The prospect of Loungers becoming a really big business is 'terrifying'

As one of the fastest growing operators in the hospitality sector – opening at a swift rate of 25 sites per financial year – nobody can accuse Loungers of lounging around, just don’t call the group a pub company.

Indeed, the glass-fronted Grupo Lounge in Westbury on Trym, Bristol, where I meet chief executive officer Nick Collins feels like the love child of a bright, spacious independent coffee shop and an eclectically decorated high street bar.

According to Collins, the easiest way to define the company’s offer is to consider who they compete with on a regular dawn-to-beyond-dusk trading day. “In the mornings, we’re competing with coffee shops,” he explains. “Then we move into lunch where we serve a lot of meals, sandwiches, burgers and compete with a lot of independents – maybe sandwich shops, restaurants, pizza places. Then, in the afternoon, we serve a lot of tea, coffee, snacks and, in the evenings, we compete with pubs and restaurants – be that independents or chains.”

But in trying to roll different types of operation into one, how does Collins ensure that Loungers doesn’t become jack of all on-trades and master of none?

“It’s complicated – the best word to probably describe it is ‘intense’,” he says. “In our style of operation and management, we are incredibly close to the business and make sure that intensity exists in the business right from 9am right the way through to 11pm. The complexity arises to a large part on the kitchen side, having such a broad menu and delivering that when you’re not in control of the flow of tickets to the kitchen requires a lot of discipline and really consistent processes. We’re in a really strong position of having done it for 18 years. We’ve allowed those processes and systems to evolve in the business to ensure that we nail it, basically.”

Employee ownership

It’s an approach that has yielded a strong showing in 2019 for the operator of 133 Lounge café bars and 28 Cosy Club bar restaurants at the time of writing.

In the past 12 months, Loungers has opened a landmark 150th site, successfully listed on London’s Alternative Investment Market (AIM) and revealed a 22% increase in revenue for the 24 weeks ended 6 October to £79.8m.

What’s more, CGA Insight and AlixPartners’ Market Growth Monitor revealed the number of premium bars and licensed cafés increased by 4.1% in the year to March 2019 – bucking a trend of sector closures.

“It’s been a massive year for Loungers,” Collins says. “The IPO at the end of April was something Alex [Reilley – co-founder] and I had talked about doing for the past couple of years – we felt it was the natural home for the business.

“We’d been through two private equity transactions and one of the biggest factors influencing our desire to IPO was that we wanted more employee shareholders. There are so many people who work exceptionally hard, have contributed so much to the business and demonstrated so much commitment that rewarding them with shares in the business was something very important to us and something we want to do on an ongoing basis. Being a PLC gives us the structure where we can do that.

“We now have about 700 employees who are shareholders and that’s something I’m really keen to see grow over the next year.”

Collins adds that the current financial year will be the fifth in a row Loungers has opened more than 20 sites – including eight Lounges and two Cosy Clubs in the 24 weeks to 6 October, a period in which Loungers revealed overall sales growth of 22%. Collins describes this rate of expansion, which sees Loungers employ between 25 and 35 new people per fortnight, as “business as usual”.

“What’s really been great is that the IPO, which could have been a big distraction, didn’t knock the business off course at all. It’s testament to the senior team and to all of us that the show kept on the road while we were busy floating the business in London.”

‘Fascinating’ GK takeover

Before joining Loungers, Collins co-founded – and was managing director of – gourmet sandwich chain Fuzzy’s Grub, an ultimately ill-fated venture he says imparted valuable lessons that he still heeds at Loungers.

“We opened eight sandwich shops in pretty quick succession,” he recalls. “A lot of American investors say everyone needs to have had one failure in their track record, and that’s my failure. We learnt that going too quickly and opening too many sites in quick succession was something that we needed to learn from.

“When we’re looking at new site opportunities for Loungers, we’ll always challenge ourselves ‘are we just doing this because we need to fulfil a certain number of openings? Is this the best possible site the we can open?’ We need to be really confident of that and delivering operation.”

Collins was also financial director at Capital Pub Company until it was sold to Greene King in 2011. He joined Loungers in January 2012 as finance director before stepping up as the company’s first chief operating officer in January 2014.

“I was at Capital for three years and had the privilege of working with Clive Watson (now City Pub Group executive chairman). I had a brilliant time there and learnt so much from Clive in terms of working in a PLC environment.

“The takeover by Greene King was a fascinating experience – really enjoyable as well – but I had no intention of going to work for Greene King. I hadn’t really decided what I was going to do and a mutual friend introduced me to Alex. We got on, they needed a financial director, I needed a job, and the rest is history.”

The company whose acquisitions strategy put Collins on course for Loungers – Greene King – has been on the other end of M&A activity this year with the £2.7bn acquisition of the operator of more than 3,000 pubs by Hong Kong company CK Bidco rubber stamped in October – a deal valuing the company’s shares at 850p.

“It’s great to see the pub companies achieving more realistic valuations,” Collins explains. “A lot of the freehold pub estates have been undervalued – the Greene King deal, in particular, demonstrated to everyone that they were undervalued.”

Amid an increasingly busy hospitality sector, another reason behind Loungers’ IPO was to move away from a cycle of private equity ownership.

“We’d been through two transactions – one in 2012, one in 2016 – and didn’t really want to go through another,” Collins adds. “We really enjoyed private equity ownership, and it was of immense value and benefit to the business – we’re a much, much better business because we had the expertise of Piper and Lion Capital on our board guiding us and providing advice – but we’d reached the right point where I think having more independent structure, becoming a PLC, was appropriate to us.”

Maintaining rental discipline

In keeping with its strategy to open, on average, a venue every fortnight, Loungers has earmarked sites in Sutton, Watford, Sittingbourne and Chorley and Cosy Clubs in Nottingham and Brindley Place, Birmingham, before the end of the current financial year.

“We go to these locations because we can achieve good value rent in strong high streets and we trade really well,” Collins says. “In Greater London, we see an awful lot of opportunity but the biggest issue in central London – you won’t see a Lounge opening in Covent Garden or Knightsbridge – is largely because the rent-to-revenue ratio would make it a lot less appealing from a return-on-capital perspective. I think we’d trade just as well in Covent Garden as we do in Carmarthen but our return on capital would be significantly reduced because the fixed cost of rent would be so much higher.

“If you look at where other businesses have grown quickly and have perhaps suffered financially, it’s as a result of their need to grow quickly and making sub-optimal property decisions. It’s one of the aspects of our business I’m most proud about, the fact we’ve maintained that rent to revenue ratio sub 6% for the last eight to 10 years.”

Collins adds that Loungers’ capacity to build its own sites through four inhouse build teams – “a really well-run part of the business that we have a lot of confidence in” – makes the company more than capable of maintaining its swift growth.

“The biggest factor affecting the rate at which we open sites is ‘do we have the confidence that we will open them to the highest possible standards?’ That’s by far the most sensitive and important. We need to be confident that if we’re opening a site every two weeks that every Lounge or Cosy Club be as good as the first one we opened back in 2002.”

Reacting to changing home and high streets

With Cosy Clubs operating in city centres and larger towns, and Lounges finding a home on secondary suburban high streets, is research by PricewaterhouseCoopers revealing that, on average, a high street store closed its doors for good every 90 minutes in the first half of 2019 a concern for Nick Collins?

“High streets are undoubtedly changing,” he explains. “We’re seeing it in particular over the past 12 to 18 months, there have been a number of retail CVAs that, in a way, provides us with an opportunity from a property perspective. They’re changing but we’re not seeing any shift in footfall on the high street, people just use them slightly differently.

“We’re also seeing local authorities are doing some really good work to reinvigorate high streets. We work closely with local authorities in a number of areas where we’ve opened sites and in lots of those locations they’re going out of their way to invest in the high street to make it a more appealing and attractive place to go.

“We, as a business, have seen no shift in the way that consumers are behaving and that’s demonstrated by our results. We continue to perform really well on high streets all over the country.”

What’s more, with seemingly unstoppable rise of in-home services like Netflix, Google Home, Amazon Prime and Deliveroo – and with Loungers operating on the promise to provide its customers with a “home from home atmosphere” – does Collins see any point at which the tech creeping into the nation’s living rooms could infiltrate pubs, bars and cafés?

“The short answer is ‘no’, they almost strengthen what we’re trying to achieve,” he says. “One of the key mantras in the business is that we talk about existing to bring people together. That’s true in both Lounge and Cosy Club. If you look at things like Deliveroo and Netflix, they’re the antithesis of that. They’re stopping people from getting together and talking, socialising and enjoying each other’s company. We don’t do delivery and have no desire to do delivery. The Lounges and the Cosy Clubs are all about engagement between our teams and customers and people having a good time.”

Growing company with culture

“Our property and pipeline planning is a long game,” Collins adds. “You can’t say ‘right I want to open in location X’ then expect to find the site. We started looking at Watford two-and-a-half years ago.

“There are lots and lots of places on our list – areas that we’re targeting where we just have to show a degree of patience. From a personal perspective, Oxford and Cambridge have been a little bit frustrating – we don’t have Lounges or Cosy Clubs in either place or their surrounding suburbs and that’s not through lack of trying.”

Yet in adding between 25 and 35 new staff per average fortnight how does Loungers ensure that its culture of being “quite strongly independent, quite anti-brand” grows with the rapid pace of expansion?

“A lot of it is about talking to our teams and understanding how they feel and making sure we react to that,” Collins explains. “I think a lot of it is also about making sure that we never become a corporate business and that we recognise what made it special when we had 20 sites and asking how we replicate that now we’re at 160 sites.

“It’s really important that the culture within our regions is really strong and perhaps not considering culture on a company-wide basis,” Collins says. “And trying to make sure we’re not becoming a really big business – which I find terrifying.”