Private equity investors are making aggressive moves into the pubs with rooms market in the UK. Two major groups are leading the charge, and are growing their portfolios as both stressed groups, and individually-owned properties come to market.
RedCat Pub Company, which was established earlier this year, is leading the charge. RedCat was set up by former Greene King chief executive Rooney Anand, with backing from Oaktree Capital Management. The private equity investor is reported to have allocated GBP200m to deploy into the UK pub sector.
RedCat accelerated its growth through August by first acquiring the family-owned New Dungeon Ghyll in the Lake District, with 23 rooms and set in 12 acres. It then took over the Coaching Inn Group, adding 18 sites and retaining the company’s senior management team. Recently it added four sites acquired from the Knead Pub Group, in Lincolnshire, Oakham and Newark.
The acquisition of the Coaching Inn Group meant an exit for investor the Business Growth Fund, which had backed the company since 2015, first with GBP4.5m of cash that was subsequently topped up with GBP10m the following year. The funding allowed the company to grow from seven to 18 sites. Chief executive Kevin Charity, who founded the business in 1996, commented: “We have created a tried and tested formula, acquiring the right properties in the best locations and sensitively restoring them in line with the character of their local surroundings.”
When RedCat was launched earlier this year, Rooney commented: “I’ve always been a strong believer in the great British pub. It has survived the Blitz, the Great Plague and the Credit Crunch – always bouncing back and taking its rightful place at the heart of the community. We want to partner with talented licensees and entrepreneurs to give them the support, capital and help they need to thrive.”
Its first move, in March, was to buy 42 pubs from Stonegate, which had been obliged to dispose of the properties by UK competition authorities, after acquiring Ei Group.
Also making strong headway is The Inn Collection, which is backed by investor Alchemy, with support from lender OakNorth. The company has just acquired its sixth site this year, adding the 40 room Dean Court Hotel in York. The listed property overlooks the city’s minster, and takes the group to 25 properties.
MD Sean Donkin said the hotel “matches our pubs with rooms blueprint in every way, offering our expanding customer base an unrivalled location with a phenomenal USP in its proximity to York Minster. We have had York in our sights for a considerable time and are looking forward to operating here.”
Julian Troup, head of UK hotels agency at Colliers, has sold several properties to Inn Collection and to RedCat, and says the regional UK market currently is flying. “The occupancy levels are higher than they’ve ever been, and rates are higher too. And I don’t think it’s a short-term thing.” His team has already achieved 47 deals this year, with many more in negotiation; most buyers are convinced that staycations have moved the public’s outlook, in terms of places nearer home that they can visit for both holidays and short breaks.
Troup said Inn Collection’s success has now led to them moving from earlier acquisitions of properties with around 20 bedrooms, to those with a larger footprint. He expects to continue to see a strong trading environment, supported by increasing demand at the smaller scale end of the market from those whose pandemic experience has encouraged a rethink of their futures. “If anything, I think there’ll be more first-time buyers, with potential owners looking for a lifestyle change.”
The interest in staying in a pub is evident from online demand. Paul Nunny, founding director of Stay in a Pub, the UK’s leading booking platform for pub rooms, said: “We have seen a 140% growth in website traffic versus last summer and when compared to 2019 the increase has been 65%. Guests are spending more time on our site and on average they are viewing seven pages per session, indicating real engagement. We have also seen a record number of conversions over June, July and August with stays booked up until December. The average stay is for two nights and the average booking value is GBP195.”
“We feature in the region of 1,338 pubs on our site the majority of which are part of small groups like Inn Collection, Stay Original and the Chestnut Group. They are keen to work with Stay in a Pub as they understand and appreciate our passion for the great British pub.”
“Bookings this year will be limited only by availability but with more progressive small pub groups buying up properties and extending room capacity, the sector will grow from strength to strength.”
Stay in a Pub launched in 2013 and sees itself not as an OTA “but a membership organisation and a friend of the industry that is providing a much more personalised and tailored approach, linking directly into the pub’s own property management system and providing a more cost-effective sales channel.” Its digital marketing team claims that Stay in a Pub remains top for around 500 Google keywords.
HA Perspective [by Andrew Sangster]: Inns were the original hotels and they continue to be an important part of the accommodation market. But for most of these businesses, accommodation is a useful supplement to the main focus of food and drink. And most of these businesses have historically been independently owned.
The current trading crisis, the worst the sector has ever seen, provides a unique opportunity for institutional money to invest into this sector. Most of this capital will be deployed via existing vehicles but there are some new entrants (like RedCat) too.
The challenge is bringing corporate control and oversight while maintaining the uniqueness that makes such pubs special. Marketing consortia like Stay In Pub, which is a sister business to the beer standards group Cask Marque, shows that pubs backed by institutional capital can sit alongside more unique operations.
Done right, it can be the best of all worlds, bringing consistency and higher standards while maintaining that something special that appeals to consumers chasing experiences. Done wrong, it marries blandness with low quality operations focused on driving out costs.