Watson’s elementary secret of pubs success
Fancy a taste of a share paying profits to investors and staff? Here’s to...
IN 2011, Capital Pub Company fell victim to a hostile bid battle, ultimately accepting a £93 million offer from larger rival Greene King.
The takeover left Capital boss Clive Watson with unfinished business. He had not sought the deal and felt as if Capital had much more potential for growth.
Within months of the Greene King swoop, Watson was back in the game with a new venture, City Pub Group.
The business joined Aim last November at 170p a share, the price rose to 181p but has now dropped back to 167p. At this level, the stock is a bargain.
Capital was a collection of high quality, London-based pubs, each with their own style and character.
City follows much t he same principle but t he pubs are in affluent towns and cities across the southern half of England, including Bath, Brighton, Cambridge and Norwich, as well as several London boroughs.
Each pub is distinctive, with a strong local feel. Employees are hired from the area, drinks and food are locally sourced, where possible, and promotions relate to local events.
The company is different from larger chains in other ways too. Every full-time employee receives an equal share of 3 per cent of City’s profits, from Watson down to individual bartenders.
This incentivises staff, engages them in the business and encourages them to stay.
Unlike many pub groups, City’s outlets derive around 70 per cent of their revenue from drinks, including juices, coffee and craft beers, as well as more traditional booze. This emphasis on drinking is deliberate.
Watson does not want his pubs to seem like restaurants that serve beer. Rather, he wants customers to feel perfectly comfortable with a couple of drinks.
Food is available and freshly cooked, but it is not the main point of City pubs. The strategy has worked well so far. From an idea in 2011, City Pub Group now has 34 sites and four more are in development, one in Cambridge, one in Reading and two in London.
Running a successful pub group is a little like running a retailer. It is absolutely essential to know your customers, understand what they like and make them feel wanted.
Watson’s pubs are attractive, staff are attentive and the group makes sure it accommodates the latest social trends.
The vegan pub exemplifies this approach. City is even opening a vegan-only pub in Parsons Green, south- west London, with menu ideas coming from Watson’s two vegan daughters.
There will also be an increase in pubs with various zones, such as craft gin dens and juice areas, as well as traditional bars. The idea here is to appeal to as wide a group of people as possible, from trendy 20-somethings to more conservative older generations. There is even an App and a loyalty card to encourage customers to use City pubs wherever they are.
Watson is also keen to expand the number of pubs with cosy, reasonably priced accommodation in regions where the current offer varies between large, corporate chains and budget hotels.
The business has already had some success in this area, including pubs in Cambridge and Norwich. More will follow.
At the time of flotation, the group said it planned to double the estate over the next three to four years, suggesting a portfolio of around 70 pubs by 2021. This seems eminently achievable. Capital Pub Company expanded despite the financial crisis, when credit was almost impossible to obtain.
City has cash on its balance sheet and Brexit-induced concerns about property prices may help Watson to find new sites at competitive prices.
Figures for 2017 will be released next month and brokers expect profits to double year on year from £1.6 million to £3.2 million, rising to almost £5.5 million in 2018. A dividend of just under a penny is forecast for the year just ended, rising in line with earnings henceforth. Midas verdict: Watson knows what he is doing and has assembled a highly experienced team around him. The shares should do well. Buy.
Traded on: Aim Ticker: Cpc Contact: citypubcompany.com or 0207 559 5106
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