Whitbread on the Wagon

By Gwyther, Matthew | Management Today, September 2001 | Go to article overview

Whitbread on the Wagon


Gwyther, Matthew, Management Today


The venerable firm has done the unthinkable, selling off its brewing and pubs businesses after 250 years in a bid to refloat its sinking share price. It has reinvented itself as a branded hotels, leisure and restaurant company, but is it really comfortable in these tough markets?

Whitbread's presence on the average British high street is now a shrunken one compared to that of two years ago, and the company has gone into communications overdrive in an attempt to explain why it has gone teetotal after 250 years of brewing and selling beer.

Whitbread plc's 'stakeholder review' for 2000-01 - fashionably produced as an A3-sized magazine - kicks off with a question-and-answer session hosted by David Thomas. the company's Des Lynam-lookalike CEO. The moustachioed boss certainly had some explaining to do. The first Q&A ball bowled was a beamer heading straight for his temple: 'Why have you sold more than half the company?' Beer is now history for the old firm, which has been rebranded for the 21st century as 'enjoy!Whitbread'.

'We have shown,' boomed Sir John Banham, the company chairmen, on results day, 'that Whitbread has absolutely no sacred cows.' After nearly halving in value during the previous two years, the company's shares rose a modest 10p to 565p.

In selling off all its beer assets, Whitbread was quitting what had been a lucrative game for a long time. The first Samuel Whitbread went into business equipped with his 'mystery' - master brewing was a dark art known only to initiates - in 1742. London was then in the grip of a gin-drinking epidemic and Whitbread's porter gained approval as a wholesome and nutritious beverage suitable for all the family. Beer Street, drawn by Hogarth in 1751, is in healthy marked contrast to his hellish Gin Lane.

By the time of Sam's death in 1796, his hi-tech brewery on Chiswell Street on the edge of the City of London had made him a million at least', according to the Gentleman's Magazine. No small beer in today's figures. He had worked hard for it. His daughter Harriet wrote that in the early days of his career Sam would 'sit up four nights a week by his brewhouse copper, refreshing himself by washing plentifully with cold water and, when the state of boiling permitted his quitting, retired for two hours to his closet reading the Scriptures.'

A quarter of a millennium later, Thomas needed more than the Scriptures to sustain him as Whitbread fell from favour. In July 1999, an attempt to buy 3,500 pubs from Allied Domecq was vetoed by the Office of Fair Trading. The deal would have strengthened Whitbread's estate and enabled cost-saving consolidation. Not even the lucrative UK licence for Stella Artois - never mind that for Heineken - could refresh Thomas's stock-market standing. Drastic action was necessary and Whitbread sold its brewing business to the Belgian Interbrew company for [pound]400 million. Then, in May 2001, it sold its pubs to Morgan Grenfell Private Equity for [pound]1.63 billion. (Thus have individuals like Hugh Osmond of Punch and Guy Hands of Nomura become the nation's premier publicans. Pubs work for them because they've been bought with huge sums of borrowed money over long periods. Debt is serviced by a large cashflow and there is an exit plan.)

A good guide to Whitbread's increasingly restless relationship with its pint is the company's finance director David Richardson, with 18 Whitbread years notched up on his tankard. 'The beer market grew steadily in Britain after the war at around 2% a year until 1979. We did very well,' he acknowledges. 'Then Thatcher screwed the British manufacturing base in the late '70s and early '80s and trashed the beer business in the process. At best, after that, the market was static in real money.'

Of course, social change - the British public found other ways to spend their leisure time besides propping up the bar at their grubby local and visiting its smelly lavatories - had an equal part to play in this decline. …

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