Spirit Pub Company has outlined the potential for expansion across its managed concepts, with Fayre & Square having the potential to grow from 156 to 250 sites and Flaming Grill possibly expanding from 84 to 225 outlets.
The information has been provided in a note from Numis analyst Douglas Jack following a site visit for analysts, where plans were also discussed to segment the Leased estate into 200 franchise sites and 100 operating under a retail agreement, along with 50 premium sites and the same number of stand-alone leases, while the remaining 59 “should be sold”.
Jack said the 791-strong managed estate has been “transformed, on a self-financed basis” over the past three to four years.
“Since 2010, managed pubs: LFL sales are up 11.9%; EBITDA /pub is up 35%; EBITDAR margins are up 390bps; 86% of the estate is now invested; ROI is above 25% and improving; and guest advocacy is up to 73% (from 65% in 2011). Despite this, there is still plenty of upside.”
Jack said Fayre & Square has the potential to grow to 250 sites. Developments at the brand include extending its ‘two for £x’ offers into starters, desserts and meal trade-ups, with drinks to come next.
Jack said every Fayre & Square should eventually have a Wacky Warehouse in some form; 80 currently have one. Wacky Warehouse adds £4,000 to weekly sales, he said.
“Cakeaways have been introduced in three sites and could be rolled out through the rest of the F&S estate by November,” Jack added.
He said Flaming Grill has the potential to grow from 84 to 25 sites. Jack said: “Paid TV is in 45 Flaming Grill pubs, but this number is about to increase to 75; renegotiations with Sky are almost complete. Food is in strong growth; driving up drink sales is the next opportunity aided by better event management.”
He said the first trial of the smaller Flaming Grill template (1,200 sq ft rather than the standard 3,000) started eight weeks ago and is “proceeding very successfully”. A further three trials will commence in August.
“Potentially, this conversion programme should reposition wet-led unbranded pubs into the branded value food-led segment, creating a more sustainable basis for growth.”
Among the 468-strong Leased estate, 40 have had the John Barras food menu introduced, and that number will rise to 50 by the end of August, Jack said.
“In the first 17 trials, food sales have doubled, boosting beer volumes in the process. Sixteen sites are under trial: five premium; four retail agreements; seven franchise. Eventually, there could be 50 premium, 100 retail agreement; 200 franchise; and 50 stand-alone leased. The rest (59 pubs) should be sold.”
Jack said that in the Leased estate, there have been 80 “transformational” investments costing £10.6m in 2013E, achieving a return on investment above 25%.
