A year into his role as chief executive of Mitchells & Butlers, AlistairDarby has got under the skin of the UK’s largest managed eating and drinking-out operator and started to lay the foundations to put it back to its position as the leader of the sector’s pack. He talks to Mark Wingett about the past 12 months and what is next for the group.
After a long interview process, which allowed him to get to know Mitchells & Butlers’ (M&B) people and business fundamentals, and also hear a candid assessment from the board on what they thought needed to be done to transform the company, Alistair Darby admits that there was only one surprise awaiting him when he took up his new role as chief executive of the circa 1,600-strong operator last October.
He always knew about the high quality of the people, brands and pubs he found waiting for him from his time competing with the company as chief operating officer at Marston’s, but it was in another area at which M&B had been historically strong that he was surprised to find it had “lost its way a bit” – consumer research. He now believes the group has got back to where it was on guest research during an extensive three-month period, which he describes as a miracle that saw the group quiz 8,000 people in a 100-question survey.
“Historically M&B had always been strong on guest research, knowing where the market was and where trends were going, which is one of the main reasons why it was so good at brand development,” he says. “Although there was a lot of consumer research in the business, it was very dated. The consequence of this was that when the business was under pressure and costs were being cut, this development ceased. We were running a bit blind as to what had happened to guests before austerity struck. That was the really big piece of work that needed to be done.”
Darby admits that the lack of this data was proving a handbrake to the transformational programme the group wanted and needed to embark on, and had allowed the rest of the sector to catch up on the then market leader.
“For a time there we had a classic six-pointer scenario. M&B was distracted for whatever reasons, it was cutting back on research and capital expenditure. We were maintaining our pubs, but not stepping them on. At the very same time, the competition was stepping up what they were doing, through the quality of their people and pubs, investing for capital. The gap that existed closed very fast.
“The challenge for us, as a circa 1,600-strong business with average weekly sales of £23,000, was that when use lose momentum in a business of that size, it is going to take some time to get that back.”
Darby also admits that “it is difficult to stop this if you can’t decide what to keep”. The first results from this process were announced in May this year when M&B set out its five ‘market spaces’.
He believes the consumer data that the group will eventually be able to generate from the rollout of its new £33m IT system could prove in time to be a game-changer for the company. It will complete the rollout of the Zonal-led system to all of its estate by FY2015, with the bulk done this year. The rollout to its entire Harvester-branded chain is already complete.
“What we want to do is be in a position where we have a much more elegant solution to interacting with the four million customers who have given us their details,” he says. “They have given us their details and we know what their regular pub is. The question is how do we bring that to life so that you can have a personal relationship when you come into our pubs. I think the breakout in digital interaction is likely to come when we speed up in FY2015. That will have a big impact straight away.”
Using the personal touch Darby is interested in personalising/tailoring the group’s offer even further to its loyal customers. “I recently received a letter from a lady who visits one of our Toby sites up to three times a week and enjoys the relationship she has built up with the staff there,” he says. “However, she was dismayed that she had received an email shot from the company regarding a family deal we were running, expecting the relationship she had in the Toby to be replicated online. She expected, and quite rightly so, that if we knew her well when she came through the door, this should be replicated in how we talk to her through our marketing.”
This consumer research didn’t stop in April, and Darby admits the first tranche has given the company the appetite and desire to go even further. It is currently doing a lot of activation work across a number of brands to assess how it can “take a real leap forward on them”. Darby says: “For example, we are doing a lot of work on Harvester, because if you talk to young families, when they go out they don’t think there are a lot of brands who do families well.”
The group is also ramping up its research into the country pubs market, asking: “What are all the things that have to be done in a country pub to make it feel special?” – whether that is Vintage Inns, Premium Country Dining or Village Pub & Kitchen.
The first fruits of the second stage of this research will be highlighted through the launch of a next-generation Harvester site. Darby states that the company is ready to push the envelope when it comes to the development of Harvester, after admitting it had moved too fast when it entered the leisure and retail park sector with the brand under the previous regime and not learned crucial lessons in the process.
He says: “We made an assumption that people understood Harvester and its core offer, such as the salad bar and free refills. That was too big an assumption. You go into a lot of our leisure and retail park sites and the salad bar is at the back of the restaurant, close to the kitchen for efficiency purposes. The key strengths of the brand were being hidden. The next one we open, wherever that is, it might be quite extreme; we’re going to have a real go at pushing the envelope on Harvester.”
Darby said that to put into perspective how the fast the company had moved, in 2010 it opened only one unit, in 2011 it opened 60. “That presented a whole lot of issues, the availability of people capable of running those sites being one. When you are going at that speed you are not learning.”
He also states his admiration for The Restaurant Group’s (TRG) approach to leisure and retail parks, saying that the group had to learn it was dealing with guests that were more time sensitive, and appreciate that the visit to a leisure park-based Harvester was not the main reason for their trip.
He says: “They put a suburban Harvester design into a leisure and retail park site, where space was more limited, and although it has the same guests – young families – their behaviour is different. It shouldn’t be a surprise, but we didn’t see it at the time. The challenge is how to protect all that is great about Harvester – the salad bar is key and the grill menu is very important, as is the sense that it is a great place to go with a young family – while also pushing the boundaries in terms of amenity and offer.
“The big battle in family restaurants is not just in design, service is critical. Here with my young family, there is the potential for something to go wrong; I am here for a relaxed time, I am doing everything I can to ‘control’ my family, if you, the waiter/ waitress, can do everything you can to help me manage the situation, then that makes a huge difference. So, if you take TRG, it has booth seating, because if anything is going wrong it is contained from the other guests, the kids are trapped in a nice way; the other thing a booth does is give you privacy.”
Volume reductions
One of former chief executive Tim Clarke’slegacies was that M&B used its scale to drivea pricing advantage. However, Darbyadmits that when the business started tocome under pressure the price leaver waspulled. “We were a lot cheaper than thecompetition, relatively speaking. Volumesin the business had fallen because we putprices up in the eye of the storm/recession.I am not critical of that, it’s an observation;it is understandable that when a companyis under pressure you need something thatachieves quick results. But it meant the pricegap closed with the competition, soalthough we are not more expensive, we didput up prices too fast and you have seen thatin our volume reduction.”
He says the next big thing for the companyis that it has to pull price less and get backto using its consumer insight, people andscale to drive volume.“Some of our volume has gone directly tothe competition, who have not been asaggressive on price as we are,” Darby says.“That’s been the case across all our brands”.
“We also moved too far and too fast towards food with some our brands. Sizzling Pubs would be a good example of that, where we lost some important community attributes. When you are trying to get more food into the business and your focus starts to go off drink, the next thing you think is put the prices up a bit; before you know it, we sneaked too many price increases into community pubs at a time when inflation is outrunning wage increases and there is no more money in people’s pockets. You get consumers asking why you have put 5p more on the price of beer. That is your local customer base gone.
“Money is tight, but this demographic are really good budgeters – as soon as you go through a certain price point you lose them and it is that quick. You underestimate the price awareness of your everyday customer in community pubs at your peril.”
Darby gives the example of volumes in its 110-strong Crown Carveries estate dropping by 20%, emphasising the “critical” impact of even relatively marginal increases in prices. He says: “Two years ago volumes in the brand were growing when the cheapest meal was available for £3.89, but volumes began to waver when it was raised to £3.99 in May 2012, and there was a significant drop off when it increased again to £4.19. Going beyond £4 was a big problem for these cash-strapped customers.”
He says it’s “too early” to see the effects of the changes, but adds: “We are pretty confident this is going to make a difference.”
Darby says the group would look at all opportunities to create higher returns, including further portfolio acquisitions, such as the £13.3m purchase of four Convivial Pub sites, which are to be moved into its Castle estate.
On the question of looking at opportunities such as Orchid Pub Company, he says: “It is no secret that we have a lot of cash on our balance sheet, which isn’t creating a lot of value. We’d like to deploy it to create higher returns, so we’ll consider all opportunities, whether they are investment in our existing estate or organic expansion, and if there are opportunities in the marketplace that we think can add value to our business, we will look at them. Convivial is one example, which we believe will add value.
“The key is you can only spend the money once, so we’ve got to make sure that if we do spend it we are confident about the returns we can generate and the long-term contribution that investment is going to make to our business, because the money sitting on our balance sheet is a gift, it came out of the sale of other pubs. The key for my job is to use that money to create long-term value for our shareholders. We’ll look at what’s available and weigh it up very carefully.”
Darby also highlights the fundamental step up in quality in the sector over the past 20 years. “There are still some bad pubs, but they are relatively few and there is so much choice around that bad pub that the consumer avoids it,” he says. “This is the good thing about the industry. It means we all have to be really good, because people recognise that if you are not at the top of your game you are going to fall behind.”
He has enjoyed his first year at the helm. Is he looking forward to the second? “I am looking forward not just to next year but the many years ahead.”
Given a settled backdrop, which his predecessors would argue they never had, Darby has got under the skin of M&B and put the group back on the road to what it has always done best: understanding the consumer and developing its business from those findings. The results should be worth keeping an eye on.
