M&B to 'rapidly reshape' to food-led

Mitchells & Butlers is to "rapidly reshape" into a food-led business and plans a withdrawal from the more price sensitive drinks-led business.

M&B said that its current portoflio has too many brands and it needed to sharpen its focus.

It plans to grow its food-led mid-market brands and develop "smaller footprint" high street variants of Harvester and Toby Carvery and is also targeting new outlets in leisure parks and retail parks with good car parking.

It plans to grow the following brands:

• Harvester from 171 sites to 400

• Toby Carvery from 133 to 300

• Crown Carveries from 111 to 300

• Sizzling Pub Co from 200 to 400

• Premium Country Dining Group from 61 to 150

• Vintage Inns from 237 to 350

"In general we want to own and operate brands which have the potential to grow to over a hundred outlets or deliver an EBIT of more than £10m and have an acceptable return on investment," it said.

"We will be working to ensure that all brands designated for investment and expansion achieve these minimum criteria.

"The expected growth beyond our current freehold estate requires a modified approach to management and concept design.

"Our site footprints are too big and too expensive for many retail locations. We will develop 'lease viable' versions allowing us to move to 300 to 400 outlets for our key brands.

"Our reallocation of outlets to new food-led brands has been our best use of capital. We will continue this provided the sites fit explicit, analytical location criteria. We would consider licensing our brands to other operators."

Non-core​

M&B said it would take "early action" to exit from its non-core brands focusing initially on converting sites into one of its growth brands.

"We will seek out disposal opportunities to fund or swap in assets better aligned with the growth brands, and we will otherwise adopt a focused but careful approach to disposals so as to maximise achievable value," it said.

"We have some 'gold bricks' which will leave the business once we have planning consent, a buyer and the right price."

Margin erosion​

M&B said that it hopes to reverse the gross margin erosion of the last three years, which could bolster bottom line profits by £30m by 2014.

It will seek to recover margin from "suppliers pricing and menu engineering" over the next three years but said drinks sales remained difficult.

The operator is also to keep a close eye on labour costs to ensure they do not rise as a percentage of sales at pubs and is to update its in-house systems, which were installed 20 years ago.

"Central and operating overheads have been reduced over the last few years and we are now 20% more efficient than in 2004 on a per pub basis," it said. "In the current year, central and operating overheads are 4.3% of sales, an improvement on the 6.1% of sales three years ago.

"We aim for central and operating overheads to be 3.75% of sales by 2014.

"We will seek to save £10m from our own purchasing of goods not for resale and by redesigning our non-beer supply chain and service levels."

Returns on capital​

M&B set out its goals for return on any new invested capital. It will expect:

• 11% return from freehold property

• 15% return from property improvements and conversions

• 25% return on front of house and concept specific fit out costs

Planned maintenance for the estate per year is £120m — £70m on sustaining core business and £50m on concept development and evolution. It currently spends around £50,000 per pub a year to stay in business.

M&B said it took a "pragmatic" view to the debate over whether or not to dispose of freehold sites. "If freehold property is likely to achieve return on investment of 11%, we retain it. If not, we sell it."

"In the short term it makes no sense to jeopardise our securitisation and its low interest costs by a sale of property which is core to our trading."

Management culture​

M&B said its current reward system favoured continuity and security, not profit maximisation and where managers valued their pensions more than their share options.

"We will change our approach and style and we will reward performance fully," it said. "We will build personal accountability. The remuneration committee is developing an incentive programme for our senior management which pays out if shareholder value is created above the cost of capital, thus aligning management with shareholders."

It will review its management resources over the next few weeks.