braced for change,
geared for growth
Belhaven, Scotland's largest local brewer and retailer, is bracing itself for next year's smoke ban in Scotland. Alice Whitehead and The PMA Team report
T he sun was shining on the day Belhaven unveiled its ninth successive year of profits growth earlier this month. Boosted by a 20% increase in its pub estate 44 pubs were added profits soared by 22.5% to £17.4m. But clouds are bubbling on the horizon, threatening squally showers if not a full-blown storm.
With increasing competition for sites in Scotland from other companies, constant rumours of a take-over (Greene King mentioned more often than most) and the impending smoking ban, the maker of Scotland's best-selling draught ale (Belhaven Best) is facing more difficult times ahead.
The Belhaven estate 270 tenanted and managed premises spans just about every market segment, from student hangouts to cask ale/food pubs and community boozers. On the brewing side, they have stuck to their ale roots, but focusing on heavier, more traditional beers while leaving the lager market to the big-boy brewers.
Looking to add 40 pubs a year
The company wants to add 40 pubs a year with a target of 500 by the end of the decade. 'We do not consider ourselves to be world beaters in any way, says chief executive Stuart Ross. 'We have a focused strategy at Belhaven and have worked hard to implement it successfully. It's a simple format and we just stick to our knitting. The pattern doesn't change.
Recent times have seen fresh competition for quality pubs north of the border from English interlopers. Punch Taverns is now the largest pub owner in Scotland with around 500 sites. And former Belhaven employee Alan Bowes, now running London & Edinburgh Inns, has been an aggressive buyer of prime sites. London & Edinburgh runs 150 sites in Scotland now (including 40 hotels) and is rumoured to have another 50 in the pipeline. (Of his former colleague Ross, Bowes says: 'He is a brilliant operator tenacious in a way that doesn't get up anyone's nose.)
Ross is not concerned about the competition. 'It would be nice to get Scotland to ourselves, without any competition, but I don't think that's likely. he says. 'The targets we have set are not easy. Scotland is littered with talented pub retailers from entrepreneurial backgrounds and we have many creative minds, which makes the Scottish pub scene more personal and individualistic than south of the border. There is much competition for the best sites and we have had to shave our return on capital expectations on many occasions.
With the current round of mergers and take-overs reaching almost fever pitch, independent breweries appear to be an endangered species, especially those with a juicy pub estate with plump barrelages. Belhaven is seen as an inevitable take-over target. Ironically, though, fears about the affects of next year's smoke ban on profits at Belhaven is widely regarded as the key factor, keeping southern predators at bay for the moment. Ross is sanguine about the takeover rumours that swirl around Belhaven. 'I am simply a hired hand and the job of myself and my colleagues is to run the business as best we can, he says. 'I must keep the shareholders happy. We have a blue-chip shareholder base who will be supportive of Belhaven provided we continue to grow our profits and increase benefits by way of dividend.
For the past year, Ross has fought tenaciously to deflect the hammer blow of an all-out smoke ban. He became chair of the 'Against an Outright Ban group, which has been lobbying to persuade the Scottish Executive to introduce tobacco restrictions in a phased manner. The group, which comprises all members of the Scottish Licensed Trade Association, Scottish Beer & Pub Association and several multiple retailers, represents more than 60% of all Scottish bars.
Politicians badly handled the ban
'I think the smoking ban has been badly handled by the politicians, says Ross. 'They should have taken more time over it and given the Scots time to get used to the idea they don't like to be dictated to by politicians. You've got to make sure people don't vote with their feet and turn away from drinking in pubs.
However, it is obvious that Ross became resigned to the idea of a complete ban some time last year. A study tour in Ireland by a team of senior Belhaven executives last December was motivated by the need to learn as many Irish lessons as possible. His team talked to 200 Irish licensees over the course of a week and found almost universal support for the smoke ban. If not exactly undergoing a Damascan conversion, Ross had his views on the ban re-shaped by his experiences in Ireland. Says Ross: 'Almost to a man they felt their pubs were better places in terms of their environment. Asked if they would reverse the ban given the opportunity, they said they wouldn't.
'The team trip to Ireland taught us a lot, not least the requirement to be ready in time for the implementation of the legislation. We were surprised to learn that there had been very few enforcement issues in Ireland. Business levels had been hit but most Irish licensees thought there were advantages to be gained over the longer term. Whether or not they are correct is, of course, a crystal-ball job.
The emphasis at Belhaven has now switched firmly to a preparation and training stance on the issue, which includes a £2m initiative to ensure smoking drinkers are not put off going to pubs. Plans include heated beer gardens, shelters for smokers and all-weather ashtrays at the doors of pubs. 'Every pub will have its own business plan which will range from fairly Spartan and minimalist facilities to one or two more spectacular beer gardens, says Ross. 'I'm even considering putting out a range of Belhaven wellie boots for smokers standing outside in the wet Scottish weather.
'I have not changed my mind about the smoking ban, but I have to accept the situation because the Scottish Parliament has voted 83 to 15 in favour of it and the Bill is now into its third stage. It represents a real challenge and will be a massive change in Scottish culture.
For Ross, the early transition period will be the trickiest for licensees. Nevertheless, the time has come for licensees to accept the inevitable and plan for a non-smoking future.
Says Ross: 'We campaigned long and vigorously for a phased approach to tobacco restrictions but the Scottish Executive have favoured the Irish solution, as opposed to the English solution, to health problems. I am not King Canute and there is no way I can reverse this particular political tide.