InsideTrack by Peter Martin
It’s been another tough week for managed pubs. Regent Inns, Eldridge Pope and even Wetherspoon took a pasting. Pope and Regent both put out profit warnings on the back of continuing sales falls, with Regent’s operations director Michael Thiele, the man responsible for the troubled Walkabout brand, paying the price with his job. Wetherspoon still reported sales increases, but not enough to meet City expectations. It culminated in leading sector analyst Greg Feelehy, who had already downgraded his Wetherspoon advice to ‘sell’, concluding "restaurants look a safer, and better, bet to us". The advice also comes against a background of Laurel announcing the sale of its 432 neighbourhood pubs. What price them? Well, getting a good price may not actually be a problem. Because the counter point to all the doom and gloom comes with news of the price that Wizard Inns is expected to reach. Those close to the auction say the final selling price will be in excess of £95m, even £100m, for an estate of 61 pubs, 50% leasehold and 50% freehold, with sales of £45m to £50m and an ebitda of around £13.5m. Someone certainly sees value in managed pubs. Part of that attraction lies in food. While others are investing in the restaurant sector – and another new venture, Urban Dining, was launched this week to buy up growing eating-out concepts – Terra Firma, which is selling Wizard on behalf of owner Nomura, has been playing up the opportunities to increase food sales across an already well-run business. Obviously, somebody’s listening. Developing stronger food propositions in the managed pub sector is a real opportunity, if the understanding and management skills are in place. But the real point about the mixed performances across the managed sector is that the market doesn’t move as one anymore. Businesses are differentiated by the quality of their managements, their ability to act quickly and decisively, their locations and the uniqueness of their offerings. It’s a tough market, where every sale has to be fought for, and players without a differentiated product, or a fading one, will be in trouble, and where the only weapon then becomes price. Those caught in the High Street price wars, for example, are not going to compete with the sheer bloodymindedness and market leverage of the likes of Wetherspoon and Luminar, not to mention Spirit and M&B. Another underlying issue is that the long expected consolidation of the middle market hasn’t yet materialised. Perhaps the current headlines will help to kick-start the process? Stock market investors may well be right to avoid managed pubs. They are not exciting. But that’s just the attribute that often attracts the private investor. Wizard, not Regent and Pope, may yet prove to be the future face of the sector.