Shepherd Neame CEO on industry trends, staff shortages and supply chain obstacles

Shepherd Neame

Shepherd Neame CEO Jonathan Neame has given his verdict on a number of key areas – including skill shortages, consumer trends and future investments – following the publication of the group’s financial results.

Revenue at the business, which runs 310 pubs, fell from £118m to £87m for the year to 26 June 2021, resulting in an underlying operating loss before tax of £4.2m.

Here are some of the highlights from Mr Neame’s commentary on the challenges and opportunities the company faces.

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Building back better

“Throughout the pandemic, we have been focussed on ensuring that the company is in the best possible shape to recover fast and be well-placed to take advantage of any opportunities that subsequently arise.

“In our pubs, food has been a major driver of our recovery and returned quickly to prior levels. We have developed our offer further with expanded dishes, pizza offers and more vegetarian, vegan and lower-calorie options.

“We have benefited greatly from the restrictions on international travel and the staycation summer. We are very pleased with how low the turnover of licensees has been, and we see this as a reflection of the strong relationships we enjoy.

“We have spent time on building better brands for the future. We have introduced more craft beers to our pub list; have developed a 0.5% low-alcohol beer under the Noughty Bear brand; have added the Truly Hard Seltzer range to the portfolio, which has seen great success in the US; and have partnered with Canterbury-based cider-maker Kentish Pip to introduce a bespoke range of local ciders.”

Building a strong team

“Throughout the pandemic, we have worked hard to keep our teams together and engaged in the business. We supported those on furlough as best we could and maintained regular communications, providing training as appropriate and ongoing support for mental health and physical wellbeing.

“Our support for our people has been richly rewarded with an excellent response since re-opening, and great energy and enthusiasm for all the difficult challenges we have faced. We have a loyal, dedicated and experienced team.

“Thankfully, we do not seem to have faced the extreme staff shortages that some operators have encountered, albeit it has been difficult at times. So far we have been able to recruit in most roles when vacancies occur, although finding chefs and kitchen staff remains challenging.

“Such skills shortages are expected to last for some time and may lead to higher costs of employment. All employees are paid above the national minimum wage.

“As we emerge from the pandemic, we have made some management changes and created a new Operations Committee in place of the separate Pubs and Brewing & Brands Committees, to provide a single point of focus for our decision-making.”

Consumer trends

“There has been much comment during the pandemic about changes in lifestyle and shifts in consumer behaviour. From what we can see so far from the trade over the summer, such changes may be marginal, or rather an acceleration of changes already happening.

“We have seen continued growth in food and accommodation sales and an on-going shift from on-trade beer consumption to off-trade beer consumption. But many of these trends have been in place for a number of years. The consumer is increasingly looking to make healthy choices and purchase lower-alcohol products.

“In many situations, consumers appear to value the quality of the experience, and are seeking premium products. Our whole focus therefore is to ensure that they can enjoy a rewarding and differentiated experience in our pubs.

“Hybrid working does look as though it is here to stay, with employees going to the office only two or three days per week. This is providing city-centre pubs with a mid-week boost but a quieter Monday and Friday.

“Thus far, we have been encouraged by trade levels in the City of London, which are above expectations, albeit some way below 2019 levels.

“In time, it is likely that city centres will evolve into hybrid work and residential spaces, resulting in enhanced weekend trade. Many high streets are already evolving to become more pedestrianised, stimulating al fresco hospitality.

“Meanwhile suburbs and villages are seeing more footfall than they did historically during the week, and many of our pubs in these areas have achieved record sales over the summer.

“Overall, we feel these emerging trends play to our strengths and provide us with growth opportunities for the future.

Supply chain challenges

“Consumer demand to return to the great British pub has never been in doubt and most customers have been delighted by the experience they have enjoyed.

“However, our teams have battled throughout this re-opening phase with unforeseen staffing, supply chain and logistics challenges. At various times, we had temporary pub closures due to staff members being “pinged” by Test and Trace. This has compounded a pre-existing shortage of key hospitality workers.

“At other times, key supplies such as building materials, process gases such as CO2 or other key materials, have been in short supply or have been subject to material price inflation. However, our practice of supporting local suppliers where possible has enabled the company to avoid some of the extreme shortages experienced by other operators.

“Most suppliers have experienced severe logistics challenges due to shortages of HGV drivers, and in August 2021 we were threatened with industrial action affecting our logistics partner GXO (formerly XPO, formerly KNDL). Thankfully industrial action was averted, but this impacted supply for several weeks at a period of high demand, resulting in additional direct costs in the region of £0.25m.

The year ahead

“We enter the winter months with a degree of caution after the turmoil of the last year when the second wave of Covid-19 took hold. But the vaccination programme appears to have been a success and has given consumers the underlying confidence to re-connect again.

“Clearly we hope that there will be no further requirement for lockdowns, nor the introduction of any other restrictions that impact hospitality but not other non-essential retail.

“We remain confident about demand, but the inflation outlook is much less certain, as we anticipate on-going price rises from various vendors and skills shortages in parts of the supply chain. We anticipate materially higher costs in freight, logistics, input prices and energy.

“We are working hard to ensure that our customers remain supplied and that we mitigate as much cost pressure as possible, but anticipate these cost pressures will continue for a while yet.

“Assuming that we do not experience further disruption, our plan is to run the business as tightly as possible, throughout the rest of the financial year, to generate free cash and so restore leverage back to the pre-pandemic lower levels. In due course we aim to resume our prior levels of inward investment in the business and restore a dividend.”

Shepherd Neame eyes kitchen and management talent as it bids to fill 300 roles

Tags : PubsShepherd Neame
Andrew Seymour

The author Andrew Seymour

1 Comment

  1. Good article. But…the future is… lowest running costs, better food quality and more comfortable/safe/clean chefs and proving your company environmental responsibility.

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