MCA spoke to Mitchells & Butlers (M&B) chief executive, Phil Urban, on the back of yesterday’s half-year results. He discussed the next stage of the group’s transformation programme, including bolder pricing strategies on a local basis. He also talked about consolidation in the Stonehouse brand, further evolution of Harvester and the revival of O’Neill’s; as well as the scope for pay at table and delivery options.
Over a 32-week period like-for-like sales have risen 1.4%, with drink sales up 1.9% and food growing 1%. The impact of the snow, which M&B estimates at £12m of sales, was c£8m on a profit basis, including increased food wastage and repairs.
Over the Easter weekend, like-for-like sales grew 5.8% at M&B – outperforming its peers. Urban said this was largely due to a suite of brands that suit special occasions and family gatherings.
On the shifting dynamic of brands in the M&B stable, Urban said: “The growth we are seeing is principally in wet-led and premium offers.
“We have about 230 pubs in our Sizzling and Heartland business, which are doing well, as are Oak Tree and Ember. Those businesses have proved very resilient and, as we have mentioned before, Miller & Carter goes from strength to strength.
“Mid-market and the real value end is most under pressure, which is why we have been trying to reduce our exposure to that part of the market. Harvester is an example of a brand that a few years ago was mainly competing on price and has now had investment and is getting back to being famous for the food and the experience rather than just the pricepoint.
“If we had a brand that was most exposed, it would probably be our Stonehouse Pizzas & Carvery, because it is very difficult to pass on price there. We are at a point with that brands where we have gone through a rapid conversion programme from Crown to Stonehouse and the focus has all been o opening sites. Now we have a period of consolidation to do where we will start to put the brand principles in place and get the conversion through the P&L. We certainly feel we have sufficient room to make it a success but there’s no doubt that is the part of the market where us and our competitors are most exposed.”
He said that the rollout of the next generation Harvester model continued, with c80 sites now converted and further work underway, particularly on retail and leisure parks.
On the approach to the O’Neill’s, Urban said: “The decision to exit O’Neills was taken before I was involved in the business and was obviously something that was right at that time. I have always felt that O’Neills was a strong business so we have reinvested and it now feels like a brand we will stick with. It stands out against its peers and we have got some O’Neill’s that are on our radar for the coming capital programme.”
Second phase of transformation programme
Urban launched the first phase of the ‘Ignite’ programme in February 2016, with the aim of stabilising underlying profits.
He said the next phase, which was launched this year was a much more comprehensive programme of change which would be “the engine room of the company for the next two to three years”.
It incorporates 43 initiatives across eight areas, including:
1. Sales and service: • Unprofitable hours • Selling up • Under-performing assets • Raising site standards
2. Labour: • Improved sales forecasting • Support and training for sites • Not just cutting costs but optimising deployment
3. Stock: • Roll-out of auto-ordering • Trial and roll-out of prep & par
4. External spend: • Leveraging scale • Cash spend in the business • Further product rationalisation • Reducing maintenance costs
5. Menus and pricing: • Menu psychology • Speed to market of menu changes • More radical tailored pricing by site • Lead time on point of sale
6. ROI: • Value engineering • Improved site selection techniques • Focus on poor performing investments
7. Digital marketing: • CRM effectiveness improvement • Order at table • Optimising our delivery partnerships
8. Stock and cash leakage: • Trial of new software • Pinpoint weakness in controls • Speedy resolution of issues
Urban said: “There’s no silver bullet to success. To drive sales and profits you have to improve a variety of things across a variety of areas.
We have eight buckets, all sponsored by a member of executive team and led by operations directors, supported by a cultural experts. We have 43 initiatives and each has a team accountable for the outcomes. That means we can do things simultaneously and we can move at pace.”
On the changes to menus and pricing, he said: “It’s essentially about how we can be more fleet of foot about getting product changes or price changes to market.
“In the past we have probably been a bit conservative in moving price points to match a local competitor if it has seemed like a big leap overnight. We have tended to do it in two or three steps instead, which of course, allows more potential for the gap to widen in the meantime.
“We’re now being braver, in some cases, in taking a bigger-sized pricing increase, or sometimes reduction, where we feel we’re outside the market.
“Taking a site by site approach when you are at the scale we’re at is difficult but not impossible.”
Pay at table
In yesterday’s announcement, the group revealed it was trialling order at table technology within the O’Neill’s estate.
Urban said: “It works well in drink-led businesses, particularly where people are watching sport, and we’ve been encouraged by the results so far. We’ve got a few operational things to work through. The frustration can come when you’re standing at the bar and the staff are all serving people to the table. We are just working on how we get that right before pushing the button.”
M&B currently works with Deliveroo at 73 sites and Just Eat at a further 36, offering both home delivery and click and collect. It is also talking to other providers.
Urban said: “Delivery has not been the panacea for the industry that perhaps it was predicted to be a few years ago, but it has proved to be a viable extra revenue stream if it’s handled appropriately.
“We have about 400 sites that have the density of population to make delivery viable. I would be surprised if we rolled out to each of those but we know we have the potential.
“I wouldn’t be doing it if I thought it was discouraging people from eating in our pubs. The good thing is that the operator is in charge of the ticket time and if the kitchen is swamped then you can dial that down. Ultimately it’s a positive to keep our brands in the repertoire.
“I think there is room for both home delivery and click & collect. With home delivery you hit a certain consumer that otherwise is lost to you but click & collect obviously has the potential to drive supplementary sales in-venue.”
Divisional director, Rob Pitcher, will take up his new role as chief executive of Revolution Bars Group on 25 June. Pitcher said the search for a replacement was underway and that in the meantime the role would be covered internally. MCA understands that Susan Martindale will take on responsibility for heading up Harvester, Toby Carvery and Stonehouse in the interim, in addition to her role as HR director.
Miller & Carter, which reached 100 UK sites during the period, is gearing up for its launch in Germany. M&B already operates its Alex brand in the country but is now gearing up to open the first German Miller & Carter, in Frankfurt, in September. It will be overseen by Bernd Riegger, who has headed up M&b’s German estate since 1999.