REPORT BACK ON MEETING Feb 24th 2017, Chapel en le Frith Golf Club
Speaker RALPH FINDLAY, CEO of MARSTON’S plc.
Storm Doris may have played havoc outside, but members arriving at Chapel Golf Club for their February meeting were greeted with beer bottles on the tables. Beer at breakfast? Why not, when the speaker is the boss of Marston’s, one of the UK’s biggest brewers and owner of over 1,500 pubs.
Ralph Findlay had an unlikely start as a geologist working in the oil industry, but soon realised that the exciting jobs required business training. Via Price Waterhouse he became a chartered accountant; in the late 1980s that took him to Bass just as they were acquiring Holiday Inns “with not much clue about how to run hotels”, thence to the Wolverhampton & Dudley brewery and so to Marston’s where he’s been CEO since 2001.
So as the internet world was taking off, he chose one of the most traditional sectors in the UK, one with property all in the wrong places and big debts. These days Marston’s export ale to Russia (favourite tipple: Hobgloblin) and own dozens of brands including their fastest growing seller (Wainright, since you’re asking). So how come Marston’s is turning over £900m, making pre-tax profit of £80m in an intensely competitive market, when you can get your beer cheaper in a supermarket and your entertainment from the telly?
Back in 2001 they started thinking hard. At that time they were mainly a Burton-based business with a solid reputation. Purchase of several other strong names – W & D, Mansfield, Burtonwood, Wizard Inns in London – brought national reach, diluting the risks while increasing scale. Around 2005-6 they noticed that in America a revolt was under way against bland mass-produced lagers, with the growth of craft brewers; so while rivals guffawed, they acquired more craft ales including Jennings, Wychwood and Wainwright. This proved to be a brilliant move and put them ahead of the game, where they’ve stayed ever since. Now they bottle 50% of all bottled ale in the UK, and 1 bottle in 4 drunk is a Marston’s brand. In profit terms, ale only contributes a modest amount, “but it’s the heart and soul of the business,” Ralph said firmly, to nods from his audience.
The 2008-9 financial crisis however meant that pubs were closing fast (Ralph didn’t mention the 2007 smoking ban, which didn’t help), so Marston’s again did something others considered daft. They raised £170m to build new pubs. But “the key was to sell a lot of pubs judged to have a limited future” – no fewer than 800 went, many of which now have quite different uses, so they’re not stuck like many other breweries with a tail of underperforming assets.
But since people still want to go out and enjoy themselves, the smart, clean new inns are located where there’s nothing much else, and it’s working magic. “We look for places where we can be the best for miles around – where the other big brands don’t go.” Each one is individual, tailored to the local population’s tastes and needs. The pub sector, remarkably, is actually where 85% of their profits are realised, and each pub is producing a far better return now than 5 years ago.
Ralph gave a dizzying display of financial pyrotechnics which had the IFAs and business consultants in the room almost delirious (the beer bottles had disappeared into briefcases by this time). Yes, the company has lot of debt – around £2billion – but it’s matched by assets, where 96% of their properties are freehold, and most of the debt is long term. In fact it’s a great time to be raising finance, with low interest rates – recently they took up £40m for 40 years at 3.7%. Now I used to teach economic history, and it rang a bell: for that’s how the great Victorians built the railways.
Findlay said the company doesn’t worry too much about supermarkets. Why? Because Marston’s are doing more than selling cans and bottles: they’re selling a family lunch or a great evening out, “typically with a bit of theatre about it.” And unlike supermarkets or housing developments they face few problems with planning permission, not least because 30 – 50 new jobs are created each time a new gastropub opens. This year at least another 20 are planned, increasingly with rooms, while others like the Fallow Deer in Chapel have been refurbished. We teased him about the name (“The Fickle Mermaid” – that story’s a Peak District in-joke, surely?) but he shrugged it off gracefully: “We don’t get them all right…”
What about costs? A recent report was gloomy about the increased costs of ingredients facing the brewing trade following the fall in the £. “We plan ahead. We have long term contracts, into 2018.” Of course they do. He was candid about the “Marmite Wars” (when Unilever tried to increase prices for Marmite and other products by 10% and Tesco said, No way). There’s a reason Marmite is made near Burton-on-Trent: the raw material comes cheaply from brewers. But the invoices whizz round world-wide, so that’s how they acquire exchange fluctuations. Somebody was trying to be too clever..
But staff will cost more in future. One of his directors was on the Low Pay Commission, so the increase in the minimum wage wasn’t unexpected. This year 450 apprentices are learning their trade and they’re aiming at 800 over the next three years; Marston’s will do all the training, based at Birmingham and Wolverhampton. The only qualification is that entrants should be keen to work in hospitality, then they have a real career path into management if they want it. A better bet for a smart youngster than a poor degree and a pile of student debt, I’d say.
One young club member, attending for the first time, became very thoughtful. “I wouldn’t mind being one of their managers,” she murmured. Who knows? Networking can work in unexpected ways. Marston’s is impressive because it’s well led, understands its customers and delivers reliably what they like, and never forgets it has to make a profit.