Crabtree interview

3D Entertainments venue

Controlling interest

3D Vision

interviews, controlling interest, April 07, COMMENTS

The most significant development programme of the year got underway in January: not one necessarily involving the biggest investment, or the most radical changes, but one that promises to deliver some of the high street’s best known brands back into rude health.

The brands in question are Chicago Rock Café and Jumpin Jaks, both over ten years old, both of which burst onto the high street and spread rapidly through the 90s to become familiar fixtures in towns and cities across the UK.

In recent years however it’s been a different story, as reports of declining sales and profitability have become commonplace, suggesting concepts reaching the end of their lifecycle and heading wholesale into obscurity. Wholesale being the appropriate word, as then owner Luminar Leisure made attempts to off load the businesses – along with five Orange House pubs and 35 unbranded community nightclub - en mass.

After several false starts, and some almost-finishes, a deal was finally made in January to complete that process: hastening Luminar’s pursuit of its remit to develop branded destination dancing venues, and paving the way for some new life – and vital capital – to be breathed into the divested Entertainment Division estate.

The arrangement saw the formation of a new company - 3D Entertainment Group - in which Luminar retained a 49% share, with a management team lead by former Entertainment Division MD David Crabtree taking a 31% stake. The remaining 21% is held by Prestbury Holdings, a property firm that has also bought the freeholds on 20 sites as part of the deal. So: no VC involvement, and a smooth transition to new ownership following the sale’s approval by the Luminar board on 19 January. So far, so commonsensical. After a year of getting to know the business under cash poor conditions at Luminar, Crabtree had a very clear idea of what he wanted to do with it. Test investments in units in Yeovil and Newbury in 2006 pointed a promising way forward – suggesting that underneath the soggy carpets and battered bar tops was slumbering potential waiting to be shocked back to life.

Fast forward two months from the deal and David Crabtree is sitting in a newly refurbished Chicago Rock Café in Warrington; sun beaming through window, well made espresso in hand, the clink of pool balls in the background and the smell of new carpets still sweet in the air.

“We’d done a decent enough job on the business over the last twelve months given the abject lack of resources,” he tells NIGHT. “We got the controls in place, standards established, the business being run better. We hit hard on a lot of basic measures. But the sales just kept going backwards because the units are all at least five or six years old and to remain competitive on today’s high street requires continual investment. Without that you’ve got no chance. “

Since January, ‘no chance’ has changed into ‘every opportunity’ as Crabtree and his experienced senior management team – including property director Nick Graham, finance director Andrew Finding and managing director of operations Mark Lindsell – have gone about rectifying the underinvestment problem with the first steps in a long awaited spending spree. An average £300k per site has been earmarked to create a fully invested Chicagos estate, with three or four million on the rest, decided on a site by site basis. And the effects are already becoming evident: new Chicagos are already open in Bishops Stortford, Luton, Walsall, Warrington, Isle of Wight, Sutton and Warrington. As NIGHT goes to press, teams go on site in Wigan to create a new generation Jumpin Jaks, and redevelopment plans for the Orange House speed forward. In the unbranded estate 3D are poised to make a massive difference to people’s social lives with the delivery of spanking new facilities into community nightclubs nationwide.

“I can’t wait to get on with some of them,” Crabtree says with relish. “Imagine going to your local nightclub, which has had no money spent on it for seven or eight years: you’re going to be getting a bit tired of the same old experience. And then its new owners spend between two and four hundred grand getting it back up to spec. If we get it right, we’ll be right back on the map in that town.”

Talking animatedly about the potential of his venues Crabtree shows no signs of exhaustion, despite what must have been a challenging six months. Instead the outlook is positive and energised, not least because of the structure of the deal that’s been done, which has not only freed up cash to invest but, with Luminar providing central administrative support to 3D for a transitional period, is allowing the management to concentrate their energies firmly on the investment programme.

“The structure we’ve ended up with is a better solution than that offered by the VC route,” he reflects. “The way we’ve done it, we’ve been able to raise some cash, we’ve got Luminar’s support and we’ve got the bank’s support. We have a very stable business that’s already very profitable – it’s far from being a broken business. And we’ve got the cash to invest in it. With the exception of half a dozen sites, which we will dispose of, we’ve got loads of well located sites with big square footages in good towns and cities. If they were no hoper sites, there’d be no point in doing this, but they’re not.”

Whilst activity at 3D is strongly focused on the sites, industry onlookers are interested in a different side of the story. Just what is the relationship between 3D Entertainment and Luminar Leisure?

“3D Entertainment is most definitely an independent business,” says Crabtree firmly. “Luminar is one of its shareholders but it does not have a controlling stake and does not run the business. To date we [the management] have been left almost entirely to our own devices, and Steve [Thomas]’s involvement has been driven largely by me, on the basis that he has a lot of expertise to contribute.

“At the end of the day, Steve has the same vested interest as the other stakeholders. He wants Luminar’s stake to grow in terms of its value and the only way that’s going to happen is by improving the performance of the business, which we will do by getting on with it, making the investments and delivering the results.”

But they share offices – doesn’t that imply a level of interdependence?

“The reason we did that is for the staff, who are largely based in Milton Keynes and for whom moving offices would be unnecessarily disruptive. The facilities are good, it’s local and it’s well located for a national business, in the centre of the country. We’re in no rush to get out of there.”

And sharing transitional services? According to initial statements, Luminar will provide services like payroll and accounts to 3D for up to a year.

“The way the deal is set up is that the elements of transitional services all work on a notice period of six weeks, which means as and when we’re ready to run our own, we give notice,” David says. “We will probably exit most functions well within a year, but to be honest we’re in no rush. They’re very well administered, and using that support allows us to focus our energies on what needs attention. In the next six months we’ll be investing in about 70% of our estate. We don’t want a distraction of setting up accounts payable and payroll. We want to concentrate on this. I’m personally spending 50% of my time on the investments. And If we were setting all that backroom stuff up then I wouldn’t be able to get anywhere near them.”

And so to that investment. Whilst at 53 units the transformation of Chicagos will be the most visible, realising the potential in the estate means making changes to all 93 venues – from Gregory’s in Nantwich to Jumpin Jaks in Aberdeen. Across the board, facilities are being modernised, entertainment and service standards brought up to date.

At Chicagos, Crabtree explains, “the brand is still strong – the retro music, dancefloor, central bar, dining area, the team doing their dance routines on the bar, the types of drinks we sell, the hen parties, the 40th birthdays, the broad age range – it’s all absolutely valid, which is reflected in the fact that the numbers are still pretty stunning given the state of the premises. The issue is how you present and deliver those things.” At Jaks the task is “to upgrade the atmosphere” by adding staging and visual effects, and changing staff/customer interaction. “The live entertainment concept is strong but it needs to move on,” he says. “We’re doing some work around music, changing some of the bar, the style of drinks, how we serve people, going free pour, updating the uniforms, etc. We’re also focusing on what the team do, how they interact with the audience and the type of acts we put on. Everything needs to move forwards.”

The Orange House pub brand, originally devised to compete with Wetherspoons, will be addressed with the intention of establishing good daytime and food business, at a value price point, in a clean, tidy, contemporary environment. At night the mood will be dialled up to attract a slightly younger clientele. Coventry will be first for the treatment, with a £200k refit scheduled for April.
The community venues will be worked through one by one, with the programme scheduled to complete within a year.

Not that this will be the end of the process, as David explains.
“The investments are almost the easy bit; my job is to make sure that we underpin that investment with operational change to create a long term sustainable business. How well are the team trained? What are the operational excellence and mystery visit scores like? We need to make sure we are all over the basics.”

Crabtree returns repeatedly to the subject of his team and it’s clear they play a central role in his plans. As well as the venues, the new order for the old Entertainment Division sees a renewed commitment to team development and, crucially, greater team involvement in the business.

“One of the major challenges we face is giving our team the sense that they belong to a business that’s here for the long term,” says Crabtree. “Long before I joined the managers of these units were told they were being sold, which has continued to happen over the course of three years and is extremely demotivating. We’ve seen lots of managerial changes, and the net effect is that we’ve had a high turnover of hourly paid crew, low morale, low motivation and no recognition of achievement.”

Investing in the business means addressing these issues too, and as well as introducing more structured reward and recognition processes 3D Entertainment have also established an equity scheme that gives GMs as well as more senior team members a direct stake in the 3D’s success.
“The 31% management team stake in the business is owned by myself, the three senior partners, 20 people in the support centre and 90 GMs. The idea is that if we work together to meet the targets laid out in the business, then everyone stands to benefit.

“There are mutual benefits to working this way: on the one hand, every single GM knows that they are effectively running their own business and that their performance will determine their earnings going forward, which creates a higher level of commitment. We have to hit our performance targets, and add £7 or 8 million to the profit line over the next three years. But if we perform well then the GMs will be rewarded for their contribution.”

These long term aspirations will be achieved according to the outcome of decisions taken now and in the coming months. In summer there’s the smoking ban to contend with which, explains Crabtree, “is actually a real opportunity. There’s a big up side to having an outside drinking terrace and wherever possible we’re putting them in the front of buildings so they’re visible, out on the high street, where people can see them.”

Food will also be important going forward, specifically within the Chicagos and Orange House businesses. “To be a long term success in this industry you’ve got to build a stable seven day a week business,” he says. “Where possible, I don’t want us to be relying on Friday and Saturday night to make our money every week and I don’t think that will be the case.”

And high on the agenda too is customer safety. “We need to continue to take a lead on this issue,” he says. “To demonstrate our commitment we’re looking at a range of new measures – for example the sites we’ve just reopened have all gone to polycarbonate glassware. We want to be known for being one of the safest businesses in the high street.”

Twelve months down the line, all going to plan, “we’ll have well invested sites, sales and profit growth across the business, perhaps some acquisitions.” The business plans says five Chicagos, but more are possible.

“If we opened another 50 in towns where we don’t operate then we would clean up,” he says. “But for now it’s about priorities. At the moment our priority is to fix our existing estate. In 12 months we’ll have some stability, will be performing, and generating money that will then be reinvested. That’s the time to try something a bit bigger.”

Words: Alex Eyre

From: April 2007 Issue

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