Central London rentals

Okay, so visited London for about a week. One thing really jumped out at me. In the provinces, Costa Coffee is by far the largest coffee shop chain, especially outside of the large cities. In London, I was astounded by the number of Starbucks in prime real estate locations. Costa takes smaller premises than Starbucks, on less prime real estate. And with the recent tax avoidance scandal that Starbucks UK was involved in, I can really believe that they don’t make any profit in the UK. I predicted that this was due to the high rentals that they were paying in central London. Turns out, I was right. I later found this from their website:

during our rapid expansion phase we positioned a high proportion of our efforts on prime, high street locations, and in particular in Central London where the cost of leasing is the highest in the UK. The result has been a group of stores that do not make money.

Yes, Starbucks are often full, but many of its customers seem to buy a £1.55 filter coffee and linger there half the day using the free WiFi to work. Costa avoided paying silly money for these sites because they are owned by Whitbread, masters of the UK property market. Whitbread’s knowledge of the market stems from decades of owning pubs, hotels and restaurants in the UK.

Recently, Starbucks has been closing down some of these unprofitable London sites, including three on Oxford Street. A recent report stated that the company was looking to close down 16 central London sites.

A company that avoided paying silly prices for central London sites was bakery chain Greggs. They have a mere handful of sites in the area. And it’s not as if they’re under-represented in outer London. Upmarket Wimbledon high street has two Greggs for example.

I find the Starbucks unprofitability case interesting, because I think people assume that when a brand is brash, bold, highly visible and obviously splashing the cash around, that it is successful. Another instance of this is the many incarnations of the Virgin brand: yes, there are some successful Virgin brands, but look at the high profile failures like Virgin Cola, Brides and Vodka.

The rise of J D Wetherspoon

JD Wetherspoon logo

J D Wetherspoon is a company that has been consistently innovative throughout its history. It has demonstrated a tendency to follow its own path, and has been willing to take innovative risks.

Tim Martin (born 1955), was born in Norwich, the son of an RAF pilot who later worked for Guinness.

Martin acquired the licence for Marler’s Bar, a former betting shop in Muswell Hill, London, in 1979. He opened his second pub in a converted car showroom at Crouch End in 1981. J D Wetherspoon was incorporated in 1983. Martin took the name from a former teacher who struggled to control his class.

Martin was keen to expand the company, but was hampered by the lack of pubs on the property market at the time. As a result, he instead converted unconventional premises such as former banks, supermarkets, churches and cinemas.The company quickly gained expertise in securing drinks licenses for new premises and gaining planning permission.

The company grew with its core values of cheap prices, cask ale, and no music. Comparisons began to be made between the chain’s values and the ideal English pub as described by George Orwell. Whilst the similarities were initially coincidental, Martin consequently adopted Orwell’s template, and a number of outlets are named after Orwell’s essay title, The Moon Under Water.

J D Wetherspoon was floated on the stock exchange in 1992. By this time there were 44 pubs, all situated in London. In 1993 the chain introduced its all day food menu, and dedicated one third of its pubs as smoke-free areas .Its new pubs were double the normal pub size, and had almost double the average turnover, although margins were lower. In 1994, the Financial Times reported that the chain was selling Guinness stout at lower prices than the two major supermarkets, Tesco and Sainsbury’s.

By 1999 the chain had grown to 300 outlets. An advantage of converting former banks and supermarkets was that the company was able to significantly reduce its tax bill due to benefits from capital allowances. Its rate of corporation tax was 3 percent in 1998, and 5 percent in 1999. Therefore, Wetherspoon had a significant reason to expand its number of outlets, and it helps explain how and why the company expanded so quickly. The loophole was closed in 2001.

The company experienced its first major misstep in 2000, when it entered the Northern Ireland market for the first time. It was a serious instance of misjudgement of a local market. As Wetherspoon sells its beer so cheaply, it normally requests a discount from breweries. However, Guinness refused to discount their beer in the country, claiming that the Northern Ireland market had increased marketing, staff training and quality control costs. Therefore Wetherspoon did not stock Guinness, and as a result, nobody came to their pubs. The company then had to accept Guinness’ terms, or else risk utter failure in Northern Ireland.

By 2001, outlet sales were four times that of the average pub. That year, Wetherspoons began to wholeheartedly push its food offering, taking on the likes of Starbucks and McDonald’s with its own range of coffees and burgers. Breakfasts were introduced, and the company became noted for its notably clean toilets.

In 2002, the company rolled out a second brand that it had acquired from Wolverhampton & Dudley. Called Lloyds No 1, it functioned as a Wetherspoons by day, but as a nightclub in the evening.

In 2005, the company banned smoking in all of its pubs, ahead of the smoking ban. In 2006, 9am openings and TVs (on silent) were rolled out across the chain. The company claimed that its coffee sales matched those of Caffe Nero, the coffee shop chain. By 2007, 50 percent of all sales were food related, influenced in part by the smoking ban.

In January 2009, in a notorious move, Wetherspoons introduced the recession-busting 99p pint. The beer offered was Greene King IPA. The brewer baulked at their main product being sold so cheaply, and the offer was switched to their lower profile Ruddles Best brand.

From April 2010, all pubs opened at 7am for the breakfast market.This was not altogether successful, and opening times have since largely been scaled back to 8am. Nevertheless, the company was second only to McDonald’s in the breakfast market.

In 2013, the company entered the Republic of Ireland. The company has also explored the option of expanding into France with outlets in Paris and Calais.

The rise of Jack Daniel’s

JackDanielsLogo

Jack Daniel’s was a small American regional brand through the 1950s and much of the 1960s. But it landed on the radar of Hollywood stars, including Humphrey Bogart’s Rat Pack. The famous, simple monochrome adverts were first introduced in 1954.

By 1980, 3 million cases were shipped. “Jack” has always been marketed as a premium product. Marketers remind us that the product is not bourbon, but “Tennessee whisky” that is filtered through maple charcoal.

Originally, there were two main Jack Daniel labels: black (the famous one) and green. Although both whiskies were aged for at least four years, Black Label had a higher ABV content of 45% versus Green Label’s 40%. Black Label was reduced to 43% in 1988. Green Label was later delisted, and Black Label was further reduced to 40% ABV. So Black Label essentially became Green Label, but with no corresponding price reduction!

The origins of the full English breakfast

The origins of the full English are more recent than you might expect.

Historically the classic English breakfast pairing was bacon and eggs. Bacon was the staple meat for hundreds of years, and eggs were available in most peasant homes each morning. As late as the 1950s, an “English breakfast” was shorthand for bacon and eggs.

Seemingly beginning around 1915, as wartime economy and rationing began to bite, the cold remains of the previous evening meal began to be added to bacon and eggs. As bacon and eggs became scarcer (and more expensive), the additions of these items bulked out the meal and prevented waste. Fried bread and potatoes were popular starchy additions. Sausages were not subject to rationing, and began to be used as a bacon substitute.

The earliest reference I can find to the phrase “full English breakfast” is in a 1956 edition of The Guardian. It’s probably no coincidence that this coincided with the end of rationing.

A 1978 edition of The Globe and Mail of Canada lists the meal as comprising “eggs and bacon, tomatoes, sausages, kippers and heaven knows what else”. It may be possible that the phrase is a foreign coinage: why would the English refer to their own breakfast as “English”? Similarly to how the Scottish never refer to their whisky as “Scotch”. The need to differentiate your native product only occurs in different countries from your own.

The phrase was first shortened to “full English” (minus breakfast) in the mid-1990s.

Today, a full English comprises of, more or less, sausage, bacon, eggs, some starch such as fried bread, toast, hash browns or sauté potatoes, and some vegetables such as tomatoes, mushrooms and baked beans. Black pudding is popular. Regional variations include white pudding and oatcakes.

A history of Slug and Lettuce

Slug and Lettuce is a British chain of bar restaurants with 70 outlets.

Originally a pub chain, Slug was founded by entrepreneur Hugh Corbett, who had a background in the hotel industry. Corbett brought a degree of trendiness and relative luxury to his pubs, with an increased focus on wine and food. His pubs were all given nonsensical names, which differentiated them from their competitors (eventually Slug and Lettuce became the standard name).

Corbett stripped out the carpets to leave stripped pine boards, removed the curtains and installed large glass windows. This meant that people could look into the pub from the street, and the new light and airy open plan design made the pubs more attractive to women.

Corbett cannily located the first Slug in Islington, which was beginning to undergo gentrification due to its proximity to the newly liberalised City of London.

There were nine outlets by 1989. The chain was considered by some commentators, such as Roger Protz, as an imitation of the popular Firkin pub chain.

The chain was sold to David Bruce for £2.25 million in 1992. Bruce began to pursue the relatively untapped female market in earnest, imitating elements of the upmarket Pitcher & Piano chain and increasing the emphasis on food.

In 1995 the chain underwent another rebranding, aimed at creating an English pub/Continental bar hybrid.

The rise and fall of the Little Chef empire

Little Chef was the largest restaurant chain in Britain. At its peak it boasted 433 outlets, but this has since been reduced to around 70.

The first Little Chef restaurant was opened in 1958. Sam Alper and Peter Merchant had been inspired by diner caravans they had seen in America, and brought the concept to Britain.

Alper had a background in caravan manufacturing, and the first outlets were portable prefabricated roadside snack bars. Outlets could be built, assembled and opened in a matter of hours.

Little Chef was acquired by Trust Houses, a hotel operator, in 1961.

By 1964 Shell-Mex and BP had discovered that opening Little Chef outlets next to its petrol forecourts helped to boost fuel sales.

Outlets began to be built from brick from 1965. The familiar Little Chef brand guaranteed consistency for weary travellers. There were twelve outlets in 1965, and 28 by the end of 1968.

In 1970 Trust Houses was acquired by Forte to form Trust House Forte, a large catering and hotels company. The new owner had the necessary funds necessary to roll out a rapid expansion of Little Chef.

As it was difficult to acquire roadside planning permission, Trust House Forte acquired a large number of existing transport cafes, and converted them to the Little Chef format.

A typical Little Chef meal cost 35p in 1972. It was around this time that the “Fat Charlie” logo was introduced.

Due to rapid expansion there were 174 outlets by 1976. Ten years later there were 250 outlets. Little Chef was the largest restaurant chain in Britain by 1986, with more outlets than Berni Inn.

In 1986 the Competition Commission found that a significant proportion of customers were locals, not commuting drivers. Little Chef was innovative and forward-thinking, providing high chairs and baby food when most British restaurateurs regarded children as irritants rather than potential customers. Meanwhile, strict roadside planning laws preventing new buildings effectively worked to maintain the company’s monopoly.

Trust House Forte acquired Happy Eater, Little Chef’s only major rival with 90 outlets, in 1986.

Little Chef was acquired by Granada, an operator of motorway service stations, in 1996. Granada hiked prices, charging £7.95 for a full English breakfast in 1996! The high prices did not guarantee quality: even the omelettes were frozen and then reheated.

Granada described Little Chef in 1996 as “tired and neglected”. Management Today described the chain in 1997 as “perhaps the most neglected part of the old Forte empire”.

Under Granada the total number of restaurants expanded to 433 (68 of which were Happy Eater outlets) by 1999.  Granada also began to franchise Burger King in some of their existing outlets. Upon conversion, Burger King outlets would see double the turnover of former Little Chefs.

In 2002 Little Chef was serving 30 million people a year.

Little Chef was the first branded roadside restaurant chain in Britain, and had few competitors until the motorway service stations began to improve exponentially in the mid 2000s. They now offer a range of desirable high street brands such as Burger King, W H Smith and M&S Simply Food. Meanwhile McDonald’s have vastly extended their drive-thru presence and offer faster service and lower prices.

In 2013, a Kuwaiti private equity conglomerate acquired the company. In 2014 there were only 72 outlets.

Greggs in central London

Gregg’s is nationwide British bakery chain. Why are there so few Greggs outlets in central London?

There’s certainly no shortage of commuters looking for lunch, or tourists looking for a quick snack. McDonald’s, EAT, Pret and Starbucks all maintain a strong presence.

Living in the provinces, I have always been impressed by the sheer quantity of Greggs outlets. In central Leeds and Newcastle, large cities, one never need be more than one minute’s walk away from a steak bake or sausage roll.

So why so few outlets in central London? Yes, the chain has northern origins, but that didn’t hinder McDonald’s or Starbucks, with origins even further afield.

The chain is essentially a fast food retailer: largely calorific products served quickly and cheaply. And Burger King, KFC and McDonald’s are very successful in the capital. People clearly aren’t afraid of unhealthy food.

Is the rent too high to make the low cost retailer profitable? Greggs outlets have very limited seating, so I hardly see how this could be an insurmountable problem. In Bread: The Story of Greggs, Ian Gregg, the former chairman of the company, states that before the 2008 economic crash, rivals were overpaying for sites in central London. But if that is indeed the case, then what has prevented the chain from expanding in the area since the economic crash, now that rents are lower?

Lets look at the individual USPs of its rivals. McDonald’s offers seating, Starbucks offers comfortable surroundings, Pret offers speciality coffee. The Greggs proposition can actually be fulfilled through small supermarket concessions. In actuality, many small supermarkets in central London already offer a hot pasty/sausage roll selection. How does Greggs improve on their rival? Well the Greggs product will be fresher, as they bake their food throughout the day. So freshness, convenience and price are the USPs that need to be drawn upon. Greggs also needs to smarten up its existing central London outlets in order to place distance between itself and its reputation as downmarket junk food.

The marketing of Lea & Perrins

There are two key marketing strategies at work behind the almost mythic reputation of Lea & Perrins’ Worcestershire sauce.

1.) the “secret” recipe The website states that there is a secret recipe, known only to a “privileged few”. Heck, if the secret recipe tactic works for Coca-Cola and KFC, why not us? But the truth is, *every* corporate recipe is a secret. You don’t know the recipe for Walker’s Roast Beef crisps or Knorr’s Chicken Seasoning, do you?

So one of the products major differentials is hardly a differential at all. Okay, I hear you say, we don’t know what Worcestershire sauce is! Well that’s hardly a secret. In fact, the company have been quite open that the sauce is principally vinegar and a soy sauce substitute (acid-hydrolyzed vegetable protein). Also included are salted anchovies, tamarinds, chillies, shallots, garlic, onions, ginger, molasses, sugar, cloves and “various fruits”.

2.) the idea of “craft”, small-scale, “vintage” traditional production. There is no reason to assume that the methods are more traditional than anywhere else. For example, the ingredients are no longer matured in wooden barrels: plastic and metal containers have taken over. It’s hard to see it as a craft product when it’s just vinegar and soy sauce with some crazy ingredients thrown in for good measure. Although I do love it with chilli con carne… And in the US, it still comes wrapped in paper, as it has been since the 1850s. Although the paper is no longer necessary to avoid bottle breakages, the tradition has endured. It gives the original Worcestershire Sauce a USP. Understand that I don’t mean to do down the marketing tactics behind Lea & Perrins’ famous product. In fact, I think it’s all the more impressive that tried and tested marketing techniques have been utilised so effectively without losing its sense of authenticity or becoming a “me too” brand.

The false appeal of Waterstones

Outside of the mass-market, Waterstones has a stranglehold on British high street bookselling.

The Waterstones story is one of successful brand management. The basic concept is to take the appeal of an independent book shop, and monetise it with the professionalism of a large chain.

The chain introduced large American-style bookshops to the UK in the 1990s, in the style of Borders or Barnes & Noble, in locations such as London, Birmingham and Glasgow.

Being owned by WH Smith and subsequently HMV didn’t seem to harm their “independent” image. Neither did buying up their major competitors Dillons and Ottaker’s .

[Waterstones] has expanded rapidly since its launch in the early 1980s by combining the scale of a multiple retailer with the personalised service of a local bookseller.

Source: Financial Times (1997)

It is perennially portrayed in the media as some sort of charitable venture, a relentless underdog. This is characterised by the eccentric founder, Tim Waterstone. He constantly plays the role of scrappy underdog to whichever corporate entity currently owns the chain. As if after selling your company, you still have some sort of innate rights regarding its future.

Whitbread

I’ve noticed that, over the last 30 years or so, Whitbread can almost be considered as much a marketing company than a hospitality company.

In the 1970s through to the 1990s, the Whitbread Beer Company established Heineken, Stella Artois and Boddingtons as leading beer brands in the UK, thanks to innovative marketing campaigns.

This innovative approach to marketing is written in the company’s DNA. Beer throughout much of the twentieth century was dominated by the Big Six companies. As much the smallest of these, Whitbread was forced to advertise its products heavily: Mackeson Stout and Gold Label are examples that are still around to this day.

Another Whitbread brand, Costa Coffee, is as much a triumph of marketing over substance. Whitbread also developed Pizza Hut and TGI Friday’s in the UK. These restaurants offer an experience as much as they do food.