How the British pub group Greene King manages high inflation

Heath Ball worked 98 hours at his North London pub last week. Some days it started at 7 am and ended after midnight. And that was before he visited his other two pubs in East London and Sussex.

Ball needs 11 more staff at the three sites, but none of the applicants wanted to work long evening shifts or weekends.

It is another matter to pay them. Ball offers above the minimum wage and staff receive 100 percent tips – but this is becoming increasingly difficult to finance as its energy bill has more than doubled, the price of meat has risen by 20 percent, butter by 34 percent and Green Kingfrom whom he hires Red Lion & Sun and buys his beer, has raised prices by 4.7% to cover his own rapidly rising costs.

“In fact, I think we’re worse than we used to be Covid“Ball said. “We still have the hangover and the costs and everything is so expensive now.”

Ball’s experience is shared by tax collectors up and down in the UK as they struggle with rising costs, a shortage of skilled workers and volatile customer demand. Green King, a 223-year-old pub company and brewer, embodies the particularly volatile challenges facing the hospitality industry just as he hoped for a triumphant recovery from the coronavirus pandemic.

Greene King owns about 1,000 pubs for rent, which are “tied” to branded beers. The group has another 1,600 pubs run by company employees, making it one of the largest pub groups in the UK. It employs 39,000 people, including its two breweries and three distribution centers, which ship its beer to bars and supermarkets in 44 countries around the world.

Overall, this is a business that is highly exposed to inflation, which economists forecast could reach double digits this year.

From electricity to ingredients, costs are rising

The company’s main Bury St Edmunds brewery has been in the same place since the Greene and King breweries, which took advantage of Suffolk’s well water, merged in 1887.

It uses 26 million kilowatt hours of energy per year – about 1,770 times the average annual consumption of households in the United Kingdom – as it spends malt through “mash machines” and grinders, some of which have been in place for more than 80 years. The malt comes from just over a mile down the road, but increases in energy prices have prompted its supplier to add an additional fee this year, “with very little warning,” said Matt Starbuck, managing director of Greene King’s brewery.

“It’s easy to look at brewing and say, ‘add a little hop to a little water and a little malt,’ but we have logistics businesses, we have engineering companies, we have farmers, so a wider network of cost dependencies is quite significant,” he added. Starbuck.

The price of glass bottles is also rising, while refueling trucks that transport barrels is more expensive. The combined pressure means that the total management costs of the brewing department are 8% to 10% higher than last year, although Greene King only produces about 80% of its volume before Covid.

In pubs, costs are also rising. The price of ingredients for traditional dishes – white fish and dough for fish and chips, meat for burgers and pies – skyrocketed. Chicken prices have risen by about 25 percent, while increases in sunflower oil prices as a result of the war in Ukraine have increased the price of chips by one-fifth.

The Red Lion in Highgate Ball said the standard 20-liter bottles of sunflower oil, which cost £ 19.90 earlier this year, were charged at £ 58.68 a bottle last week. The pub uses about 150 liters each week.

St. Edmund Brewery
The St Edmund Brewhouse © Si Barber / FT

Another problem is salaries. Industry-wide labor shortages have forced Greene King to increase the pay of many of its workers, especially pub staff, with high single digits, and the vacancy rate is above its historical average of 4 to 5 percent, it said. in the report.

Greene King CEO Nick Mackenzie said the group was lucky to have the support of one of Hong Kong’s largest developers, CK Asset Holdings, which bought it for £ 4.6 billion in 2019.

But regardless of investors with deep pockets, spending cuts are “without a doubt” a daily challenge. “The spending environment is changing daily. This is an important issue for any business and I think it will be with us for a while, “added Mackenzie, who joined Green King less than a year before the pandemic.

Maintain a lid at the price of a pint

It was a difficult period, even before inflation disappeared: revenue for the year to January 2 improved by 42% to £ 1.3 billion compared to 2020, but it was still 40% lower than pre-pandemic levels . Green King reported an operating profit of £ 63.8 million, compared to a loss of £ 149.3 million in 2020.

Trade has improved in the last quarter, the company said, with the biggest demand in the northeast and London pubs still lagging behind.

Starbuck said the company is in “active talks” with all suppliers to find ways to cut costs, considering details such as switching from half-load deliveries once a week to full deliveries once every three weeks.

In pubs, menus have been carefully trimmed and bar operations have been rethought to improve service efficiency. Staff have been recruited on more flexible rotations and changes have been made to speed up decision-making when products are not available or become too expensive.

Ultimately, however, prices must rise, Mackenzie warned.

The desire to return to communication after the removal of Covid’s restrictions has led customers to spend more, which has so far allowed pubs to increase prices.

Steve Brian, owner of Dog & Partridge
Steve Brian, landlord of Dog & Partridge © Si Barber / FT

Greene King raised the price of its pints by an average of 5 pence and food by 6 percent or 7 percent, but, like pay, the company is changing its policy by region and brand.

Increase prices too much and there is a risk that customers will stop coming. “You have to make business decisions based on affordability, but you have to balance that with the experiences you provide,” Mackenzie said.

There are also logistical considerations: the menus need to be changed until reprogrammed.

A severe winter is coming

Steve Brian, who runs one of Green King’s pubs in Bury, inspected his half-full beer garden last Thursday afternoon and said his staff has set out to thank customers when they leave because “now it’s a cost to you come to the pub. It’s almost extravagant for some people. “

The number of customers buying drinks is increasing, but food orders are declining compared to 2019, he said, postulating whether this is because customers eat less outside.

To boost customs, Greene King Pubs organize more events and try to promote business at any time of the day – even breakfast. Brian came up with more ingenious ways to engage customers, from selling old branded beer glasses to charity to sausage races.

The company also faces the more unique challenge of rethinking its beers. A long-time traditional ale brewer, the shift from consumers to premium camps and kraft beers has prompted him to release some lighter beers in barrels this month.

“Generally [traditional ale] “It’s declining in the long run, and we have to admit that,” Starbuck said.

Cold camps will be popular in the summer months, when pubs do well for players who gather in their gardens, but Mackenzie admits the company needs to “keep a close eye.” . . discretionary costs over the next six to nine months ”.

Bol fears a severe winter ahead: “Everyone is happy in the summer, but what will winter look like? What will be the cost of everything then? Will people just stay home in the winter and try to save money? The scary thing is that you don’t know what will happen next. “

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