Shepherd Neame: ‘ambition there to scale retail business’

29-Sep-2022 - Last updated on 29-Sep-2022 at 10:44 GMT

Footfall increasing: CEO Jonathan Neame expects more workers to return to the City this winter

Shepherd Neame is planning build its retail pubs and hotels business through a mixture of tenanted conversions and selective acquisitions, chief executive Jonathan Neame has told MCA.

In its preliminary results for the 52 weeks to 25 June 2022, published earlier this week, the brewer and pub operator said it hoped to expand its currently 63-strong retail arm to 100 sites “in the medium term”.

While Neame said he would like not put a specific time frame on it, “I think that what it states is an ambition to grow the scale of our retail business… to build the quality of the offer and build the internal skills to deliver that offer”.

During the reporting period, Shepherd Neame transferred two tenanted pubs to retail, and said it expected further transfers from tenanted to retail in the coming year.

He told MCA: “I think we have an awful lot of potential within our existing business and a number of pubs that will take more investment.”

Given the group essentially stopped investment in its sites for the two years the pandemic was in full swing means there is a “a degree of catch-up”, but also opportunities in sites that may not have had them before.

Different type of consumer

The change in infrastructure in its Kent heartland, including the significant increase in housebuilding and road networks, which have improved connectivity, has meant that more people are coming to the area, and a different type of consumer, he said. So pubs that a few years ago might have seemed less worthy of investment, suddenly become an opportunity, Neame added.

The business is also looking to buy new sites, but Neame said he was “not seeing a flood of exciting opportunities at the moment”.

“I suspect that there will be more acquisition opportunities […] but we are very picky in terms of what we are looking at… they have to fit our needs for the long-term and we are looking for sites that can offer premium experiences.”

While like-for-like sales within its retail and pubs business were down 30% on 2019 levels in the past financial year, they are now down just 11% in the most recent trading period, which Neame said that, given the current cost challenges and the impact of several days rail strikes, was “a pretty encouraging picture”.

“I am pretty optimistic that as we start to go into the winter you will see more people in offices in the City, that the momentum is progressive and upwards and as of today, I’m very optimistic about Christmas, because I think companies will be keen to encourage teams to get back together again,” he said.

The group did not experience quite the same level of staycation activity this summer as last, but the weaker UK economy and lower value of the pound could result in another boom in staycations next year, Neame said.

Employment levels give confidence

“If we take the economy as a whole, clearly people are very concerned about the rise in interest rates and the knock-on effect on the housing market and people’s mortgages, but one thing that gives me confidence at this moment in time is the level of employment in this country and the level of demand for employment. Businesses on the whole are still looking to invest and to expand,” he said, adding that it was a very different situation to the crash in 1991, when interest rates were very high, alongside significant unemployment.

“We have to welcome the fact that duty rates have been frozen again and we have to welcome the intervention on energy, and obviously the government is trying to stimulate consumer activity and time will tell whether that’s successful or not.”

Neame added: “My sense is that the British pub is still as core to British life as it’s ever been and, yes, there may be some rough water immediately ahead of us, but I don’t think that that should diminish the fundamentals of the business.”

In terms of the pressure of energy costs, Neame said his primary concern was for its licensees and those that are not on fixed contracts.

“The real worries that we had when people were being quoted three or four times higher energy bills would have made life impossible for a number of independents.

“Obviously, we don’t know the full detail of the Government package, but all the indications are that independent licensees will see the cost go up a bit, but they’ll have a lot more protection than they would have done if just exposed to the market.”