We’re in York at the launch of Stonegate’s Missoula Montana Bar & Grill on the city’s Bridge Street, and Toby Smith is in his element. Surrounded by senior members of the Stonegate team, the company’s then-chief executive is beaming, and speaks with the enthusiasm of a football manager who has just masterminded a 5-0 derby victory.

“If you’re an operator, you don’t sit here and think this fails,” says Smith, observing the new surroundings. “You sit here and think this works. And I’m over the moon.”

Early signs suggest Smith has reason to be optimistic about Stonegate’s second conversion to its newest American bar/restaurant concept. Around £240,000 has been invested in the former Living Room unit, one of the 13 it bought last summer from Premium Bars & Restaurants in a deal thought to be worth c£10m.

The first Missoula site under the format, at another former Living Room in Milton Keynes, opened on 5 December. The food business has “probably trebled” post-conversion, says Smith.

“It has gone off really, really well and we’re delighted with that. The numbers it’s turning during January made us think, oh, ok, that’s quite exciting.”

Now the elephant in the room. Just days after our interview, Smith announced his resignation, citing a desire to pursue “new challenges”. The decision appears to have taken the whole industry by surprise; certainly there was no indication during our hour together that his mind was on pastures new.

His will be big boots to fill. Smith joined Stonegate in June 2011 following the acquisition of Town & City Pub Company, the former Laurel business chaired by Ian Payne that he had led since 2008. He oversaw the integration of the original Stonegate estate, which had consisted of 333 former Mitchells & Butlers pubs bought by its backer TDR Capital in 2010, with Town & City.

Smith set Stonegate on its course to become the 625-strong acquisitive pub giant it is today, responsible for some of the leading pub and bar brands on the high street including Slug & Lettuce, Yates’s and Popworld, along with a string of unbranded pubs across the country.

What he describes is a business in good shape for his successor, who on Friday was announced as former Greene King Pub Partners managing director Simon Longbottom. Indeed, Missoula could be the final piece of the jigsaw for Stonegate. Smith says its addition means the company has now “pretty much covered” all the different types of trading format.

“We had everything in our stable from local pubs, high street traditional pubs, through Yates’s, through Slug, which has just been on fire for three or four years. The big thing we needed to add was something that was our most premium brand at the top.”

The Living Room acquisition presented an opportunity for Stonegate to rollout Missoula and “really push the boundaries of the quality of our offer”.

Stonegate has clearly seen enough already to have faith in the new concept as it considers future Living Room conversions. In addition to the two Missoula revamps, Living Room at St Katherine’s Dock in the capital reopened in November as a Slug & Lettuce and is trading “really well”. (Another, in London’s Heddon Street, was placed on the market after the landlord declined to sign the lease to Stonegate)

“The bias [for conversions] is probably more towards Missoula than it is to Slug & Lettuce, simply because some of the locations are very close to Slugs and I think they complement each other,” says Smith. However, the Living Room business is “really solid”, he points out. “It’s not like we have to change them tomorrow”.

 

Bramwell opportunity

Of course, this isn’t the only newly-acquired suite of pubs that the group will be looking at carefully for future investments. The Living Room deal was topped in November when Stonegate secured 78 sites from the administrator of Bramwell Pub Company in a deal believed to be around £35m, confirming the company’s reputation as the pub sector’s most active consolidator.

“We always said that given the right opportunities, Stonegate is the vehicle to take advantage of any consolidation opportunities,” says Smith. “In 2012 we didn’t make an acquisition. In 2013 two came along in quite short order.”

How did Stonegate choose which ex-Bramwell sites to acquire? “We said, let’s just pick the brilliant sites, and if we can sprinkle a bit of Stonegate magic dust on them, that’s a great platform for us.”

The company wasted no time integrating the new business, and hosted two employee “roadshows” in London and York within eight days of the deal to explain their plans.

“Within six days of the Bramwell acquisition, we’d seen every single manager,” Smith adds. “They are terrific pubs and we felt as though we needed to sell our side to them, rather than the other way around, and they responded really, really well.

“I think what we have is a great team who are able to take in their stride new businesses coming in.”

Investments are planned for between 20 and 25 of the former Bramwell sites for the rest of 2014. “Predominately they will be under our ‘trad pub’ banner because they are great traditional pubs,” Smith explains. The company typically undertakes 90 to 100 investments per year.

Missoula is far from the only major piece of innovation at Stonegate, and Smith is equally enthusiastic about Common Room, its evolved student-focused brand that debuted last year at the Southfield in Middlesborough, a former Scream unit.

The format is billed as a student ‘home from home’. It features craft beer and televised sport, along with “super-fast” wi-fi and plenty of plug sockets. “We’ve got the equivalent of fibre optic broadband in every site,” says Smith. “If you need to download something, or if you want to watch a clip on YouTube, be our guest.”

He adds: “What we tried to do was build a business where people visit multiple times a day, so they almost use it like a common room.

“They might come in the morning, drink coffee, do some work, come back at lunchtime, have a sandwich and a soft drink, then they might come at night, watch sport, have a beer. You could spend 20 minutes or 20 hours in the same environment.”

Smith describes Common Room as “phenomenally successful”. Sales at the Southfield have grown 60% post-conversion, “on what was a terrific site anyway”. The next conversions, the Library in Leeds and the Cavendish in Sheffield, which both opened in mid-January, have “gone off like trains”.

Stonegate has earmarked a “handful” more Common Room conversions at Easter, and expects to have completed another dozen, in addition to the existing three, by the end of the summer.

Conversions to date have been from existing Scream sites, but Smith says: “I think the success and the confidence that the first three have given us means we do feel as though it’s something we should look at further than the Scream estate.”

Smith says Stonegate is not prescriptive about which sites are converted to which format. “The only rules in the estate reviews is they have no numbers,” he explains.

For example, 18 months ago the company created a segment called Classics, featuring traditional pubs with a good food and drink offer.

“We’ve now got 51 of them but nobody said get to 50. Nobody said get to 100. We just said which site could work with that particular [style].

“If we have an opportunity what should we do? Should it be a Yates’s, should it be a Slug, should it be a new Missoula? They are great debates.”

It’s safe to say that one format we’ll be seeing more of is Popworld, Stonegate’s late-night retro music concept. Typically these have been conversions from the group’s Flares, Reflex or Babylon brands. The music policy is “songs you can sing”, with a focus on anthems from the 1970s, 1980s and 1990s.

Popworld reached double figures last month with the opening of sites in Guildford and Chester.

“They’re having loads of fun, trading very successfully, and appealing to such a wide age ground. They don’t worry about trends, they just worry about playing the right music.”

Late-night now makes up 8% of the total estate, Smith points out.

On the people front, Stonegate has also introduced what could be the most far reaching employee discount scheme of any major pub group. The company is offering every member of staff 25% off all purchases at its venues under a new reward card. Free entry and a queue jump benefit is also offered. Stonegate employees will also get a discount at David Lloyd health clubs and gyms - like Stonegate, that business is also backed by TDR. In a reciprocal deal, David Lloyd staff will get a discount at Stonegate venues.

 

Departure

Smith isn’t the only major departure to be announced at Stonegate, and this year also saw Mary Willcock, managing director of Slug & Lettuce, leave to become MD of Brunning & Price. Her replacement is Clare Staples, who had worked for Gondola Group for 17 years, most recently as head of operations in the south for its restaurant chain Ask. Staples also overseas Living Room in her role, which started on 6 January.

“Clare spent a month with Mary before Mary left. It’s the smoothest handover we’ve ever done in the history of handovers,” says Smith.

“Clare’s got her own ideas. Clare will want to tweak things, and move things on, and change things, and that’s really exciting for her.”

He adds: “We love Mary to bits, she’s been in the business for a long time. She’s also been responsible for the fastest growing brand in the UK, bar none, for the last four years.”

The subject turns to acquisitions. “I don’t think we’re going to do anything tomorrow,” Smith states. “We look at everything. We’re fortunate that we’re in a position where if opportunities come along we can seriously look at them.”

Orchid, the 240-strong managed operator, is one group that Stonegate has been linked to, although more recently the Rufus Hall-led company’s main backer Deutsche Bank is understood to be looking more closely at an IPO. “It’s an interesting business,” Smith says. “We know the business really well because the majority of them came from Scottish & Newcastle or the Spirit estate - I worked for both of those businesses.

“They’ve got some terrific pubs and some terrific people. Should the opportunity arise, like anything else we’ll have a look at it.”

Increasingly, Stonegate itself has been rumoured to be examining the IPO route. The Times has suggested that the change of management combined with the Bramwell acquisition is a clear signal that the group is being prepared for a flotation, possibly at the end of this year or early 2015.

What’s Smith’s take on such a prospect? “I get asked this a lot. The challenge when we set up Stonegate was to have the best managed pub company we could, and we’ll see how we go. It’s never changed from that.”

As for TDR, Smith says Stonegate has a “really good relationship” with the private equity firm, which he says is “hugely active” in the business. “We all have a very driven attitude to building the best pub company we can, and we don’t waver from that.”

It’s a philosophy that will doubtless stand the business in good stead for the future, whatever that holds.