The pub, kitchen and microbrewery Brewhouse & Kitchen has grown from one to 21 sites in five years across the UK, spanning Cardiff, Portsmouth and Islington.
Taking advantage of the craft beer craze sweeping the country and a need for quality pub food, the co-founders tell GrowthBusiness how they bagged the £6 million in EIS funding needed to expand at scale, grew turnover to £18.5 million in 2017 and what the next five years hold for the business.
What are the details of the company, when was it founded and why? What is the background of the founder and the goal of the company?
Kris Gumbrell: The company was founded in 2012 with money raised through EIS. Both Simon and I have 60 years in the pub, bar and brewing industry between us and we’d observed an interest in craft beers developing in the public. As we’d worked on a previous company together developing brew pubs, we thought we could take it up to the next level. It became clear that craft beer was going to be the disruptor in the market and we wanted to get in early, which we did, with a successful formula. Traditionally, within the UK markets, breweries and large beer producers have had a lock on the tied estates within the sector. As such, the opportunity for pubs to brew and bring in a wide range of more interesting micro beers has been limited, but now the climate is changing before our very eyes. So, we got in fairly early, raised money through EIS and here we are today, with 21 sites in our ranks.
Over the next five years we are looking to continue to grow. We’re at the stage now where we will begin to grow from profits and we’ve had quite substantial investment coming in externally from a great set of very supportive people, be they the high net worth high net worth individuals, right down to people that have invested £10,000. I see us growing steadily after this next burst of pubs through this year. The five years are going to give us an opportunity to develop the brand even further and the best thing about the brewpub model is we can flex in so many different areas as it is such a flexible model.
How much initial investment did the company need to start and where did it come from? What was the money used for and how was the site developed? How did the product grow to the point where another round was needed?
KG: The company is funded through the Enterprise Investment Scheme but we worked alongside fundraisers IW Capital and Marechale Capital to hit an initial fundraising target of £2 million. We then took additional investment from PUMA to top this up to £3 million, so we could start in a strong position.
We opened our first site in March 2013 and second site May 2014. We then acquired a group, moving from two to five sites by the end of 2014, which was a quantum step forward for us. We deployed the funds wisely – we still had three out five businesses that were freehold – taking over businesses that were underperforming and turned them around. All of our sites have achieved or overachieved on our targets. Our investors were enthusiastic, and we knew that the market was on our side in terms of what the guests like.
Simon Bunn: We are a freehold model, which is quite different to how most retail propositions expand, many of them expanding with leasehold properties. This means that we can only buy what comes available or persuade potential owners when we see opportunities.
Talk about the investment process. From start to completion, what was involved procedurally and what do scale-up companies need to be aware of to ensure an efficient fundraise?
KG: We happened upon a relationship with Puma which was successful. When you have a model that seems to work, you’ve got a relationship with separate investors that works nicely alongside the company, then why would you not pursue that and carry on. At the end of the day, the way that we’ve put this company together, that we’ve been predominantly freehold focused, that’s not as appealing to a lot of the private equity players who want much more rapid growth, are less concerned with asset protection and also happy to take lots of leases and pay lots of rents. All of that seems to be unravelling right under our noses at the moment within the casual dining sector. We know our model at the early stages wouldn’t have been attractive to a private investor and we had approaches, but we knew that the asset backing of our model was where we wanted to be. We wanted the right kind of partnership that we found with Puma plus our existing new investors coming on each round and we knew this was the right way forward. We have a franchisor/franchisee relationship with nine of the pubs within the operational group.
SB: Run your business well. Stay close to your margins. For us, scaling up is making sure that you’ve got your resource ahead of your next step forward, making sure that every bullet counts and that every acquisition delivers. Sometimes, we’ve been ahead in terms of the resource that we have and sometimes we’ve been behind, and we’ve had to run to catch up in terms of resource to deal with the taking of the opportunities like acquiring the sites and developing them. I think the lesson I’ve learned is to make sure that we’ve got sufficient resource in the bag before we take the next step of growth in the company.
What was the source of the latest round of investment? How did it come about and what contacts were utilised?
SB: We just worked with our existing fundraisers. We had interest from a large private family office who’d researched us very carefully. After agreeing on a share price, we opened out that offer to all our existing shareholders. We were oversubscribed so it was a successful fundraising very much triggered by working with one family office that completed about six months’ worth of due diligence on us. Then we added to that additional investment from our existing base of shareholders, working with our normal investment advisors, IW Capital and Marechale Capital.
KG: We’ve grown steadily and gradually in terms of how we’ve built our estate. The most recent round of funding was non EIS – we’ve used all our EIS allowances up. We secured this through shareholder funding and we’ve grown our share price continually. The last round of funding raised just short of 8 million at 185 a share.
What exactly will the money be used for and how will you maximise control over your cost base moving forward?
KG: Certainly, the money that we raise will continue to be used to deliver the business plan, which is to acquire predominantly freehold assets and develop them into Brewhouse & Kitchen businesses. The last of the money we raised allowed us to complete a significant development of our Cardiff site, which we invested £600,000 into, and will allow us to acquire two more units in quick succession. We have looked to expand the business as opposed to our HQ – our head office is lean and healthy. We’ve always believed that there’s an expectation with shareholders, when they invest, they want to see their money deployed into bricks and mortar.
SB: About scaling up, where we’ve been able to enhance our margins with the scale. We’ve been able to negotiate better deals on food and drink sale, therefore mitigating compromises and improving margins.
What specific advice would you give to scale-up companies seeking to follow the same route of investment?
KG: Stick to your business plan as then you can’t be criticised for deviating later. Treat every penny like it’s your own. Look at every opportunity on its own merits.
Find out more: Brewhouse & Kitchen