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Food focus for Greene King

The £68.1m purchase of the Loch Fyne restaurant chain by Greene King is further evidence that brewers and pub companies are focusing on food as a way of boosting their turnovers and mitigating the effects of the smoking ban.

The seafood chain comprises 36 restaurants, largely in Greene King’s heartland of Southern England and it is believed that the brewer has already identified about 30 of its own edge-of-town pubs into which the formula can be inserted. It plans to double the number of outlets over the next few years although the existing restaurants will not be converted into pubs.
While some eyebrows were raised at the purchase price – Loch Fyne was valued at £33m in October 2005 – Greene King’s shares jumped 35p when the deal was announced yesterday (Tuesday). Not only has Greene King bought the brand name (but not the eponymous oyster farm from which the restaurant chain was spun off) but it has persuaded the successful management team to stay on and run the business. About 40% of Greene King’s turnover is from food and it is intent on increasing its presence in that market, where margins can easily exceed 60%, especially at the higher end of the market.
In the 12 months to June 2008, Loch Fyne is predicted to have earnings before interest, tax, depreciation and amortisation of up to £10m. While there is only marginal scope for Greene King to cut overheads, many believe that it has executed a coup by preventing rivals from snapping up the chain. Most brewers offer a full menu, so an exclusively fish chain with a high reputation offers significant differentiation from the competition and even a chain of 70 or so outlets, including a new one planned for Edinburgh, will comprise less than 5% of Green King’s total estate.

Ron Emler, 08/08/07

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