New ventures
In late January came the announcement of the formation of two new pub owning businesses (POBs). One analyst told the Morning Advertiser that, “We fully expect 2021 to present a number of opportunities for new entrants and existing operators to acquire assets, individually or in packages, as the market rebounds from the series of lockdowns and the vaccines take effect.” I’m assuming that the targets will be independently owned pubs or very small chains which see being taken over as the only way out of their mounting debts. I assume that they will not be looking for tenanted pubs and that rival POBs would not give their consent anyway.
So, is this a vote of confidence in pubs and, by implication, in us pub goers or will it simply be an asset stripping exercise? Some combination of both is possible, of course. The leisure industry property specialists, Fleurets, produce an annual survey of pub prices and the one for 2020 reported that the average price for a freehold pub still trading had fallen by 35% and that for a leasehold pub by 46%. Increases had been reported prior to the COVID outbreak.
The first of the new companies is the RedCat Pub Company, which sees the return to the pub trade of the former Greene King chief executive, Rooney Anand. Mr Anand has recently been chairman of the Casual Dining Group, which includes such brands as Bella Italia and Café Rouge. He will be executive chairman of RedCat. Chris Hill, previously with the pub and bar chain New World Trading Company, has been appointed chief executive and their nonexecutive directors include a former Lord Mayor of London. The company was reported to have a war chest of £200 million provided by an American private equity fund, subsequently revealed by the Telegraph to be Los Angeles-based Oaktree, whose £110 billion portfolio already includes interests in the UK. The funding may be increased by up to a further £300 million in due course through borrowing. Mr Anand told the Telegraph, “There is no set playbook. I am not trying to recreate Greene King. I see myself as someone who’s investing in a sector that has been oversold, where people have taken cover and written it off and have been quick to say ‘it’s not going to recover’. I’ve always been a strong believer in the great British pub. It has survived the Blitz, the Great Plague and the credit crunch; always bouncing back and taking its rightful place at the heart of the community. There will always be a market for a decent pub.”
The other is the Valliant Pub Company. This company also sees the return of some experienced pub operators, the co-founders of Hawthorn Leisure, Mark McGinty and Gerry Carroll and James Croft, who used to be the group strategy and retail director for the Ei Group. They had previously worked together at Enterprise Inns. The initial funding has been provided by the trio themselves, along with some other private investors and they are looking for more. Their target is reported to be pubs in the suburban and community pub sector. Mr Carroll told the Morning Advertiser, “We obviously want an unrestricted market place; we don’t want to be opening up when you can’t have vertical drinking and you’re stuck with table service and closing at 10pm. We were heartened to see how well pubs bounced back post the first lockdown and believe that once COVID restrictions are lifted the pub sector will be one that recovers quickly.” He added that they were already ‘eyeing up sites as we speak’ and ‘would look at bigger deals as they come to market’.
In the event that a tied pub is acquired from a pub owning business (POB) which is subject to the Pubs Code by a POB that is not (ie owns less than 500 pubs), the tenant retains some Pubs Code rights, including a rent assessment when the rent is next reviewed. The tenant’s right to change to a Market Rent Only agreement is however lost. The entitlement to Pubs Code protection lasts until the next rent review or the existing agreement expires.
Wouldn’t it be a positive gesture if, to show good faith, these new companies decided not to operate the tied house system and instead let their pubs long term on agreements similar to ‘market rent only’ terms.
Young’s
Young’s have confirmed that 143 of their pubs which have gardens or outside space will be reopening on 12 April. All being well, the rest will follow on 17 May. Work has finished on the Grade II-listed Enderby House in Greenwich and that will also be opening. Usefully at this point, it has two terraces areas.
Young’s have also acquired a pub in St Albans, the Alban’s Well, a former BHS store in Peters Street. It is currently undergoing an extensive refurbishment and will feature a self-service ‘Wine Wall’.
J D Wetherspoon
In March, JDW very usefully issued lists showing which of their pubs would be opening their outside areas from 12 April. As I understand it, the lists included all of their pubs, area by area, with the pubs that were opening indicated by a tick. Unfortunately when the lists were printed in a number of local newspapers, the ticks were missed off.
The company originally said that it would extend the life of CAMRA vouchers that have gone out of date during the recent lockdown by six months. This has now been extended to a year.
JDW issued a COVID update, as reported in the Morning Advertiser (20 January), which said that it had 99% of its staff on furlough. Despite implementing cost saving measures, the company was still spending nearly £3.5 million per month on those staff not furloughed and the costs for those that are.
JDW have decided to join the British Beer & Pub Association (BBPA) who are regarded as the trade body for the larger pub owning businesses.
In order to cover a slow return to profitability, JDW have raised £93.7 million through a share issue (8,370,000 shares at 1.12 pence each). The Guardian (19 January) reported that the funds might also be used to buy more pubs although JDW subsequently made it clear that their aim was ‘the acquisition of a number of properties in central London, the freehold reversions of pubs of which it is currently the tenant, and properties adjacent to successful pubs’. It was reported in the Morning Advertiser (3 December) that chairman Tim Martin had disposed of more of his own shares, reported to be around £5 million (431,500 shares at £11.66 each) which leaves him with 27% of the company’s shareholding.
Mitchells & Butlers
I reported in the last edition that M&B might have to ask investors for more funds and they did just that in early February, to the tune of £350 million. It however became more significant to the future of the company than expected. I mentioned previously that Joe Lewis, the majority shareholder in Tottenham Hotspur Football Club, and racehorse owner John Magnier owned more than half (not ‘nearly half’ as I said) of M&B’s shares. I should also have mentioned that their shareholdings were held by their investment companies, respectively Piedmont and the Elphida Group, in which Mr Magnier is partnered by J P McManus. They have now teamed up with a third shareholder, currency trader Derrick Smith, whose shares (4.3%) were held by a company called Smoothfield Holdings, to form a new holding company, Odyzean, into which all three have transferred their interests. Odyzean then acquired the whole of the new issue of £350 million, giving it 55% of M&B’s shares and unchallenged control of the company. M&B’s chairman, Bob Ivell, told the Morning Advertiser, “We are pleased to have received the support of our major shareholders and key creditors. Mitchells & Butlers was a high performing business going into the pandemic and this capital raising and refinancing will provide the business with the certainty of funding that it needs in order to emerge in a stronger position to take advantage of its strong property portfolio, well known brands and operational expertise in order to win market share and continue its long-term strategy of deleveraging and driving value creation for shareholders.” Odyzean are reported to be fully supportive of M&B’s current management but are considering reducing the number of non-executive directors on its board and reviewing the company’s strategy.
Marston’s Attract Interest
Marston’s, formerly Wolverhampton & Dudley Breweries and who, contrary to what was said in several newspaper articles, are no longer a brewing company, recently attracted the attention of an American private equity group called Platinum Equity Advisors (PEA). At the end of January, PEA made what Marston’s called an ‘unsolicited and non-binding proposal’ in the form of a cash offer for £1.05 per share. This followed earlier bids priced at 88p and 95p. PEA’s offer would have made Marston’s a private company with their shares no longer traded. It led to the value of Marston’s shares rising by 17% to 87p, putting a value on the company of £553 million. In 2019, their shares had been valued at around £1.30.
Marston’s directors unanimously refused the offer because it undervalued the company. That suggested that they might still be open to an offer nearer their valuation. This left Platinum Equity with a deadline of 26 February by which time they had to either make a definite offer or confirm that they were not proceeding. They however announced on 11 February that they would not be making a further offer. Marston’s share price fell to 86p.
An influential party in this deal must have been the Carlsberg Marston’s Brewing Company (CMBC) in whom the Copenhagen based multi-national has a controlling interest. CMBC would not have wanted to lose Marston’s 1,400 pubs as outlets for their products.
Given that the activities of such organisations as PEA are normally based on research, I wonder what attracted PEA to bid for Marston’s in the first place. Like the Terminator, will they be back?
Hawthorn Leisure
Hawthorn, the pub company owned by property developers NewRiver, has some £250 million available for further additions to its 700 strong estate. This is after investing some £9.4 million on pub projects during the latter half of 2020. Their funds have however been bolstered by the disposal on ‘non-core’ pubs. Their Chief Executive, Mark Davies, told the Morning Advertiser, “Hawthorn’s overwhelming priority is to protect our people and to protect our pubs. We’re continuing to support our pub partners to help them stay afloat and to ensure that they can thrive again and bounce back when their pubs reopen. We remain bullish about the role that community pubs will play in people’s lives once lockdown is lifted.”
Revolution Bars Group
A pattern is emerging here. As I reported two editions ago, following a company voluntary arrangement (CVA), RBG’s plan was to renegotiate the rents on a number of their sites. The landlord of their site at Clapham Junction preferred to grant a lease to Wetherspoon’s instead and now the same thing appears to have happened with their riverside site in Richmond upon Thames, the former Castle hotel and ballroom. A spokesman for the company told the Richmond and Twickenham Times, “We have loved our time in Richmond and hope to return one day, however due to the government’s ongoing closure of the hospitality industry we have had to seek concessions from our landlords and in this instance our landlord has taken the opportunity to assign a new lease to another operator. We are doing all we can to secure onward employment for our Richmond team.” There had previously been complaints about noise levels and, last year, Richmond Council refused an application for extended hours. The identity of the new lessees is not yet known.
Heineken
Being a pandemic, COVID is also hitting the multinational companies. Heineken, the second biggest brewer in the world, registered a net loss of £96 million for 2020. As a consequence, they are restructuring the company, looking to cut costs by £1.75 billion over the next two years. This will include reducing their workforce by 10% with the loss of up to 8,000 jobs, many of them at their Amsterdam headquarters. Their future plans include introducing more no and low alcohol lines and ‘hard seltzers’ (alcoholic carbonated drinks) while dropping some existing beer brands. There is no suggestion that the losses have come about for any other reason than COVID. There will be job losses in the UK, including some at Star Pubs and Bars. No other effect on Star’s operations has been reported. The announcement was made by Heineken’s chief executive and chairman, Dolf van den Brink, who took over in April 2020. Not, perhaps, the best of times to do so.
Star Pubs & Bars
Meanwhile, Heineken’s UK pub operation, Star, has fallen foul of the Pubs Code Adjudicator again, although this time with an amicable outcome. One of the rights that the Pubs Code gives a pub tenant is to oblige their pub owning company (POB) to give them a rent assessment proposal (RAP) if there has not been one during the previous five years. Star were not doing this because they claimed that, where their agreements provided for automatic rent increases based on the retail price index (RPI), this amounted to the same process. The PCA disagreed and pointed out that this had already been the outcome of a previous arbitration. Star agreed to change their practice accordingly. A spokesperson for Star was quoted in the Morning Advertiser as saying, “We welcome the improved relationship with the PCA. They came to us in this instance with their concerns and we were able to resolve the issue to everyone’s satisfaction.” This, of course, is a reference to the row about Market Rent Only applications where Star have an appeal pending against a £2 million fine. The report, incidentally, added that Star have so far allowed rent reductions totalling £44 million arising from closures during the COVID pandemic.
Diageo
The increase in home drinking enabled Diageo to stay in profit over the last six months of 2020, although profit fell by 10% to £2.2 billion. Sales in the UK actually increased by 2%, with off-sales increasing by 30% to compensate for pubs being closed. The included sales of spirits increasing by 15%, which hardly contributes to controlled drinking. I have, incidentally, yet to see the alcohol free version of Guinness, ‘0.0’, return to supermarket shelves after its withdrawal shortly after it was first released.
AB InBev (Budweiser Brewing)
The Leuven based multinational has upset many of its customers by reducing the strength of its flagship product Stella Artois. Apparently, as is often the tactic with such events, this happened last October but it is only now being noticed. The ‘reassuringly expensive’ beer has been reduced in strength from 4.8% ABV to 4.6%. It had already been reduced from its original 5.1% ABV. AB InBev’s brewmaster in Leuven, Dorien Nijs, was quoted in the Daily Mirror as explaining, “We know that taste and quality remain the number one priority for Stella Artois drinkers. We also recognise a health and wellness trend through moderation.” According to the same article, one unhappy customer complained on Tesco’s website, “I cracked open a can of Stella 4.6 per cent and thought I had COVID since I could not taste anything” while another commented, “A once great beer of the geezers. Now watered down to 4.6 per cent.”
Apparently, AB InBev have produced a dark version of Stella Artois, called Midnight or Noire at 5.4% ABV. It is not clear however whether it is available in the UK.
For 2020, AB InBev reported a fall in sales of 5.7%, leading to a reduction in revenue of 3.7%. They are however still planning to invest £72 million in the former Whitbread plant at Magor in Monmouthshire, which is their largest UK operation and produces both Budweiser and Stella Artois. There are also plans to expand production at Salmesbury, another former Whitbread site, in Lancashire.
Curious to be sold
The Chapel Down winemaking group have decided to dispose of their Curious brewery and cider making operation, based in Ashford, Kent. According to a report in the Morning Advertiser (9 February), their plan is to put the business into administration and for private equity firm NewCo Risk Capital Partners to then purchase the business and its assets from the administrator. Nearly all of Curious’s output goes to the on trade, so it has suffered because of COVID and, unlike the wines and spirit business, no alternative sales were possible. Chapel Down’s chief executive, Frazer Thompson told the Morning Advertiser, “Following a strategic review, the board has taken the decision to focus our energy and resources on building the Chapel Down brand and business to ensure we continue to flourish. While this has been a difficult decision, we are very pleased to have found in Risk Capital Partners an excellent home for Curious Drinks, where the business will be able to fulfil its exciting growth potential.” There will be no redundancies and shareholders in Curious will be offered shares in Chapel Down. The founder of Risk Capital Partners, Luke Johnson, said, “We see terrific potential in the Curious Drinks business and we are very excited about its future, despite the challenges of the past year. Brewing will always be a cornerstone of British culture and the craft beer revolution has only strengthened that. Curious is a great brand made in a fabulous facility and, with our support, the business can be developed further.”
Kegstar
Casks and kegs, especially durable stainless steel ones, are one of a brewery’s biggest investments. Quite often, small brewers find it easier to hire them, especially if the hire company themselves recover the cask from the brewery’s customers. One of the biggest cask hire companies, KegStar, has been taken over by a company called MicroStar Logistics who are based in Denver, Colorado. KegStar already operate in the USA, as well as the Netherlands and as far away as Australia. Thanks to Martin Butler for the information.