What's happening at Greene King?
Hungry Horse refurb scores big
Greene King has seen takings per week rise by £5,000 at each of the first 26 Hungry Horse sites it has refurbished. The company has spent £11m at the first batch of sites with takings per week per pub rising from £16,000 to £21,000. Average main meals now cost £5.90 with 40% of menu items priced below £5. Refurbishments have seen a livery revamp, improved zoning and back-of-house upgrades.
Managed pubs take £16k a week
The 261 managed pubs in Greene King's destination-pubs segment currently have an average weekly take of £16,000, some 49% of which is food. The 492 pubs in its local-pubs segment currently have average weekly takings of £12,000, some 17% of which is food. Conversion of locals pubs to "premium locals" is seeing the most dramatic transformation of business. Food sales go from 15% of takings to 35% and wine sales shoot up from 7% to 19% of sales. Operating profit per managed pub now stands at £145,400, up from £141,700 the year before.
Optimum rents is way forward
Greene King was stressing how it has always sought to set the "optimum" rent for its tenants rather than the maximum. Chief executive Rooney Anand contrasted the Greene King approach with the "hot-wired leasehold model". The company's presentation slides for City analysts and investors stressed a number of other key areas: the importance of having early warnings of tenant distress through open-book accounting; passing on to tenants savings to be had through energy brokerage and "share and save" discounts; and the importance of recruitment, training, merchandising support and focused investment.
Rent concessions down to 0.6%
Rent concessions for Greene King tenants are running at a lower level of 0.6% this year, compared to 0.7% last year. Bad debts as a percentage of sales rose from 0.2% to 0.3% this year. Tenancies-at-will rose from 84 last year to 131 this year. And the number of closed pubs rose to 17 this year from 10 last year. The average time taken to let a pub has risen from 10 weeks to 12 weeks, with the number of applications to take on a pub down to 1,736 from 1,865 the year before.
Company beats City projections
City analysts reacted favourably to Greene King's full-year results to 4 May. Wyn Ellis, of Numis Travel & Leisure, said: "Greene King has reported an excellent set of preliminaries with pre-exceptional pre-tax profits coming in at £142m compared with our expectation of £138.1m. Greene King beat our projections in each of its four divisions with the sole exception of brewing, which is the smallest. Given the obvious pressures building up in the economy, there may be some risk to our current forecast of £141m for the current year. However, much of the uncertainty is, in our view, already reflected in the price."
GK braced for £14.1m cost rises
The company has forecast cost inflation of £14.1m in the coming year, up from inflation of £8.1m the year before. Food is the single biggest inflationary item, expected to rise by £4m, alongside extra electricity costs of £4m, drinks cost rises of £3.7m and Sky rises of £1m. Greene King managed to find cost savings of £9.3m last year and has already identified £10m of savings in the coming year. Overheads will be cut in each of the main parts of the business, with, for example, cuts of £1.1m at Pub Partners; £400,000 at the brewing company; £2.6m in the retail division; and £900,000 within finance and other areas.
Loch Fyne rollout surges ahead
The first Greene King pub converted to a Loch Fyne seafood restaurant — the Exchange Bar & Grill in Sheffield — has seen average weekly takings jump from £7,500 to £35,000 per week after a capital spend of £850,000. 0ne other Greene King pub conversion is about to open and three more are on site. A total of 13 Loch Fyne developments are expected in the coming financial year, including six pub conversions. The 39 Loch Fyne restaurants open have an average weekly take of £23,000, some 73% of which is food.
Ale volumes buck trend with 2% rise
Greene King total beer volumes are up 2% in a total ale market down 7%. Chief executive Rooney Anand said the company strategy
was to have a focused portfolio of three key brands — IPA, Speckled Hen and Abbot Ale — a single brewery and "consistent and heavyweight marketing support"; an industry-leading 6% of sales are spent on marketing. Anand said this was an "aggressive FMCG
(fast moving
consumer goods) approach" that contrasted with a "volume-led approach" where brewers often had to "discount like crazy to maintain volumes".
Accommodation, coffee, soft drinks and wine on the up
Among the growth areas on the managed side are coffee, accommodation, soft drinks and wine. Greene King has seen coffee sales increase by 38% (and 25% in locals) after making it a core part of the offer. The company is working with a number of coffee partners and has rolled-out Fairtrade coffee. Accommodation sales are up by 15%. Greene King is spending £3.3m on a two-year plan to refresh the Old English Inns' core offer. The money is focused on improving bedrooms, breakfasts and bathrooms. Wine sales are up by 8% thanks to improved range, merchandising and staff training. The company is also selling more dollar-traded wines to defray the rise in the value of the Euro. Soft-drink sales are up 1% after an expansion in the kids' range, the introduction of premium adult soft drinks such as Belvoir and Fentimans, and enhancements of the water range.
