Whitbread on the wagon

Whitbread on the wagon - The venerable firm has done the unthinkable, selling off its brewing and pubs businesses after 250 years in a bid to refloat its sinking share price. It has reinvented itself as a branded hotels, leisure and restaurant company, bu

by MATTHEW GWYTHER
Last Updated: 31 Aug 2010

The venerable firm has done the unthinkable, selling off its brewing and pubs businesses after 250 years in a bid to refloat its sinking share price. It has reinvented itself as a branded hotels, leisure and restaurant company, but is it really comfortable in these tough markets? Matthew Gwyther reports.

Whitbread's presence on the average British high street is now a shrunken one compared to that of two years ago, and the company has gone into communications overdrive in an attempt to explain why it has gone teetotal after 250 years of brewing and selling beer.

Whitbread plc's 'stakeholder review' for 2000-01 - fashionably produced as an A3-sized magazine - kicks off with a question-and-answer session hosted by David Thomas, the company's Des Lynam-lookalike CEO. The moustachioed boss certainly had some explaining to do. The first Q&A ball bowled was a beamer heading straight for his temple: 'Why have you sold more than half the company?' Beer is now history for the old firm, which has been rebranded for the 21st century as 'enjoy!Whitbread'.

'We have shown,' boomed Sir John Banham, the company chairman, on results day, 'that Whitbread has absolutely no sacred cows.' After nearly halving in value during the previous two years, the company's shares rose a modest 10p to 565p.

In selling off all its beer assets, Whitbread was quitting what had been a lucrative game for a long time. The first Samuel Whitbread went into business equipped with his 'mystery' - master brewing was a dark art known only to initiates - in 1742. London was then in the grip of a gin-drinking epidemic and Whitbread's porter gained approval as a wholesome and nutritious beverage suitable for all the family. Beer Street, drawn by Hogarth in 1751, is in healthy marked contrast to his hellish Gin Lane.

By the time of Sam's death in 1796, his hi-tech brewery on Chiswell Street on the edge of the City of London had made him 'a million at least', according to the Gentleman's Magazine. No small beer in today's figures. He had worked hard for it. His daughter Harriet wrote that in the early days of his career Sam would 'sit up four nights a week by his brewhouse copper, refreshing himself by washing plentifully with cold water and, when the state of boiling permitted his quitting, retired for two hours to his closet reading the Scriptures.'

A quarter of a millennium later, Thomas needed more than the Scriptures to sustain him as Whitbread fell from favour. In July 1999, an attempt to buy 3,500 pubs from Allied Domecq was vetoed by the Office of Fair Trading. The deal would have strengthened Whitbread's estate and enabled cost-saving consolidation. Not even the lucrative UK licence for Stella Artois - never mind that for Heineken - could refresh Thomas's stock-market standing. Drastic action was necessary and Whitbread sold its brewing business to the Belgian Interbrew company for pounds 400 million. Then, in May 2001, it sold its pubs to Morgan Grenfell Private Equity for pounds 1.63 billion. (Thus have individuals like Hugh Osmond of Punch and Guy Hands of Nomura become the nation's premier publicans.

Pubs work for them because they've been bought with huge sums of borrowed money over long periods. Debt is serviced by a large cashflow and there is an exit plan.)

A good guide to Whitbread's increasingly restless relationship with its pint is the company's finance director David Richardson, with 18 Whitbread years notched up on his tankard. 'The beer market grew steadily in Britain after the war at around 2% a year until 1979. We did very well,' he acknowledges.

'Then Thatcher screwed the British manufacturing base in the late '70s and early '80s and trashed the beer business in the process. At best, after that, the market was static in real money.'

Of course, social change - the British public found other ways to spend their leisure time besides propping up the bar at their grubby local and visiting its smelly lavatories - had an equal part to play in this decline.

The Conservatives in the '80s decided to make the big brewing families - the beerage - sweat still further. Citing lack of consumer choice and competition, Lord Young, secretary of state for trade and industry from 1987 to '89, changed the Beer Orders rules, forcing brewers to sell off large sections of their pub estates. There were howls of outrage from the Whitbread, Courage and Bass clans. The exercise was as poorly thought through as a monkey's lunch, but it would have surprised few Americans.

The US forbids vertically integrated businesses making and selling liquor.

In what rapidly became a mature market, Whitbread - neither the biggest brewer nor the biggest pub owner - felt the pain early.

The company quickly moved into more promising leisure industries - food and hotels. It acquired the licence for Pizza Hut and TGI Fridays in the UK, got the Brewer's Fayre and Beefeater chains going and purchased hotels.

In the '90s it continued to acquire new businesses, ranging from fitness clubs to French bistro chains.

Whitbread bought out the David Lloyd Leisure Clubs company in 1995 for pounds 200 million. It has since grown from 14 to 45 sites and the plan is to double in size within five years. The essential new-look Whitbread is encapsulated by Ian Williams, general manager of the David Lloyd Leisure Club at Point West on the Cromwell Road, Kensington.

Williams joined Whitbread as a graduate trainee 11 years ago and went to work in the pubs and bars division in the South of England, pulling pints. Things were tough. 'Each year it was getting harder and harder.

We were fighting away in a declining market. We tried everything - better food offerings, putting more machines in pubs, pushing wine sales - but old-fashioned backstreet boozers and community houses weren't providing a great pay-off.'

In the line of duty, MT visited Point West on a quiet Thursday morning.

Williams' clientele now consists of the well-heeled mothers of SW7 who perform their Pilates routines, do step aerobics and tone their abs in Lycra leotards and leggings, while their offspring chill out in the creche and their husbands make deals in the City. The only liquid being consumed was Evian in dignified sips. The penthouse flat above the club is on the market for pounds 6.95 million

The joining cost here is pounds 295 and monthly fees pounds 76.50. Membership stands at 3,200 with a target of 4,500, by which time the club will be making Richardson a good return on the large initial outlay. New David Lloyd sites with tennis courts can cost pounds 10 million and it's hard to track them down. Whitbread is talking to various NHS trusts about siting DL Clubs in hospital grounds - not something they could have done with the Frog & Parrot.

Williams is right behind the new-look Whitbread, seeing it as an extension of his own life-change. 'When I was 21, I got drunk and chased girls. Now I'm 32, married and do 50 lengths each day in our pool.'

Over the Thames, by County Hall, is another new-look Whitbread establishment that is chasing and packing them in - the Marriott Hotel. Whitbread acquired the Marriott franchise in the UK in the mid-'90s and is busy turning its own Swallow establishments into the more upmarket American global brand.

A room with a river view of Ken Livingstone's old GLC manor now goes for pounds 275 per night. The five suites are pounds 950 a night. Despite the effect of foot-and-mouth on American tourist figures, occupancy is still 89%, with a target this year of 96%. Next door is a heaving Travel Inn, the cut-price hotel chain of Whitbread's own invention.

It's all very well announcing this refocus on growth markets, but those that Whitbread has entered are no sure-fire cash-generators. They are all highly competitive, with hungry rivals on the block. Looking rather more green around the gills than the hotels or health clubs is the firm's line in high street restaurants; business certainly looks queasy and they are rumoured to be up for sale - even the seemingly successful Costa Coffee. Whitbread admits that some operations are performing in an 'unacceptable' fashion and are under review. Probably the most disappointing is the Pelican Group, which includes Cafe Rouge and Bella Pasta.

Whitbread paid too much for Pelican - 'more money than I care to remember,' winces David Richardson, '... pounds 140 million' - and bought in at the wrong stage of its development. Most Cafe Rouge customers would rather the Gallic element of the offering had more to do with food quality than indifferent service. And Bella Pasta's overcooked spag was a Neopolitan's nightmare.

At the same time, Whitbread has had a problem with its more tradition-al British eateries. The safe, prescriptive menus of the Beefeater go down a treat among ageing C1s and C2s in Bognor, but the reworked 'Out and Out' branding is an attempt to create a less institutionalised attitude towards their clientele. Another new idea is Ishi, an Asian-fusion brand undergoing tests at two sites.

To compound the grief, TGI Fridays, which had been such a wow in 1987, has been looking long in the tooth. By the late '90s, punters were bored with the chain's grinning and Galliano bottle-spinning cocktail barmen. Visiting couples were even less keen on rowdy office parties removing each other's clothing after one too many Sloe Comfortable Screws or Japanese Slippers.

Up at the family seat in Bedfordshire, Sam Whitbread the Fifth, the founder's great-great-great-great grandson, is philosophical about the turn of events, saying he feels 'quite confident we've done the right thing'. Although he chose a career in farming and forestry rather than among the mash tuns, Sam, 64, had an unexpected spell as company chairman in the '80s, when the board was in 'a little bit of disarray'. The Beer Order meddling left him unimpressed: 'An absolute nightmare for the whole industry. When it came to the brewing families, the OFT was always anecdotally suspicious of our relationship. I think they believed we fished and shot together while staying in each other's houses. We were competitors, rivals. What's left now is unrecognisable - there's only one major British brewer left, which is Scottish & Newcastle.'

Sam V toes the optimistic board line, though. 'Right since the 18th century we've been innovative and have always kept a close eye on customers. Two hundred years ago, for example, we committed the outrageous act of bottling beer and sending it out to India. That worked.'

Nowadays, of course, with companies such as Whitbread out of the game, the Cobras and the Kingfishers are coming in the opposite direction.

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