Changing forces in the managed sector mean that operators are having to work harder to turn in profits from big, costly sites. The number of managed houses has declined by 1,000 in the past five years to account for 13,000 of the UK's 60,000 pubs. Although this drop might not seem too drastic, in a market where new licences have been granted, it does support concerns that the managed bubble might have burst. But the reality is that managed chains are still succeeding to compete, and turn in profits however, the style of operation is having to undergo major changes.
Red tape adds to rising costs
Rising costs associated with red tape, including licensing plus the minimum wage and increasing rents and utility bills, mean managed pubs have had to become leaner, more focused operations that deliver high volume sales. Some believe a managed house must take £10,000 a week to be viable, though this figure can decrease for wet-led businesses.
The move towards selling higher volumes has seen a shake-up in the offering, with wine, and most notably food, becoming the mainstay of many operations rather than beer.
In the case of Mitchells & Butlers, one of the largest managed house groups, beer has gone from 69% of sales in 1994 to just 35% now.
Clearly the overall decline of the beer market has taken is toll, but another key influence has been the growing trend for eating out. Managed pubs have embraced this wholeheartedly with operators concentrating on a number of brand concepts, both premium and mainstream offers.
At the premium end is M&B's Project Orange which has a spend per customer of around £20. It takes the form of an almost bespoke approach to branding and sets out across its 16 sites to offer gastro-style food in a country pub. At the other end of the scale, the group's Toby chain one of it biggest cash cows averages 2,300 covers per site per week, with an average food spend of £7.50 a head.
Similarly, its rival, the Spirit Group, has its own development policy, focusing on Devco, which is again at the top, gastro-end of the market, while coming up with new concepts such as the Two For One value proposition.
The focus on food has grown in the past 12 months, a trend that looks set to continue as operators use it to guard against the potential loss of smokers.
Consolidation continues
Consolidation has been another big theme of the year with the Yates Group, SFI Group, Laurel and Wizard Inns all having been sold. This looks set to continue in 2005 and sites owned by managed groups, such as Spirit, will become increasingly sought after by leased pub operators, like Punch. Property tycoon Robert Tchenguiz, who bought Laurel for £151m in 2004 and has recently added Yates and SFI to his hand, will be keeping a close eye on Spirit, which analysts believe is considering selling off its assets as the clamour for sites intensifies.
In terms of brand growth, the concept that has received the most attention, swelling the number of sites, is Brewers Fayre, cementing its position as the second largest chain. However, JD Wetherspoon still continues to lead the brands on 600 sites.
Food is the one variable that connects all the sites that managed chains are investing in. Although some names have disappeared, the message is that food is seen as the core strand in the managed arena as it looks to pull in volumes and stave off the effects of smoking legislation.