Just under a year and a half since his appointment, Simon Longbottom, chief executive of Stonegate Pub Company, is continuing to build on the managed operator’s growth momentum, while looking to give the business even more impetus. He talks to Mark Wingett about honing the group’s business strategy
It only takes 10 minutes into my conversation with Simon Longbottom, the chief executive of the TDR Capital-backed, c670-strong Stonegate Pub Company, to see why he was the perfect fit to take the business to its next stage of development. Like his boss, Ian Payne, Longbottom lives and breathes the pub industry. But also, like Payne, he forgoes complexities and is focused on making Stonegate the best it can be along a distinct business plan.
The former managing director of Greene King Pub Partners, Longbottom brought with him a wealth of experience in the sector when he arrived at Stonegate, replacing Toby Smith, Payne’s previous right-hand man, having held senior positions at Mitchells & Butlers and Mill House Inns. On top of that he was the inaugural winner of the Association of Licensed Multiple Retailers’ (ALMR) Ops Awards.
As Payne told me last year: “He is a pub man through and through. I knew his father when he worked at Allied. If he was a racehorse he would come from good stock.”
Longbottom remembers an earlier meeting between the two: “I started off running a pub for Bass Taverns down in Bournemouth, Ian was in charge of this huge change project at the company and he popped in one day to see what we were doing that was proving such as success at that site. That was how we met and stayed in touch. We also both worked at Gala Bingo. So it was an easy sell to come and help Stonegate on its next stage of growth. Coming to Stonegate and working with Ian was too good a chance to turn down.”
Not that Longbottom has rested on his laurels as Payne has pointed out. He has brought some talented people into the business, including the company’s two managing directors Tim Cullum and Nick Andrews, while the latest strengthening of the management team has seen Nicky Pryce leave Merlin Entertainments, where she was global marketing director, to become Stonegate’s marketing director. As Payne pointed out: “It has changed an awful lot since he arrived and he has brought in people from a cross section of businesses.”
Longbottom says: “Ian had built a good business. I inherited a company that had good momentum, great people and great businesses, and had a good reputation. What I have been able to do is hone the business strategy, why we exist and what the key growth areas are.
“I focus on three key areas. The first is how we organically grow. This is still a business in short pants and, therefore, there is a lot to go at around how we build our formats to appeal to customers, how we manage price. There were lots of areas to drive organic growth. The second focus for us was investing a lot into our pubs. Last year we invested £45m – £25m on development capex and £20m on maintaining and repairing the pubs – so we are investing in more than 100 pubs a year and we are very good at it. I inherited a very good engine and great people on this side of the business.” This point is backed up by the fact that the group’s rolling three-year ROI is a very impressive 46.5%.
The third area of focus is the group’s people. How serious the group is about its duty to its employees was recently highlighted when it won an HR Distinction Award for a third consecutive year. The 2016 Distinction for Innovative use of Digital or Social media was awarded at Birmingham ICC earlier this year, adding to previous Distinctions for People Development and Innovative Use of Technology.
The award was given for the success of ‘Albert’s App’, launched in August 2015, already used by 40% of the company’s 12,500 employees. The app hosts all company information, training videos and individuals training programmes among other features. Longbottom says: “It reflects both the commitment we have to developing our people, and the outstanding efforts that our managers put in to identifying and nurturing talent.”
From its formation through the purchase of 333 wet-led pubs from Mitchells & Butlers, acquisitions have been a major part of Stonegate’s growth strategy. As Longbottom puts it: “Acquisitions are our life-blood. It’s brought us some terrific synergies and terrific people.” The latest was the c£105m deal to acquire the 53-strong TCG business last September, but Longbottom admits that the group is currently assessing five other possible deals across the sector.
On TCG he says: “We bought a very well-run business that had been cruelly underinvested in.” Although Nigel Wright, TCG’s chief operating officer and Ben Levick, director of operations, have remained with the company post-deal and were praised by Longbottom for the work they have done, while having “one hand tied behind their backs in terms of support”, it is thought they will move on in time.
The group plans to convert 80% of the TCG estate to its own formats within three years and Longbottom says the company is on track to achieve synergies from the deal of £2.3m. He says the total deal for TCG, including the sale and leaseback of five
sites, which raised £34m at low yields, worked out at a 6x multiple.
Longbottom says the company is “taking its time to see which of our formats would work across the 53 sites” and was very proud that the group had “not lost a single general manager from TCG”.
For the 52 weeks to 27 September 2015, the company saw like-for-like sales increase by 1.2%, with like-for-like gross margin up by 3% and like-for-like profit up 10.8%. Adjusted EBITDA increased 16.6% in the year. It disposed of or closed 18 sites and, since the year end, has added 53 sites with the TCG acquisition, bringing the trading estate to 664. Longbottom says that sales were in line with expectations and that Christmas had traded well after a slow start, up 6% during the festive period.
The focus for 2016 is on the integration of the TCG estate while ensuring its existing brands remain relevant. The number has been streamlined down to seven core formats – Town Pub & Kitchens; Classic Inns; Proper Pubs; Common Room; Slug & Lettuce; Yates’s and Venues – late-night bars and clubs. The company has a brand for each occasion and demographic.
Longbottom says: “We can dominate in town centres through our different brands. In Leeds, for example, we’ve got 10 licences within half a mile of the city centre. We’re able to split those licences across the formats to get the most out of them. So we’ve got gay clubs, pubs in our Common Room format for students, a late-night venue, a Yates’s, and a Slug and Lettuce. We cover the whole area.
“The drinking out market is huge – £27bn a year – and with seven formats we spread the risk. We’re not precious about which format it is, so long as we can maximise the profitability from each business.”
Like Payne, Longbottom won’t be drawn on the group’s much-speculated plans for an IPO, which would value it at c£1bn. He adds: “We have got some strong formats that we need to keep relevant to customers. We want to ensure that we take market share when those big events come around, and the [football] Euros will be a key one this year.”
