M&C Report takes a closer look at the full-year results for Greene King, the brewer and pub operator, for the year to 28 April and talks to chief executive Rooney Anand, about the challenge facing the middle of the trading market, the group’s food strategy and further brand expansion.
The squeezed middle
Anand said that cautious consumers continued to engage in a “flight to value”, with better pub benefiting from downtrading. He said: “Trading remains volatile. The fluctuation between peaks and troughs in performance is stronger and that is a challenge for everyone. While the value end and premium end of the business are performing well it is the middle where the challenge is on to keep consumers engaged. The pace in the change in loyalty and habits is qucikening and you have to be flexible enough to match it.”
He said that the comeptition in the marketplace had widened but that was creating “both challenges and opportunities, which should lead to attractive long-term growth prospects”.
Food
Anand said that the group continued to pursue its strategy of increasing itsshare of the £54bn eating out market and increasing its share of sales driven by food and food occasions. The group’s food sales have increased 75% over the last five years to £337m, accounting for 40% of its sales. Food sales per site now stand at £6.7k per week.
The company said it had identified three key trends across the eating-out market:
‘Customisation’. It said: “We developed ‘fish your way’ in LFR, ‘burger your way’ in Eating Inn, and ‘build your own burger’ in Flame Grill and Meet & Eat. In Eating Inn, there are 560 different combinations of burger for a customer to choose from.”
‘Convenience’. It said: “Cakeaway offer in Hungry Horse generated sales of £750k in the first full year and in our Local high street sites, we improved the breakfast offer, launched a lunchtime deli deal, and introduced a wider range of sharing platters for ‘after work’ customers.”
‘Health’. It said: “We introduced a ‘live well’ section on our Eating Inn menu for dishes under 700 calories and we stepped up the number of gluten free dishes in our menus.
Anand said: “On an organic basis, we primarily achieve this by broadening the appeal of our food offers to drive cover growth, alongside selected price and mix improvements to help offset annual cost inflation.
Beverages
The group said that wine and coffee were also important long-term growth categories for its Retail estate. Its wine sales grew 15.8% during the year and are up 62% in the last five years. On a per site basis, wine sales grew 11.8%. Across its Metropolitan brands, its premium Local Pubs estate, it introduced a dedicated wine specialist and developed a premium, directly sourced, own-label brand, Piazzi.
Hot beverage sales, of which coffee is 75%, grew 6.2% and Anand expects further growth as the company grows itsbreakfast trade. It launched its own coffee brand, Big Bean, which has been rolled out across the Hungry Horse estate. Across the rest of the estate, 86% of its sites use illy as their coffee offer.
People
Anand said that at the heart of the group’s people approach was its Discovery Apprentice scheme, which it launched in January 2011. He said: “We continue to grow the scheme and deliver excellent results: at the year-end, we had almost 2,500 apprentices in Retail, of which 1,300 were ‘in learning’ and 1,200 were fully trained. This equates to 12.3% of our Retail team, compared to 8.2% 12 months ago. Most importantly, 71% of our apprentices have successfully completed the programme, ahead of the national average of 62%.
“This focus on, and success of, our apprenticeship scheme has positively influenced team turnover, down 8%pts, employee engagement, up 4%pts, and labour productivity, which was 2.3% better than last year.
“Finally, we believe that our positive reputation as an employer is attracting more and more people to work for Greene King. For example, we average 12 applications for every job vacancy in our new build sites, equivalent to almost 800 applications per site.”
Brands
The group converted seven sites to its Realpubs or Capital Pub Company formats during the year. Anand said: “On average, all the converted sites are delivering an EBITDA ROI of 33%, although we expect investment returns to moderate going forward.”
It is thought that the group’s 42-strong Loch Fyne estate has seen anuplift in sales recently and Anand didn’t rule out adding further units to the brand, but said that the group “had a number of growth brands competing for growth capital”, with a further 114 sites in the pipeline for Hungry Horse.
Digital
Traffic on the group’s websites grew 50% to 7.2m over the year with mobile traffic trebling to 31% of the total, up from 17% last year. It averaged 138,000 ‘hits’ per week in total. Online table reservations grew 26% and generated £3.2m in sales. At the year-end, the company had 224,000 Facebook followers, up from 23,000 last year. Its combined databases grew by 76%, and it sent out over 20m marketing emails. It loyalty card holders increased ten-fold and guest satisfaction feedback forms totalled 167,000.
Leased
Anand said that the group progressed with its plan to reduce the size of its leased estate. He said: “We sold 103 non-core sites and transferred 14 to Retail. This left 1,269 trading sites and 44 sites closed for disposal at the year-end. We expect to dispose of around 125 sites during the new financial year.
“The recruitment of high quality licensees to run our pubs remains the most important element of the Pub Partners model. We made a number of improvements to our recruitment process, including the regionalisation of our recruitment teams and the introduction of licensee profiling. As a result, the number of new licensees in their pub, after one year, reached 83%. We also stepped up our licensee training, including a new service programme. Licensees that attended the course saw an average 12.5%pts increase in their mystery guest service scores.”
At the year-end, the group had 830 sites, or 65% of the trading estate, on some form of free-of-tie (FOT) agreement, including 21 sites completely FOT. It had 331 sites, or 26% of the estate, under an element of central offer influence. It launched a digital support tool called Footfall 123, which led to 85 sites initiating a loyalty card scheme, and its Sports Club and Head Brewers Cask Club each had over 300 members by the year-end.
Anand said: “As a result of these initiatives, two additional key metrics improved during the year. Average licensee tenure increased by one month to four years and eight months, while our licensee NPS increased 11%pts to 34.3%, better than a number of Pub Partners’ retail competitors.”
