say customers are becoming more sophisticated so will premiumisation be a key strand for Greene King? Certainly in our Metropolitan business and our premium locals it will. But for Hungry Horse and Flaming Grill, making sure we’re delivering exciting and interesting food at a very fair price is something we can’t take our eyes off because of the role those brands perform within their customers’ repertoire.
“Things you probably will see us focus on are seasonality. Chef & Brewer make very good use of food festivals to drive interest and seasonal relevance to their food in the same way you often see supermarkets, particularly Waitrose, do.
“Internationalisation will also become more important as customers get more confident, and I’m not just talking about London customers. People are increasingly more adventurous about trying new foods, whether that’s something they tried on holiday, read about or just heard about through word of mouth.”
Anand said: “Our view is that since January customers, in spite of income and confidence strengthening on surface, have been affected by the uncertainty of Brexit. Since Friday that is even more apposite. But Greene King is a business that posted record results four years in a row after the downturn in 2008. Our business is based on strong fundamentals with 55% of our assets in south east, a predilection towards freehold rather than leaseholds and we have invested in our estate. We are in an even stronger position now and Spirit gives us a huge number of opportunities.
“I think it’s very important to look beyond whatever turbulence is created by last week’s decision. We are competing in a market that is growing. The UK eating and drinking out market has been looking very healthy and we are well placed to make the most of that.