Trouble brewing
Philly pub owners organize for the first time to grill Guinness executives over the company's forays into the pub business.
By Frank Lewis

Chris Mullins was finally convinced of the seriousness of the situation after a call to the Guinness Import Company. Mullins is owner of McGillan's Old Ale House, an historic pub in Center City Philadelphia, but for purposes of this call he passed himself off as a neophyte, looking for guidance. He told the unsuspecting Guinness executive that he was interested in opening his own pub in Philadelphia's Old City section.

Mullins knew, of course, that Old City already is home to one of the most successful Irish establishments -- and biggest sellers of Guinness -- in the city, the Plough and the Stars, as well as a raft of smaller bars that serve the dark stout. He also knew that Old City is a short walk from Downey's, another popular Irish bar and restaurant. He may have even known that a Chicago-based pub owner is believed to be opening his first Philly location a few blocks from the Plough and the Stars sometime next year.

And yet three days later, Mullins received a package of information from Guinness -- a starter kit of sorts for aspiring publicans, detailing crash courses in pub management and the services offered by Guinness-approved pub-design firms. No where in the package, nor on the phone, was it suggested that Mullins consider another neighborhood, one without so many Guinness-selling operations already in existence.

And that was when he became convinced there may be a problem.

Actually, the way Mullins and other Center City pub owners see it, there are two related problems. The first is that Guinness Import Company, the Stamford, Conn.-based company that imports and distributes the namesake stout and several other beers and liquors, has gotten into the pub development business: for relatively little money, GIC will teach wannabe pub owners everything it's learned about setting up and operating Irish-themed bars and restaurants. And with worldwide sales up another 5 percent in 1999 -- five or more years into the international Irish renaissance -- Guinness obviously has learned a lot.

The second problem is that a wildly successful pub chain -- which traces its roots back to Guinness' brilliant research and development efforts in Europe in the early 1990s ­ may be coming to Philadelphia. The Atlanta-based Fado Holdings has its Fado pubs (the word is Gaelic for "long ago") in eight or so American cities, and has been scouting locations in Center City off and on for several months.

Even individually, these situations are making Philly pub owners feel that a company to which they've been loyal for years -- in some cases, decades -- is turning on them. And it's making them angry.

Angry enough, in fact, to do something they've never done before: organize. On Dec. 1, an unprecedented meeting of Center City pub owners took place at the Plough and the Stars. An Irish publican army of sorts gathered to hear words of warning from organizers Mullins and Mark O'Connor, co-owner of Center City's two Irish Pubs, and then to grill some executives from Guinness.

No one seemed to leave feeling good about the near future.

A publican for nearly two decades, Mark O'Connor is a student of the industry. Despite the demands of overseeing two pubs -- both on Walnut Street, one near 20th, the other near 12th -- O'Connor reads trade and business publications religiously. And his file of articles on brewers' forays into retailing is thick.

O'Connor saw this coming years ago. (Mullins likens him to a "mad scientist" whose warnings of an asteroid colliding with Earth are ignored until the asteroid becomes visible.) In 1994, he read a magazine article about Guinness' success in Europe with "pre-fabbed" Irish pubs. Through careful analysis the brewer and a consultant, Dublin-based Irish Pub Company, (www.irishpubcompany.com) had determined what separates successful Irish pubs from marginal ones, and come up with a formula so simple that anyone with capital and enough sense to execute the plan could be almost assured of not only surviving, but thriving. And throughout the early to mid-1990s, pubs sprung up all over Europe, Asia and Canada.

Irish Pub Company came to the United States in 1996 and opened the first Fado in Atlanta. The plan at that time was to design and build pubs for American investors who would operate the businesses themselves; the Atlanta Fado was to be a working model.

But a funny thing happened. Fado grossed $3.75 million in its first year, and became the largest single-site seller of Guinness in the country. So some Irish Pub Company executives rounded up some private investors and created Fado Holdings, (www.fadoirishpubs.com) and set about building a chain. To date, in addition to Atlanta, there are Fado pubs in Washington, Chicago, Denver, Austin, Cleveland and Columbus, Ohio.

A few months ago, a Philadelphia Fado seemed imminent. Now, it's not so clear. Brendan Buckley, executive general manager for marketing, says negotiations for a lease on a site at 15th and Locust streets (the former Napoleon restaurant) "just didn't pan out," and Philadelphia has since slipped down Fado Holdings' list of priorities. The company is focusing on Seattle right now, Buckley says; a Fado in Philly in 2000 is unlikely, but not out of the question.

Guinness, it must be noted, has no formal relationship with Fado Holdings, and has no stake in any of its American pubs. U.S. federal law prohibits alcohol manufacturers from owning bars, unless the beer that's sold is brewed right on the premises.

Guinness Import Company has, however, created a commercial development division specifically to promote what it calls the "Irish Pub Concept," the formula Guinness and Irish Pub Company developed in the early 1990s in Europe(www.irishpubconcept.com). At its heart are the "four key criteria" for a successful Irish pub: authentic design and decor; a friendly staff that's quick with a joke or to light up your smoke; Irish food and drink; and Irish music, be it recorded or live.

"Guinness research 110 Irish pubs in Europe to understand the correlation of the four key criteria with sales," according to an introductory booklet from GIC's commercial development department. "The results were dramatic -- sales revenues at European authentic Irish pubs exceed typical Irish pubs by a factor of four."

The key word in that sentence is authentic. Guinness has learned that the more authentically Irish a pub is, the more Guinness it sells. Why? Who knows. And as a Guinness exec might put it in an unguarded moment, Who cares? The numbers don't lie. Authenticity -- or at least the perception of it -- is a proven winner.

And that's why GIC will, for relatively small fees, provide an Irish Pub Concept introduction packet; customized financial analysis; real estate advice and demographic data; template business plans; design and build referrals (Irish Pub Company is one of four that GIC recommends); "introductions to sources of capital"; referrals to recruitment agencies capable of providing real Irish workers; pint-pouring training; suggested menus and recipes; operations manuals; management and chef training programs; pub owner conferences; suggested music play lists; and where to find real Irish bric-a-brac for the walls.

It didn't take long for the Dec. 1 meeting of Philadelphia pub owners and Guinness executives to turn tense.

Connie Doolan, a Guinness executive and former pub owner himself, had barely finished explaining that he was there to listen and to report back to his bosses in Stamford, Conn. when a question was shouted from the back of the group: "You're selling beer," the man began, arms cros sed. "Why do you have to compete with the Irish pubs?"

And thus began a give-and-take that would dominate the roughly 90-minute meeting. Clearly some, perhaps most, of the pub owners in attendance didn't fully grasp the situation. The gentlemen who shouted that first question posed it again and again, in different words, forcing Doolan and Jay Luther, head of Guinness' commercial development department, to explain repeatedly that Guinness isn't competing with anyone except other brewers.

But as O'Connor pointed out from his seat up front, that wasn't a fully responsive answer. O'Connor spoke of building his business slowly over 19 years, learning by taking risks and making mistakes, "and now there is a commercial development department [at GIC] that enables people to take a short cut. How that cannot be seen [by Guinness] as a conflict is insane."

Again, Doolan failed to address the question directly, speaking rather about how Guinness and pub owners together had both contributed to and benefited from the "Irish renaissance" of the 1990s. So O'Connor said it again: "You are enabling people to go into business against us, and we sell your product."

For all their protesting that anyone can open an Irish pub anytime they want, Doolan and Luther never did directly address O'Connor's point. But to be fair, what could they say? The truth -- that Guinness promotes the opening of new pubs because it's good for Guinness -- would have sounded much too callous under the circumstances. But getting angry at a company for exploiting a proven sales generator is a bit like getting angry at a killer whale for eating three baby seals when one would have sufficed. The market, like nature, is neither good nor evil. It just is. And the market dictates that businesses must do what it takes not only to survive, but to prosper.

The analogy is flawed, of course; Guinness isn't feasting on independent pubs. But that doesn't quell the concern or the sense of betrayal felt by the pub owners, who perhaps can't be blamed for seeing Fado or the Irish Pub Concept as, well, a great big asteroid slowly growing larger in the sky.

As a first step toward expressing their anger, O'Connor and Mullins have removed Bass from their pubs (GIC distributes Bass in the U.S.); Mullins also stopped serving a beer Guinness owns, Harp. They're encouraging other publicans to do the same, but for the moment, no one is talking seriously about removing Guinness. O'Connor tried it last year, but relented when he realized his wait staff was spending an inordinate amount of time explaining why. And O'Connor's pubs don't sell nearly as much Guinness as places like the Plough and the Stars and The Bards.

So it remains to be seen how far this conflict could go.

Insane though it may sound for publicans to consider open war with Guinness, some are beginning to feel they have no choice. As Mullins put it at the recent meeting, “Every time you blink another pub opens in Philadelphia.” Center City in particular might be nearing a saturation point. Not far from McGillan’s is Fergie’s, and Fergie’s owners have another pub opening early in 2000. Next door to the 20th Street Irish Pub is The Bards, another highly successful pub. Finnigan’s Wake, in the northwest corner of Center City, continues to attract huge crowds on weekends. South Street recently welcomed its third Irish establishment (in addition to Downey’s and O’Neal’s), The Blarney South, and Old City is expecting The Irish Oak, on Front Street near Chestnut, sometime next year. And of course there's Moriarty's, Cunningham's and a dozen or so more bars that are Irish to some degree.

So the owners can’t help but wonder what will happen if and when a Fado opens, or a pub employing Guinness’ Irish Pub Concept. Even with sales of Guinness products up about 15 percent in Philadelphia in 1999, as was revealed in the recent meeting, surely the downtown area is approaching critical mass.

This may have been what Mullins had in mind when he suggested to the Guinness executives that their company should “stick to brewing, stick to marketing -- that’s what you do best. And if we each do our own jobs, we’re going to make money.”

Background: Read Philadelphia City Paper's June 1999 account.

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