ALE Winter 2000 No. 300

Brewery News

Locally, Milton Brewery's Sandpit, brewed by N. Herts CAMRA, was well-received, as was Pharos, the latest in the Seven Wonders of the World series. Other news beers recently included Babylon (a stout), Zeus, Colossus and the special MM edition of Mammon, aged a year. ("Mmmmmm...") Meanwhile City of Cambridge Brewery is about to move to larger premises near Ely. Lidstones Brewery had planned to move the brewery plant into the cellar of the Kingston Arms (Cambridge) but this is on hold for 2001.

• Our Retail Division, in future, will be focused on the key growth sectors.
  (They'll give up on pubs they don't know how to run well)
• In UK Beer, growth continues in the off trade but the performance of the on trade market continues to be below our expectations.
  (They're not competing well)
• In a market where volumes declined by an exceptional 3.6% the strength of our brand portfolio and further improvements in customer service levels saw our volumes fall by only 1.1% with resulting market share gains. Volume sales of our key brands increased by over 4%, including a 23% increase in the very successful Kronenbourg 1664 brand. This volume growth in premium brands converted into a growth of over 6% in their sales value, underlining the success of our value strategy.
  (Lots about brands - what about quality?)
• In support of the value strategy, net spend on brand advertising was increased by 13% with a particular focus on Foster's, Kronenbourg and John Smith's.
  (Marketing as a substitute for quality products)
• In recent times the pub retailing market has seen substantial change driven by both the significant investments made by all major pub retailers over the last few years and changing consumer behaviour. As with other operators, these factors are producing an increasingly divergent performance between different sectors of our estate.
  (Trendy, short-lived themes eat up cash then go out of fashion)
• However, a substantial proportion of our estate is still experiencing significant like with like decline in sales. This decline, coupled with cost pressures associated with minimum wage, working time directive and rising property costs, is resulting in pressure on unit profitability. Although performance in Quarter 2 showed some signs of recovery we do not believe that this decline in profit can be addressed by management change or by investment.
  (We've lost touch with what people really want)
• We are carrying out a unit by unit review of our total Retail estate. This review, the details of which we will announce in January after appropriate internal communication, will result in the disposal of all units that fail to meet defined growth criteria.
  (Lots of pubs for sale)
• Our future estate will be predominantly focused on:-
  • Chef & Brewer and family dining
  • Premier Lodge
  • High quality traditional pubs
  • Branded pubs and bars
  (No place for community boozers)
• As a consequence of the restructuring that we plan, we anticipate that our managed estate will require a reduced level of investment and generate an increasing level of return on assets.
  (We can't be bothered to pump lots more money in to keep up with fashions and hope marketing will do the trick)
• In UK Beer we have invested £42m, mainly in support of projects to increase productivity in the areas of packaging and distribution.
  (No significant investment in quality products)

The Cambridge & District Branch needs to declare an interest at this point: we hold shares in GK so as to have a say, no matter how small.

As GK loom so large hereabouts, it's worth a look at their thinking. The landlords forced out of their pubs by rent rises will probably find this particularly interesting.

Some extracts:

• The [gross earnings] was up 19% to £49.1m.
  (in the jargon, EBITDA - earnings before interest, tax, depreciation, amortisation and exceptional items)
• Trading margins increased from 18.6 to 20.0%.
• Own brand volumes up 34% and total beer volumes up 15%.
• Looking forward, we believe that much value remains to be extracted from the traditional pub and beer markets by improving their management and quality.
  (Sounds good but not if it's at the expense of experienced, capable landlords)
• We have also continued our policy of disposing of assets that are either no longer core to our strategy or which will not produce an adequate return over the longer term.
  (Also sounds reasonable, till one equates this with village pub closures)
• The buoyant property market in the south of England has led to us benefiting from asset sale proceeds amounting to £17.3 million without damaging our underlying profitability.
  (Well, it would!)
• The business experienced a year of extensive rationalisation, seeing the number of managed pubs fall from 622 in October 1999 to 504 at the same point this year, as we pursued our strategy of improving our average estate quality.
• We have been particularly pleased by the strong performance of our traditional high street pubs - 'town locals' as we call them - which are located in highly competitive town and city centre sites. This division has previously felt the full force of the advent of large numbers of new branded 'super-pubs' onto the high street, but has fought back strongly this year by strengthening its management, refocusing on its outlets' individuality and improving the quality of its offer, particularly its food business.
• Pub Partners' [tenanted pubs] strategy aims to differentiate its businesses in the minds of the consumer and potential tenants by operating the best estate of individual high quality pubs in southern Britain. This entails the recruitment of the best tenants for our outlets, selective investment, high quality operational management and well-sited sustainable outlets. To this end we have been improving the average asset quality of the estate by transferring many smaller managed houses, which make excellent tenanted businesses, to tenancy, and by selling less viable outlets.
  (In Cambridge, the Hopbine and Fort St George In England converted to tenancies)

  And to think that this branch was once almost at war with Greene King over its beer policies. How times have changed! (See for instance Turn of the Tied.)