Mitchells & Butlers PLC

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Mitchells & Butlers PLC

27 Fleet Street
Birmingham B3 1JP
United Kingdom
Telephone: +44-870-609-3000
Fax: +44-121-233-2246
Web site: http://www.mbplc.com

Public Company
Incorporated: 2003
Employees: 38,747
Sales: $2.31 billion (2002)
Stock Exchanges: London New York
Ticker Symbol: MLB
NAIC: 722410 Drinking Places (Alcoholic Beverages)

Mitchells & Butlers PLC is one of the United Kingdom's largest operators of managed pubs, with more than 2,000 drinking and eating establishments located throughout the country. The company also operates a number of bars in Germany. Formed from the 2003 breakup of Six Continents Plc, which spun off its hotels business as International Hotel Group, Mitchells & Butlers revives one of the most venerable names in British drinking history. Yet the company is decidedly modern, managing a strong portfolio of branded and unbranded pubs and restaurants to appeal to nearly every consumer group and taste. Most of Mitchells & Butlers' pub brands were developed in-house, and include O'Neill's Irish bars; Flares 1970s theme bars; Scream, catering to university students; and Goose pubs, which also offer food. In addition to these pub brands, the company's portfolio includes Ye Olde Fighting Cocks, in St. Albans, one of the oldest pubs in Great Britain, the White Horse in London, and the Philharmonic in Liverpool. Mitchells & Butlers' restaurant division meanwhile operates under a number of brands as well, including All Bar One and Browns, and the Alex chain of brasserie bars in Germany. While these formats cater to the city center crowd, most of the company's restaurants target the suburban and rural markets, including Harvester flame grills; Toby Carvery for traditional foods; and Vintage Inns. Mitchells & Butlers is led by Chairman Roger Carr, and CEO Tim Clarke, who held the same position at Six Continents. After losing out in its acquisition bid for the pub estate of chief rival Scottish & Newcastle, Mitchells & Butlers itself became widely viewed as a potential takeover target in September 2003.

Pouring British Pub History in the 18th Century

The Mitchells & Butlers entering the 21st century was the product of English pub and brewing history stretching back to the late 18th century through two main branches. The oldest of these began as a brewery founded by William Bass. Bass had run a business transporting ale for Burton brewer Benjamin Printon between London and Manchester, but sold that business to Matthew Pickford in 1877. Bass then set up his own brewery in Burton-on-Trent, a choice prompted in large part by the opening of the Trent & Mersey Canal that year.

Bass, like other Burton brewers of the era, originally focused his beer production on the export market, particularly to the Baltic region. This involvement with shipping led Bass to engage in a side business, importing lumber for sale in England. During the blockade of British ports in the early 1900s, however, Bass turned to supplying the London and Liverpool markets. Yet Bass continued to pursue other export markets, turning to India in the early part of the century. Bass and other Burton brewers developed new ale varieties for the new market, resulting in what became known as India Pale Ale.

The Bass brewery's true fame grew under Michael Bass, grandson of William, who took the brewery in 1827. Michael Bass correctly recognized the potential of the country's developing railway system—the company not only bought a stake in the Midland line, but also began construction of its own railway system. At 16 miles, the Bass railway grew to become the United Kingdom's largest private railway system. The company also built warehousing facilities in London's St. Pancras station, supporting its growing national and export business.

Burton's linkup to the country's national railway system in 1839 helped transform the company from a small-scale brewery into one of the world's largest and most renowned brewers. By the early 1880s, Bass's production topped one million barrels per year, and its sales neared £2.5 million per year. The company was also the first English company to register its trademark, a red triangle, in 1876.

Bass initially avoided the "tied" house system, which linked pubs to brewers in exclusive contracts and had developed in England in the later part of the 19th century. Instead, the company favored working with wholesalers, which then in turn supplied to the country's growing numbers of pubs and bars. Yet by the end of the century, the tied house system had become dominant, while at the same the brewing industry had undergone a great deal of consolidation.

Finding itself barred from large numbers of the country's drinking establishments, Bass began merging with other brewers, such as Worthington & Company, also based in Burton, in 1926, adding their tied estates but generally shutting their breweries. By the end of the 1950s, Bass, by then known as Bass, Ratcliff & Gretton Ltd., had already become one of the country's largest brewing and pub companies, with a national network of more than 1,700 companies. In 1961, however, Bass took on an entirely new scale, linking up with regionally focused Mitchells & Butlers' 2,500 pubs to form Bass, Mitchells & Butlers Ltd.

Mitchells & Butlers had been among the large number of so-called "homebrew" pubs that had sprung up around England following the introduction of the Beerhouse Act of 1830 by the Duke of Wellington. Under the legislation—another attempt to steer drinkers away from gin—householders were allowed to sell beer from their premises. The new pub owners started out by brewing their own beer; yet the wide range of quality, including not only from pub to pub, but from batch to batch, as well as sanitary and other factors, encouraged the growth of dedicated visiting brewers.

In the meantime, a number of home brewers had begun to gain a reputation for the quality of their ales, and began to attract customers among other homebrew pubs. This new type of brewer developed into what became known as "common brewers" who supplied their own pubs and others in their region.

Among the more popular common brewers in the Birmingham region was Henry Mitchell, who had taken over his father's Crown Inn pub in Smethwick in 1861. The younger Mitchell proved a master brewer, and by the middle of that decade was unable to meet the growing demand for his ales. In 1866, Mitchell built his first dedicated brewery, next to his pub. Yet demand continued to build, and in 1877 Mitchell acquired a 14-acre site in Cape Hill in order to build a larger brewery. Built over an artesian well, the new site opened in 1879. The brewery continued to expand, and in 1888, backed by financial partner Herbert Bainbridge, Mitchell incorporated the Cape Hill Brewery as a private company.

By then, a new trend was developing among Britain's pub and brewing companies, which had entered a rapid expansion and consolidation phase. A large number of brewing companies had become public companies, a trend launched by Guinness in the mid-1880s. The public companies used their financial might to buy up freehold pub estates. Yet passage of the Wine and Beerhouse Act in 1869, which drastically restricted the number of new pub licenses, caused property values of existing pub sites to soar. This situation encouraged the brewing companies to buy up their competitors in order to gain control of their pub sites. Other brewers began merging together in order to gain scale and protect themselves from the more aggressive, larger companies.

In 1898, Henry Mitchell agreed to merge his company with that of William Butler, whose Crown Brewery had grown into the region's second largest brewer and pub estate. Butler had come to Birmingham at the middle of the century and had worked as a bartender at the Crown Inn on Broad Street. In 1866, Butler used his savings to buy the London Works Tavern in Smethwick. By 1875, in partnership with his brother-in-law, Butler bought the Broad Street Crown Inn. It was there that Butler established the reputation of his ales, and Butler soon became a growing common brewer. Over the following decade, Butler bought up a strong pub estate as well.

Butler registered his company in 1895. Following the merger with Henry Mitchell, forming Mitchells & Butlers, the partners agreed to transfer their brewery operations to the larger Cape Hill site, which offered the company a better water supply and more room for expansion—by 1890, the partners had extended the Cape Hill site to 60 acres. The company also began acquiring other brewers in order to gain control of their pub estates. Such was the case in 1899 when they took control of the Vulcan Brewery, followed a year later by the purchase of James Evans Brewery.

National Brewery Powerhouse in the 1960s

Control of Mitchells & Butlers passed to the founders sons and, later, grandsons, after Butler's death in 1907 and Mitchell's death in 1914. The new owners continued to expand the company, buying up Alfred Cheshires Brewery Ltd. and its Windmill Brewery in 1913. That brewery was shut down the following year, however, as the company prepared to open a second brewery at the Cape Hill site, which was then extended by another 30 acres. Completed in 1914, the new No. 2 brewery offered a production capacity of 30,000 barrels per week.

Company Perspectives:

Our strategy is to capitalise and build on our position as the leader in the managed pub and pub-restaurant sector in order to drive returns, cash generation, and long-term earnings growth to create value for shareholders.

We intend to implement this strategy by: owning and developing licensed properties with high AWT, maintaining high levels of amenity, service and value; evolving our retail brands and formats to gain market share and, as appropriate, creating new consumer offers; delivering high returns on incremental capital invested by developing prime sites into these brands and formats; and generating additional cost, margin and revenue benefits from unit, brand and corporate scale, to consolidate our leading position in the market.

The temperance movement gained strength through World War I, prompting new and more restrictive licensing legislation. One result of this trend was that brewing companies were granted a new suburban pub license only in return for the abandonment of several city center licenses. In response, pub owners began converting their existing city center sites. Mitchells & Butlers took advantage of this trend by launching a new generation of pub designs after the war, a precursor to the development of standardized bar brands at the end of the century.

Mitchells & Butlers grew strongly into the middle of the century. Acquisitions formed a part of the company's growth, including the purchase of Walsall's Highgate Brewery in 1939, a move that added nearly 40 new pubs to the company's growing estate. Takeovers enabled the company to expand beyond its Birmingham base following World War II, and included the purchases of Thatcher's Brewery in Newport in 1950, Darby's Brewery in West Bromwich in 1951, and Atkinsons Brewery in Aston and the Springfield Brewery in Wolver-hampton in 1959.

The formation of Bass, Mitchells & Butlers in 1961 created a national brewery powerhouse, with one of the world's most famous beer brands and a portfolio of some 4,000 tied pubs and bars. Yet the company inaugurated a new era in British brewing history in 1967 when it merged with Charrington United Breweries. Backed by its Carling Black Label lager brand—a bestseller in the United Kingdom—Charrington United also managed an estate of more than 5,000 pubs.

The combined company, initially called Bass Charrington, now claimed a 25 percent share of the U.K. market. Renamed as Bass Plc, the company took the lead in the "new" U.K. brewery and pub market, which came to be dominated by just a handful of major groups by the 1980s.

A Return to Roots in the New Century

Bass had by then begun to diversify, starting with the founding of its own hotel chain, Crest Hotels, in 1969. A downturn in the pub market in the early 1980s led the company to sell off a number of its breweries and underperforming pubs. Instead, the company stepped up its hotel business and expanded into the international travel market as well. As part of that effort, Bass bought Horizon Travel, a vacation package and tour operator, in 1987.

The following year, Bass's hotel division took a big step forward when it purchased the Holiday Inn hotel chain, transforming Bass into one of the world's largest international groups. Meanwhile, Bass's diversification efforts had led it into such areas as bingo clubs, amusement game machines, and a national chain of betting parlors. These were sold off in the late 1990s, however.

The Beer Orders of 1989 created a new sea change in the British pub and brewing industry. The new legislation limited the number of tied pubs the dominant brewing groups were allowed to own. Bass, like the other major brewing groups, was forced to divest large swaths of its pub estates. The more than 10,000 pubs placed on the market created a new industry of businesses dedicated to pub and bar operations, which promptly began developing branded and themed bars, pubs, and restaurants for the regional and national markets.

Bass began developing its own portfolio of pub brands, such as the O'Neill's Irish bar concept, launched in Aberdeen in 1994, and the women-oriented All Bar One concept, which debuted in Surrey that same year. In addition to developing its own brands in-house, Bass made a series of acquisitions of existing pub, bar, and restaurant brands, such as the Harvester pub group acquired from Forte in 1995, Browns Restaurants, purchased in 1998, and, in that division's first international move, the Alex brasserie bar chain in Germany.

Key Dates:

1777:: William Bass establishes a brewery in Burton-on-Trent.
1827:: Bass's son Michael Bass takes over the brewery and develops it into one of the world's leading ale brands.
1861:: Henry Mitchell takes over his father's Crown Inn pub in Smethwick.
1866:: Mitchell builds a dedicated brewery next to his pub; William Butler buys London Works Tavern in Smeth-wick.
1875:: Butler buys the Crown Inn in Birmingham.
1876:: Bass becomes the first British company to register its trademark.
1877:: Mitchell begins construction of Cape Hill Brewery, completed in 1879.
1898:: Mitchell and Butler merge to form Mitchells & Butlers.
1961:: A merger creates Bass, Mitchells & Butlers.
1967:: The company merges with Charrington United to form Bass, Charrington, subsequently renamed as Bass Plc.
1969:: Bass enters the hotel business with the creation of Crest Hotel group as part of the larger diversification effort.
1989:: Beer Orders limits ownership of pubs by brewery groups.
1990:: Bass completes the acquisition of Holiday Inn chain, becoming one of the world's leading hotel groups.
1994:: The company begins developing and acquiring pub and bar brands, including O'Neill's Irish Pubs and All Bar One.
1995:: An agreement to acquire the Carlsburg-Tetley brewing and pub group is rejected by the British government.
1999:: The company buys 550 pubs from Allied Domecq as part of a repositioning of its pub portfolio.
2000:: The company sells its Bass brewery operations and rights to the Bass name to Interbrew.
2001:: The company is renamed as Six Continents Plc; the company sells 988 pubs to the Nomura group.
2003:: Six Continents splits into InterContinental Hotels Group and Mitchells & Butlers, which is listed on the London Stock Exchange in April 2003.

The following year, in a move to shift its pub portfolio, the company acquired 550 pubs from rival Allied Domecq. As a result of the reorganization of its pub portfolio, Bass, by then led by CEO Tim Clarke, was able to increase its AWT (average weekly take) from just £4,000 to an industry-leading £14,000. This success earned the company the Best Retail Company Award for 2001.

Bass also had been attempting to expand its brewing business internationally during the 1990s, including entries into the Czech Republic in 1993, and into China in 1995. Yet these efforts met with less than the hoped-for success. In the meantime, Bass had lost its lead in the U.K. market, when rival Scottish & Newcastle bought the Courage brewing group in 1995. Bass attempted to fight back, with an agreement to buy up the Carlsburg-Tetley brewery in the United Kingdom. But that purchase, despite being cleared by the Mergers and Monopolies Commission, was ultimately blocked by the U.K. government, which feared the emergence of a new brewing and pub giant.

In part in response to this rejection, Bass brought an era to an end in 2000 when it announced its decision to sell off its brewery arm to Belgium's Interbrew group. The purchase, for £2.3 billion ($3.46 billion), also included the rights to the Bass name. As a result, Bass renamed itself Six Continents Plc, in part to emphasize its shift in focus to its hotel division, in 2001.

Yet the Six Continents name was to prove short-lived. At the beginning of 2001, the group sold off 988 of its pubs to Japan's Nomura group for £625 million, in part to fuel an aggressive expansion of its hotel division. By the end of 2002, however, amid a slipping share price and growing shareholder discontent, Six Continents announced its intention to split itself in two, with its hotels business regrouped under the Intercontinental Hotels Group name. The pub and restaurant division was then spun off as publicly listed Mitchells & Butlers, in a move designed to revive the well-known name and present the company's solid link with its past.

The "new" Mitchells & Butlers debuted on the London Stock Exchange in April 2003, boasting sales of £1.5 billion and the country's largest portfolio of managed pubs. CEO Clarke next began to target further expansion—seen as a necessity in the rapidly consolidating pubs market at the dawn of the 21st century. After rejecting a takeover offer from investment group BC Partners, Clarke led the company into the bidding war for Scottish & Newcastle's 1,450-strong pub estate.

After failing in its £2.3 billion bid in August 2003, Mitchells & Butlers itself became the subject of takeover speculation. Industry observers suggested that whichever company succeeded in acquiring the Scottish & Newcastle estate would then go after Mitchells & Butlers in order to create a group capable of rivaling such fast-growing pub groups as Enterprise Inns. Mitchells & Butlers, however, shrugged off these suggestions. As the company told the Mail on Sunday: "We are in a very good position at the moment. The S&N estate was a nice-to-have, not a must-have." With a name evoking more than 100 years of British drinking history, Mitchells & Butlers instead turned its focus toward charting a future as a dedicated pubs business.

Principal Operating Units

Bar and Restaurant Brands: All Bar One; Arena; Browns; Edward's; Ember Inns; Flares; Goose; Harvester; Innkeeper's Fayre; O'Neill's; Scream; Sizzling Pub Co.; Toby Carvery; Unbranded; Vintage Inns.