The old British pub is dead! Long live the new British pub!
“The pub is a fundamentally changed place,” Ralph Findlay, chief executive of Marston's, told Proactive Investors.
The trick for pubs groups such as Marston's (LON:MARS) is to keep abreast of those changing fashions and thus far the group, which also brews ales such as Pedigree and Hobgoblin, has been doing a sound job.
It is close to seven years since the company took the decision to raise £166mln to build 60 food-led pubs, and there is little doubt that the decision has paid off.
While back-street boozers and small community pubs continue to close at an alarming rate – 27 a week at the last count – the larger, modern, food-let pub retains a key place in British social life.
“The leisure sector has become very competitive and is seeing a lot of heavy investment from new entrants such as Five Guys and YO! Sushi! and it is influencing consumer behaviour.
“The [Marston's] model gets updated all the time, but we keep something in it that is still about pubs, so you keep the hand-pulled pumps, you keep the fires, because that's the brand,” Findlay explained.
The company's model has been given the slightly gimmicky name of “the F-Plan”.
The F-Plan model focuses on food, families, females, and forty/fifty somethings.
Pubs that do not fit into this model have been sold off, leaving the company with an estate of 1,600 pubs. Findlay said at the time of the company's full-year results in November that the three-year transformation of its pub portfolio towards an optimised estate is now largely complete, and that should free up management time and resources to concentrate on the next leg of the Marston's growth story.
So, while the company will continue to evolve the model of the core of its estate aimed at your average Joe and Josephine (and their well-behaved kids Josh and Jocasta), it is also developing the Pitcher & Piano bar and Revere Pub brands at the premium end of the market and extending its Marston's Inns footprint.
“The use of bars as a venue for celebrations is increasing,” Findlay noted, as he explained what he thinks is likely to be one of the main growth drivers for the group's more up-market outlets.
Meanwhile, the Marston's Inns chain, Findlay cheerfully acknowledges, is not a million miles away from Whitbread's successful Premier Inn model. The company currently has 44 pubs that offer accommodation, with around 800 rooms in aggregate.
Marston's opened three lodges in the last financial year and more are in the offing.
What about the brewing side, I hear the ale drinkers cry.
Not surprisingly, the company has been well aware of the craft ale revolution. Having bought up Refresh, owner of Hobgoblin brewer the Wychwood Brewery, back in 2008, one could even argue that Marston's was well ahead of the game in this respect.
“Our beer strategy has been deliberately regional. We took the view that the beer market would follow the American model and would become fragmented, as people got bored of the big brands,” Findlay explained.
So, the company has five of its own regional breweries – Marston's, Banks's (this is a company that really understands the possessive apostrophe!), Jennings, Ringwood and Wychwood – and a collaboration with US craft ale brewer Shipyard.
“Craft brewing is a very interesting area at the moment,” Findlay said, noting the £120mln acquisition by InBev of south London small-scale brewer Meantime and the strong investor interest in crowd-funding specialist Brew Dog.
It might make logistical sense to amalgamate all of the brewing into one massive state of the art brewery, but the company believes that consumers are prepared to pay more for a local ale, so what it loses on the swings it gains back on the roundabouts.
Besides which, a pint of Banks's that is not brewed in Wolverhampton is not really Banks's, is it?
Currently the company exports about 5% of its beer and there is scope for the group to sell more.
“We sell quite a lot abroad, some in surprising places. Russia has been quite a big market for us. Hobgoblin is particularly popular. Perhaps they like the logo,” Findlay quips.
Wrapping up the conversation, Findlay indicated the British pub is alive and well, despite challenges such as adapting to the introduction of the so-called living wage.
Marston's employs around 13,000 people, so wage costs are a huge part of the cost base, but Findlay said it will be able to adapt to government legislation on minimum wages “because we saw that one coming”.
Judging by its performance over the last six or seven years, the company has a good track record of spotting things coming, and whether the glass is half-full or half-empty, the company wins either way.