Pub food: going from strength to strength

As Greene King buys the Loch Fyne seafood restaurant chain, The PMA Team looks at developments in the past year within a key success story for the sector - the managed pub restaurant.

At the Golden Galleon, a Mitchells & Butlers pub that overlooks scenic Cuckmere Haven in East Sussex, there was only one problem on the sunny Sunday I called in recently - too many customers. It was a warm day with the sun shining brightly and customers, perhaps a little stir crazy after so many wet weekends, had flooded out. Sheer weight of numbers meant a long, long wait for food. But for anyone who cares about the future of the pub it was a heartening sight - for so many people the Golden Galleon was the obvious choice for a drink and a bite to eat.

The pub restaurant has become a dominant force in the UK eating-out sector. According to market research company Mintel, it has a 23% share of all out-of-home dining occasions. The pub food market has grown in value from £4.9bn annually five years ago to around £6.4bn today, a 32% increase.

Forecasts are for the pub sector to grow to be worth £8.2bn by 2010, another 22% rise. People are visiting pubs to eat out with increasing frequency - 72% of the population say they "regularly" go to the pub to eat compared to 60% a decade ago. Futurologists at market research company Horizon report that Britons are set to spend a third of their household budget in restaurants and pubs by 2011.

The smoking ban, introduced in England on 1 July after an earlier arrival in Wales and Scotland, is an additional major spur to eating-out growth. Pub restaurant operators report strong food sales growth in the post-ban era as new diners, previously put off by smoky environments, come and try the pub again. A recent research note by Deutsche Bank showed that food sales drive at least 60% of all sales (counting drink and other ancillary items generated by a dining occasion) for the major operators of managed pub restaurants.

The major operators are, in order of size: Mitchells & Butlers (M&B) (first and foremost by a country mile with 2,000 sites); Greene King (now with around 840 managed pubs, Hungry Horse is its lead brand with 120 sites); Spirit (operating 800 venues with Chef & Brewer its best-known brand); JD Wetherspoon (dominating value-led high-street food with 670 sites selling around £300m of food per annum); Marston's, (550 venues that range from style-bar concept Pitcher & Piano to a value-driven carvery offer); Laurel Pub Company (now operating 450 venues with the upmarket Slug & Lettuce brand growing to 100 sites by end of 2007); and Whitbread (now running 400 pub restaurants with its Beefeater offer being evolved and its Brewer Fayre venues moving to a more upmarket non-branded future).

It's worth examining how each of these companies is developing to spotlight key trends shaping the market. M&B is the UK's largest operator of branded pub restaurants, with names such Toby Carvery, Harvester and Vintage Inns. M&B was boosted this year by the acquisition of 239 stand-alone Whitbread pub restaurants. The deal will allow M&B to move to a position where 40% of all sales come from food within two years - the figure was just 10% 10 years ago.

The primary focus is on offering customers in the mass market quality and value, with average main course meals costing £6. However, one consistent theme is evolving offers upward in terms of sophistication, to deliver ever-higher food quality. The estate also shows the need, within the managed pub restaurant sector, to increase weekly take well ahead of inflation to mitigate rising labour and other costs. Average weekly take per pub is forecast to rise to £20,000 per week within two years - it was £14,100 in 2003.

Market segmentation

At the top-end-of-the market, M&B has launched a new Amercian-style steakhouse concept, Millers & Carter, a modern re-invention of the steakhouse installed now in 11 venues that previously traded as Whitbread Beefeater venues. At this end of the market, the focus is on provenance with price points not dissimilar to its high quality Project S

gastropub offering.

In the mid-market, M&B has set about investing throughout its 175-strong Vintage Inns estate, dividing the brand into three bistro formats that aim to bridge the gap in price, sophistication and operational complexity between Vintage and Project S. Even at traditional wet-led pubs within the M&B managed estate, food sales are increasingly important.

A few months ago, M&B unveiled Cornerstone, a formerly beer-dominated pub type that sees the introduction of a strong food offer that makes up 20% of sales compared to negligible levels previously. The boss of M&B pubs and bars division, Mike Bramley, believes that food sales, encouraged by the smoke ban, will move to 30% of all sales within a couple of years at the company's beer houses.

Greene King has split its managed division into two parts, with former Hardys & Hansons boss Jonathan Webster running the foodier pubs. In its most recent results, Greene King was picking out a few key themes on the food side: healthier menus; the introduction of late food in 266 pubs in the wake of licensing reform; and the start of a premium coffee offer at 224 pubs.

Its lead brand Hungry Horse was growing food business through premium upsells; it reported selling 60,000 Ultimate Sizzler dishes at £12.99 each since introduction - while reducing entry-level main course prices to drive volume (there are dishes on the menu at £3.49 and £3.99).

Greene King's results also highlighted the place within the pub restaurant market of a centrally-managed offer that avoids overt branding. Its Wayside "no brand" format - appealing to customers who like pubs to look "individual" and "independent" - saw 10% like-for-like food growth in the year.

Spirit, the managed arm of Punch Taverns, sees a remarkable 39% of all sales coming from food. Its pubs divide along lines recognisable throughout the industry. There are 330 "quality food" and "value food" outlets where sales are £20,000 a week and food accounts for more than 50% of sales - it's 59% in its Chef & Brewer estate. Additionally, there are 432 "city" and "locals" pubs where food sales are just 20% of the total and offer a big opportunity for growth.

JD Wetherspoon operates at the discount end of the market, with margin sacrificed to achieve volume. Its sales, at around £28,000 per week across 660 pubs, are the highest average in the sector. The company, according to the BrandIndex survey, is the most recognisable brand in the eating and drinking sector. Food sales account for a quarter of all sales.

This year it published a Food Facts brochure for customers that speaks volumes about the over-arching trends shaping the sector. The company was keen to stress its quality credentials, which are increasingly important as customers become aware of issues such as food miles, organic rearing and growing and provenance. The booklet highlighted nutritional information, the use of 100% British grass-fed cattle for its beefburgers, its Lincolnshire sausages made using only British pork, and cod coming from sustainable sources. JD Wetherspoon is also leading the way in carving a slice of the breakfast market, with 200,000 items a week now being sold as new licensing laws allow a 9am start.

Each of the other major operators has been working in areas that highlight broader pubfood sector themes. Marston's has developed a new carvery format, Taverner's Carvery, where sales average £18,000 a week. The carvery, a healthy British version of the Chinese buffet, is seeing a revival. Herald Inns, the managed nightclub company owned by Trevor Hemmings, wants to open 20 carveries from a standing start. Orchid Group, the managed operation owned by GI Parners, is opening a modern take on the carvery it is calling "contemporary carvery" - it has opened 10 since Easter. Laurel Pub Company bought La Tasca in a move that epitomises a blurring of the lines between pub and restaurant operators. It