The Neame Dream At Britain's Oldest Family Owned Brewery
30th November -0001 Charlie Whitting, Pub & Bar Magazine
Despite being Britain's oldest brewery, Jonanthan Neame is still evolving its offer, restructuing its board and altering its estate to better reflect the modern on-trade.
Shepherd Neame prides itself on being Britain’s oldest brewery, having been established in 1698. It has owned The Three Tuns pub in Faversham since 1715 and acquired plenty more from 1736 to 1740.
The company puts a great deal of stock in its heritage and provenance, but for chief executive Jonathan Neame, the pedigree of the business still requires constant inspection and innovation. As people’s expectations of the pub have changed over recent years, Shepherd Neame has been evolving its offer, restructuring its board and altering its estate to better reflect the modern on-trade.
Shepherd Neame has been in the news quite a bit recently, following the decision to change the voting control and equity ownership of the company’s family and non-family shareholders. In effect, the proposal was for family shareholders to give up some of their voting control in exchange for greater equity in the business. As far as Neame is concerned, the nature of shareholding hasn’t been changed, but the structure has been simplified.
“The alternative structure was quite rigid and quite old fashioned,” he comments. “I think the simplification and modernisation of that structure is all very much in the interests of family and non-family shareholders and indeed the future health of the company.”
The proposal was met with 81% support from the shareholders at the meeting and a rise in share price followed, while the widely reported threat of legal proceedings was withdrawn soon afterwards.
“It doesn’t change the nature of shareholding,” he adds. “It’s still very much a family company that thinks for the long term and has a strong asset base and stable cash flows.”
In addition to this, the last year has seen a change in the structure of the business, dividing it into a beer business and a pub business. Money has been invested into these parts of the company, while other facets, such as warehousing and distribution, have been outsourced.
Contract brewing at Shepherd Neame has always been a substantial part of the business, but with the departure of Kingfisher, more focus has been put on the brewery’s own portfolio, with recent activity around the Whitstable Bay collection, the pilot brewery No.18 Yard and the Faversham Steam Brewery.
As tenanted and property director George Barnes moves on to become property and services director, Shepherd Neame has brought both tenanted and managed houses together under director of retail and tenanted operations Nigel Bunting.
“I think and hope that it’s universally seen as a coherent move and a simplification and a good clean step forward really,” Neame says. “There’ll be more communication between the two estates, but the property task is getting greater, whether it’s code of practice compliance, rents or rate of work.”
In addition to modernising its shareholder agreements, restructuring its management and focusing on its portfolio of beer, Shepherd Neame has also been investing heavily within its pub estate, working to present customers with an experience that will get them coming through the door.
“The retail estate has probably had the lion’s share of capital in the last five years and now we wish to increase that level of investment in our tenanted estate and that level of retail services support,” says Neame.
The consumer experience
Instead of focusing investment on things that customers aren’t going to see, like warehousing, Shepherd Neame has taken funds out of those projects and reinvested them where people will notice the change.
“We want to change our business round the other way and look at it from a consumer’s angle, investing more in the consumer experience,” explains Neame.
He believes that when it comes to purchasing, there is an ever widening gap between the experiential consumer society, who will pay good money for a good experience, and the product consumer society, who are more concerned with the price.
“People can download music for almost nothing but will pay enormous sums to go and see Take That,” he cites as an example.
With supermarkets, it is the price-focused Aldi and Lidl that are thriving, as well as Waitrose and those offering customers that good experience. Those in the middle – like Tesco and Morrisons – are, in theory, left stranded and struggling. As pubs cannot hope to compete on price, he believes that a focus on the experience is key.
“People don’t go to the pub to get drunk,” he states. “They go to have a good experience with their friends or their family. Therefore you’ve got to invest more in the experience that people have.”
Customers have also become more knowledgeable. They are more interested in trying out new experiences, but have higher expectations than they might have had before. For Shepherd Neame, this is the same for pubs and for its beers.
“Beer brands have got to have personalities, provenance and pedigree,” says Neame. “There are gazillions out there to choose from and I think that it’s exciting that the beer market is getting back to the intrinsic values of the product again after the 90s, when the beer industry focused on brand associations and extrinsic values.”
Similarly, Neame is keen to see his pub estate focus on the customer experience, resulting in a serious step up in terms of support service, whether it’s in food, wine and beer quality, the external and internal decorations or merchandising and front of house training. The company is building up a team of field specialists who visit each pub in turn, providing tailored support to further online and classroom training. For example, tenants and managers are visited by cellar management experts who take them through the process in the cellar itself. Two weeks later, they return to assess progress and continue to do so until the quality of management is at a consistently high level.
“All those things make a difference and hopefully distinguish our pubs and give them a point of difference,” explains Neame. “There’s also hopefully a greater coherence between our pub business and our beer business as a consequence.”
Shepherd Neame pubs
Since 2008, Shepherd Neame has bought 26 pubs and sold about 50. However, when it comes to acquisitions, the company feels that a full refurbishment of an existing venue equates to a new acquisition. For Neame, the emphasis on pub estates has shifted over the last decade or so from quantity to quality, from asset-focused to consumer-focused.
“It used to be a numbers game, just see a pub and buy it,” he says. “But now you think ‘if that picture was there, six inches down, or that lightbulb was up a bit or lower dimmed or if we put that extra beer in…’ We’re into the retail dialogue of the business rather than an asset dialogue.”
Significant investments have been made within the estate, with further plans yet to go ahead. These range from giving a property the renovation that all pubs need to a complete overhaul of the business, transforming its offering to better fit the demographics of its specific location.
The latest trading update has revealed strong growth from the estate, with like-for-likes up 8.8% and 4.1% in managed and tenanted houses respectively and the average EBITDA per tenanted pub up 6%.
“Those are the things that matter to me because it means we’re positively improving a lot of our outlets,” says Neame.
In addition to refurbishments and renovations, Shepherd Neame has also tried to focus on improving the sustainability and efficiency through favourable utility procurement, but Neame accepts that there is more that could be done.
“We own 220 listed buildings, which almost by definition, is pre-1700,” he explains. “They are de facto inefficient buildings and sometimes it’s very expensive to make them properly energy efficient.”
As Shepherd Neame has invested in making each pub a successful operation in its own right, it has inevitably led to a more diverse estate, which has in turn led to an increase in the flexibility of its tenancy agreements. Whereas pubs are generally fully tied, discounts can be made for entirely wet-led pubs, venues can be made less overtly Shepherd Neame or certain ties can be relaxed.
“We’re much more focused on the individual operator and the individual offer and the local market around that pub, giving us a point of difference,” says Neame. “This is no longer a one-size-fits-all market, so we’re not a one-size-fits-all business.”
However, Neame is keen to point out that the diversity in the Shepherd Neame estate is a microcosm of the pub industry as a whole. Through the difficult transition over the last decade that has seen the closing of almost 10,000 pubs, the smoking ban and the recession, Neame believes that the pub industry will come out of it stronger as the economic recovery picks up due to its diversity and innovation.
“Wherever you look, you see investment, you see creativity, you see entrepreneurial flair, you see diversity in beer range and in product offer,” he comments. “The more diversity there is in the pub market, the better it is for the overall industry.”
A direction in which Shepherd Neame has started to go is pub accommodation, with renovations and acquisitions where there is potential investment for accommodation proving a particular success.
“Prior to the smoking ban, staying in pubs wasn’t perceived to be a pleasant thing to do,” admits Neame. “Since then, the market’s really opened up. Combine that with the much greater marketing you can now do online and good quality pub accommodation becomes a very attractive market.”
Shepherd Neame has already acquired three sizeable hotels, developed three others and has plans in the next year for another one in Tunbridge Wells. In addition to these larger projects, the company’s more traditional inns have also been getting upgraded to a higher standard.
There remains a future for the wet-led pub across the country, as far as Neame is concerned, and Shepherd Neame does have a selection of community, wet-led pubs. However, that estate has been greatly reduced in recent years in favour of larger, food-led outlets, as the company’s strategy is to place itself at the more premium end of the market.
The changes in the industry and the wider world has seen the pub industry forced to adapt in order to thrive and survive. By making such a number of alterations to the way that the business and the estate are run, Neame believes that Shepherd Neame is well placed as the economic recovery starts to take effect.
“I don’t think anything in isolation changes anything absolutely,” he concludes. “I do think the cumulative impact of the reorganisation of the business and portfolio reorganisation, the pub to pub strategy, the business support group reorganisation and the share capital reorganisation has made us into a company with great heritage that is modernising itself for the future.”
Reproduced with permission from Pub & Bar Magazine.
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