ALH Hotels has developed a new operating model for its portfolio of 349 hotels, which ALH Managing Director Paul Walton said has reset the business and developed strong opportunities for EBIT growth over the next five years.
Walton told shareholders that ALH team sees an enormous opportunity for the business, saying: “[ALH] has recently emerged from Covid with a strong-base platform and a new operating model, and with a long runway of both organic and capital-driven growth opportunities, which will enable us to drive accelerating EBIT over the next five years.
“As we all know, Australians love pubs so there are lots of them, and the aggregated market is really big at $25bn. Australians also really love owning pubs, so it is a fragmented market, with the top five operators owning less than 20 per cent of the venues.
“Clearly scale and operating in the largest markets has its advantages, but a pub is not a bottleshop. They are different shapes and sizes and their essence is reflecting the local community and inviting them in; you can’t just roll out the same box across the country. For many years the ALH operating model recognised this by running a de-centralised, state-based model with lean support. With the pubs given performance targets each year and the freedom and accountability to chase it.
“As the network grew rapidly through acquisition, this simple model work really well, but Australian pub-goers’ expectations are lifting, the competition is getting better and technology is moving at pace.”
Walton said that the team identified that running the network as 349 individual pubs was no longer enough, adding: “A year ago we started developing our segmentation model. The goal is to keep the local pub brand and identity, but overlay a framework to understand the characteristics of each segment. This allows us to benchmark and then work with the venue managers in creating venue business plans and support them with peer cohorts and toolkits to improve.”
ALH has segmented its venues into: inner city, suburban, regional, destination and entertainment, with three levels of affluence in each category.
Walton added: “Since emerging from Covid and the demerger we have gone about deliberately changing our operating model and resetting the business. We have renewed our commitment to responsible gaming, we have built up our next levels of operational team and retaining existing team and recruiting key roles from leading hospitality businesses, both beverage and food, we have segmented our network, we have started implementing new commercial frameworks and approaches in our venues, we have started adapting the Endeavour-Go cost optimisation program for hotels and we have begun leveraging our group digital analytics capabilities.
“All this has meant we have emerged from Covid in a very strong operating position and created momentum with accelerated revenue growth.”
Looking at the growth opportunities for ALH, Walton told shareholders the operational growth pillar consists of initiatives to grow revenue and improve margin and initiatives to target efficiency and reduce operating costs.
Other opportunities for growth highlighted by Walton included capital-driven growth looking at renewals and acquisition and also ALH’s commitment to responsible gaming.
He said: “We include this in our growth model because we see looking after our communities and our guests and doing responsibility well as an absolute table-stake for growth.”
Walton then took shareholders through the financial opportunities coming from the new operating model, saying: “We believe this growth model offers a step-change growth opportunity of six per cent plus CAGR over the next five years – an additional $150m-plus in EBIT on top of FY23.
“This number would comprise the total EBIT growth over the period, as we assume market growth is offset by the current high-cost inflation. We also see that benefit ramps up over time.
“Without knowing the precise regulatory changes, we believe this also incorporates the number of the known changes. The growth will be split somewhere equally across lower capital operational growth and capital-driven renewals and acquisitions. And will be brought to life by our experienced team, accelerated by our group capabilities, including Endeavour-Go, Endeavour-X, advanced analytics, property development and renewals.
“At the end of the five years we see an even more balanced business profile across the drivers. On top of this we have identified a series of one-off property developments across the network.
“Hopefully you see the enormous opportunity, we as a team see in the ALH business, which is well-positioned for balanced growth in a large profit pool.”
In supporting Walton’s updates to shareholders on the new strategy for ALH, Endeavour Group Managing Director and CEO, Steve Donohue, said: “We have an unrivalled portfolio of brands and businesses with a proven track record of growth and profitability. Across the business, we are focused on executing our strategy – creating meaningful customer experiences, optimising across our business, and deploying capital in a prioritised way to drive growth. We do this while maintaining a continuous focus on our team, and our positive imprint.
“Endeavour is uniquely positioned to deliver superior returns from hotel licences across our interconnected hotel and retail network, capitalising on the integrated nature of our businesses and leveraging shared infrastructure, licensing and group capabilities to drive value. We expect to grow hotels EBIT by more than $150m over the next five years, through operational optimisation and property investment.
“We are strengthening our customer understanding and driving further innovation in our hotels business, by progressively launching our pub+ app. pub+ will provide customer connections that will help us to deliver a superior pub experience, with personalised offers across our network of more than 350 hotels.
“With an unparalleled portfolio of assets, we’re excited about the potential to create great guest experiences and generate growth across all aspects of our hotels, from food and beverage to functions, gaming and accommodation.
“Alongside our hotels strategy, we have shared a scorecard outlining the targets and measures of success that we are holding ourselves accountable to deliver across the Group. These targets cover our financial, sustainability and responsibility goals and reflect our commitment to delivering for our shareholders in both the short and long term.
“I am very confident that we are positioned to deliver for shareholders through our leading portfolio of brands and businesses.”