The past week has been one of mixed fortunes for Greenalls customers. Two announcements came out of the pub-operator ten days ago. Pub-goers mulling over a pint at their local may have been mildly interested in a new cash giveaway launched last week called “Tuesday 100”.
But the big news favoured their counterparts drinking in the group’s branded bars. Greenalls is merging its two divisions Premier House, which includes its branded pub restaurants, with Greenalls Inns Retail, the area overseeing its chain of managed houses (MW March 7).
The immediate effect will see its 245 managed houses farmed out to tenants, 100 jobs axed at its Cheshire headquarters, and a growing concentration on aggressively expanding its retail brands and concepts.
Redundancy and reorganisation will cost Greenalls 7.3m. Yet it is expected to save 3.5m from the new merger, to be known as the Pubs & Restaurants Division.
The underlying reason for Green-alls merging the divisions, aside from cost cutting, is to exploit a change in pub retailing that is going to hit “second tier” managed pubs the hardest. Managers of Greenalls houses have the option of redundancy or taking over their pubs as franchisees following the merger. But City observers believe the move will force more of the larger pub operators out of the managed house “second tier” market, and so compound the problem for the tenants.
“We’ve seen a lot of capital investment in city centre pubs over the past few years,” says Merrill Lynch drinks analyst Mark Puleikis. “1997 will probably be a year of peak investment from all the major players like Bass, Greenalls and Whitbread.”
His view is echoed by Tony Payne, chief executive of the Federation of Licensed Victuallers. He predicts that other big pub operators will probably also be “reviewing their operations” – with managed pubs under the spotlight because they may not be achieving agreed profit levels.
But even before any heads rolled at Greenalls head office, it had appointed a marketing and commercial director for the new division – Nader Haghighi.
The former managing director of the group’s specialist off-licence division, Greenalls Cellars, is taking on the role of head of marketing, backed by a promise from chief executive Lord Daresbury to expand and develop the merged company with an 85m injection of cash. Brands such as Millers Kitchen, Henry’s Cafe Bar and Shifty O’Shea’s will come in for close scrutiny and possibly heavy support.
Investment in branded pubs is growing at a time when returns on a new pub can be as high as 20 per cent within its first year of operation, says Puleikis. “Returns are very good and I think it’s having the consequence of squeezing out the second-tier pubs,” he says.
The accelerating demise of the original British boozer is paving the way for upmarket high street pubs that are filled with “suits” during the week and tout themselves as being “female friendly”.
Sheila McKenzie, director of the Grosvenor Inns-owned Slug & Lettuce chain, claims the developing trend is making pub operators into better retailers. Grosvenor Inns is selling off several of its pub brands, including Bar Central, to concentrate on the Slug & Lettuce chain, which it hopes will expand by a further 20 sites within the next two years.
Bass Taverns is also increasing support for its themed pub division, which includes chains such as the Irish concept pub O’Neills as well as Edwards and All Bar One. It plans to invest 300m in the 12 months to this September to take advantage of the “buoyancy” it expects to see in consumer spending.
It is in this environment that Greenalls has acted.
“We ring-fenced 100 pubs ten years ago at Premier House to create a branded pub concept. Since then many of our other pubs have taken on similar concepts leading to overlapping,” says Greenalls finance director Alan Rothwell.
The group’s strong regional focus may have contributed to the decision to franchise out its managed houses, says one industry source. “The key is balance, but that depends on the type of estate. Those strongest in the regional areas find there is a limit to how much you can spend and invest (in your brands),” he says.
Haghighi’s appointment is expected to give a fresh approach, raising questions about future roles for the existing marketing team – marketing director Ric Cowan and marketing controller Julie Brook, in the Pubs & Restaurants division. Brook refuses to comment and Cowan was unavailable. Haghighi, too, was reluctant to comment, saying it is too early to speculate on the marketing direction. Its rivals will also be watching closely for signs of the direction the new division will take.
Allied Leisure marketing director Martin Grealey says while there is a lot of activity and investment in branded pubs, they are still a minority in terms of the total number of pubs in the UK.
The Government’s Supply of Beer Orders in 1989, requiring major brewers to sell or lease half their pubs, encouraged a large independent sector. At the time it was predicted that thousands of pubs would be forced to close – Bass Taverns spokesman Graham Stuart-Ree says it was predicted that 10,000 pubs would disappear before the end of the century. There are currently more than 55,000 pubs in the UK.
“What has actually happened is that the number of pubs has gone up not down, but I don’t think the branded operations will completely overtake the old pubs,” he says. “What you are getting now (through branded pubs) is genuine variety and it’s bringing life back into town centres.”
Greenalls has capitalised on these changes and led the market by acknowledging that there is more money to be made in branded and concept pubs than the traditional local. Its decision to regroup is likely to stimulate similar moves by the other large UK pub operators, highlighting the fact that the changing trend of where, and how, we order a drink casts a further shadow on the survival of the traditional pub.