You’re seeing rather more of Rufus Hall these days than you will have done at any other time in the past five years. Orchid’s chief executive admits: “I’m not a great networker. That’s not my style. I like being in the business and I like the business to speak for itself.”
But he’s suddenly overcome his natural shyness to embark on a round of interviews and speaking engagements. Why now?
Well, Orchid — and its c.250 pubs — are up for sale, and Hall is personally delivering a verbal information memorandum to the trade and its investors.
If Hall himself kept his head down in recent times, the history of the business is rather better-known. Formed in 2006, Orchid had intentions to acquire 10 to 20 pubs a year.
”We planned to get up to 100 pubs in five years, sell them and be smoking cigars on Miami beach by 2011,” Hall recalls. “But that didn’t happen.”
Instead, opportunistically, the business bought nearly 300 distressed and underinvested Punch pub disposals. “The timing was wrong, the price was wrong, and it all came home to roost in 2008, leading to a pre-pack,” says Hall.
High expectations
But the business that emerged from the trauma of administration has quietly been building itself into something admirable and desirable enough for current owners Deutsche Bank to put it on the market with high expectations of a good deal to be done.
Ireland and the United States provided Orchid’s management team with clues for the future of its pubs after the smoking ban. “We saw clear winners and losers. The winners did a number of things, one of which was building their business around food.” In 2008 food represented 28% of Orchid’s sales mix, now it’s 45%, thanks in part to innovations such as pizza and Thai food in pubs.
Orchid invested in wine, taking the “bold step” to go 100% with supplier Bibendum on the promise that they would double wine sales — which they did in two years with an exclusive range of entry-level and mid-point products. “We’re now their biggest customer,” says Hall.
“We’re also Segafredo’s biggest customer,” he adds. “We saw what was happening with coffee, and places like BP’s Wild Bean coffee shops and the customers they were attracting, so we put £3,000 machines across the estate, and went from nothing to two million cups of coffee.”
Sport is the other essential element. All Orchid pubs have televised sport, except for the Dog & Gun in Keswick, Cumbria, where the locals objected. “They don’t even want a TV!” says Hall.
Customer base
But it’s not just a focus on products and services that has positioned Orchid well for growth. The company has identified a special opportunity with a long-neglected but significant demographic.
“Women are the new men,” says Hall, echoing the words of Asda fashionista George Davies. “They decide where their families go, are more in tune with new fashions, like sharing platters and open kitchens. They eat better than us and are more on-trend. And men go where they go.
“We try to put on a female hat when we design our businesses.” It helps that 58% of Orchid’s general managers are women — a statistic that is increasingly reflected in the customer base. Hall reveals that 56% of Orchid’s carvery customers are female “even though that’s always been perceived as ‘blokes’ food’.”
Hall’s grasp of such detail is impressive — something he credits to Orchid’s “state-of-the-art” business controls. “We measure everything — every initiative and all the promotional work we do — and we’re all over the numbers,” says Hall, checking his phone to report that Christmas bookings are currently up 17% on last year. “Investors will be impressed by our data sets and systems.”
People
As well as the objective, financial measures, Orchid is on top of its subjective customer metrics too. “Our Proud to Recommend (PTR) scheme runs at each of our concepts, and managers’ bonuses are directly linked to PTR. Any business that scores 100% is rewarded with a staff party.”
Though it might not have felt like it at the time, Hall — a CEO with an operations background — describes Orchid’s “years of austerity” as having been good for business discipline. “One of our values is ‘respect every pound’. We were doing our best with very limited resources. We focused on running the thing without any capex, and developing the most fantastic people base.”
A sudden injection of £20m into the business — that will have been used up within 18 months — has signalled a change of pace. Hall admits he was nervous about spending money again after so long without it, but returns on investment of 30%-plus have shown him and his team what can be done with well-targeted expenditure.
Investing in the business means investing in its people. Success in the Sunday Times Best Companies to Work For programme led to the formation of Orchid’s vision and values, and drove the business to stretch itself to achieve Investors In People (IIP) gold-standard accreditation this year.
“It’s a fabulous process once you crack the academic veneer,” says Hall, “though you have to be ready for honest feedback and keep an open mind. IIP actually told us we had a problem. Our staff were telling them the pubs were their businesses, not Orchid’s. They thought that was a bad thing until we explained that they treat the pubs like their own.”
Hall emphasises the importance of strong communication with the company’s c.6,000 employees — including about the sale process. “Everybody knows what’s happening. The story I’m sharing with you has been shared at every level.
“Shortly, potential investors will be all over the business, but we’ve told the managers why, and everyone’s excited about it.”
Strength in depth
That’s not to say the team is over-burdened with corporate minutiae. Hall says: “Pub managers and staff know Orchid is a great place to work, and they know I have stuff to deal with. The best thing they can do is to get on with their jobs.”
The Orchid team — from top to bottom — comes with the business, and is described in detail in chapter three of the information memorandum, to be made available to interested parties.
“People are hugely important for private equity,” says Hall. “If you’re selling a business opportunity and haven’t got great people, that’s a flag for them. Shrewd investors understand the people piece.”
Hall adds business growth is becoming more urgent “as we’ve got so many talented people coming through. We need more pubs”.
Such is the strength in depth, he predicts: “We’d never appoint an external manager to run a new investment and I don’t think we’ll ever recruit an area manager again.”
So what will the business do with the money that will come from a new owner?
“We know what we’re good at,” says Hall. “There’s plenty of growth potential in what we’re doing — so we will focus on doing more of those things and better. All Inns, carveries and Pizza Kitchen & Bar (PKB) are our focus for the foreseeable future.
“We could do another 100 carveries. And with PKB we’ve got a great low-cost route to expansion. We’ve done a heat map of the UK based on demographics and local competition and we think there are 800 potential locations for PKB. We’ve drilled those down to 50 areas we know really well and in 38 of those there are pubs for sale that meet our criteria.”
Competition
Hall believes this potential, as well as the nature of the current estate, makes Orchid a very attractive proposition for any buyer.
“We are more than 80% freehold, and 98% of our profit comes from our freeholds. We’ve got some great properties,” he says, name-checking the Sawyers Arms in Manchester, the Dewdrop in Oxford, and the Alexandra in Harrogate, North Yorkshire, among many others.
But Hall recognises that Orchid isn’t alone in this position of strength. He says the standard of competition is improving all the time, particularly in Orchid’s managed house peer group. “I respect all our competitors,” he adds.
“I’d say JD Wetherspoon is the best operationally, but Greene King, Spirit and Mitchells & Butlers all do big things well. And now we have Tesco moving into our space.”
While these companies have hogged the headlines for the past few years, Orchid is ready to demand its share of publicity — not just, one suspects, to attract investors — but to take its place as a serious contender in the managed pub/restaurant category.
“Now is going to be the best time for Orchid,” declares Hall. “I feel great about it. For the past four years we’ve been keeping the business afloat, but now we’re ready to fly.”
Key dates:
1982
After university, Rufus Hall joins Scottish & Newcastle as a graduate trainee
1990
Is appointed operations director at Scottish & Newcastle Retail
1998
Joins Rank Group as managing director of the Tom Cobleigh pub chain
2000
Is appointed managing director of operations at Punch Retail
2002
Takes the helm at Ha! Ha! Bar & Canteen as managing director, from founder Amanda Wilmott
2006
Backed by GI Partners, Rufus forms Orchid out of Noble House and 290 ex-Spirit pubs
2012
Successfully refinances business through Deutsche Bank