Monday, 15 October 2012

Company Focus – Greyhound UK – Poor Stewardship of 'Best of Breed''

In early 2009 investment-auto-motives – via this weblog - highlighted the opportunity available to FirstGroup by transporting the iconic American brand that is 'Greyhound Lines' into the United Kingdom.

Titled “Object Lessons for Teaching Greyhounds to Chase Rabbits”, (referencing National Expresses 'long eared' coaches) the essay highlighted the potential for Greyhound to enter a high-impact yet low cost bus/coach transport space. The timing was perfect to replicate the US model, providing highly differentiated, yet critically affordable coach service routes across the UK.

Upon 14th September 2009 that conjecture, though unfortunately only in name, became a reality, with the arrival of the brand to British shores.

The British press exalted the firm's decision to do so, recognising the massive potential to leverage what is possibly the only, and so greatest, globally renowned bus/coach moniker. A name that was interwoven within the cultural fabric of the American 20th century, and could have eventually become in the 21st century the preferred transport of the aspirant global masses, from Mobile, Alabama to throbbing Mumbai, India.

The Initial Public Response -

When the BBC ran the story on its news website in September 2009 a prompt and intelligent responses came from web-viewers. Many reacted positively with an expectation to travel upon a British incarnation of Americana, but it was the articulate views of a Jon Combe from Woking that summarised the challenge ahead :

...”The markets between the UK and US are very different. In the US Greyhound is the main ground-based long distance "inter-city" public transport, as it has very poor rail services outside of large cities. In the UK the rail network largely does that job. Even a two-hour journey time won't compete with the journey time of trains on these routes (typically about 90 minutes) and with the stop/start nature of traffic in our cities, I doubt it will be as comfortable as travelling by train. There is also heavy competition on both routes”.

At launch, MD Alex Warner said that the British incarnation was about the practicality of travelling from point A to point B. But as will be clearly seen, it instead devised as a premium service, seemingly targeted at a select socio-demographic group who are distinctively time rich and also cash rich. Thus the very idea of speediness and convenience – as per business traveller demands - was not actually a prime service consideration.

Poor Traction Out of the Gate -

Unfortunately, after only 3 years of operational service, Greyhound's owner, FirstGroup plc, stated that the brand's UK operations would be discontinued.

In the 12 months to March 2011 the division lost over £600,000 on revenues of £1.2 million. Although sales were reportedly rising, that pace was far too slow and was not expected to rise by any substantial amount given a restricted budgetary allowance from the parent company, which presently must battle its own financial woes; with the addition of further pressure given the loss of the West Coast mainline rail-service franchise (after Virgin Group's push for a judicial review on the matter).

But what exactly went wrong for Greyhound UK, given the highly promising macro-outlook.

Here in London, investment-auto-motives believes that the seeds of strategic failure had actually been sewn prior to launch.

Three Years Ago -

On that heavily publicised launch day, Warner proudly posed for the paparazzi, those press agency photos showing the new UK Greyhound bus positioned in front of the British landmark of Tower Bridge, so juxtaposing two powerful images, the setting enlived by the obvious inclusion of two real greyhounds. Warner regaled that "It's like when McDonald's was brought over to Moscow," he said. "There is a level of loyalty to iconic brands."

The PR campaign expectantly generated an avalanche of words that described the importation of the legend, and an explanation of how Greyhound UK would add excitement to the passengers and other road users alike.

Yet, even as the bus metaphorically stood in the station ready to leave, the signs of a commercial misadventure were present to see.

[NB investment-auto-motives winced at the time, but for the sake of common courtesy decided against negative comment, since the venture was ultimately funded by FirstGroup's mixed shareholder groups - institutionals to private retail].

To only very partially dissect the Greyhound UK case, the following undertakes a very shallow review to identify some of the basic mistakes.

These span:

1. Misconceived Brand Persona
2. Misdirected Product Offering
3. Misidentified Payment & Price Positioning
4. Misallocated Routes

1. Misconceived Brand Persona

Over the last 20 years within brand management circles the word 'Authenticity' has been so over-used so as to become almost an irony. However, there can be no denial that the maintenance of core values via a central product/service formula has been central to the ongoing success of 'iconic' brands. Especially so American nameplates new and old, ranging across Apple Inc to Harley-Davidson to LL Bean to Winnebago. Whilst a 'set formula' will have a degree of flexibility to meet subtly changing consumer wants, any fundamental change of perceived brand persona may well bring negative reaction from users and broader public alike.

The obvious example being Coca Cola's introduction of its new recipe in the mid 1980s with its immediate consequential backlash taught corporate America the lesson that users and the public are fundamental stakeholders in any brand's continued success story.

The issue for FirstGroup and Greyhound's executive team was a core dilemma as to how exactly to present a new Greyhound division to Britain. Whilst Britain views Greyhound Lines through the retrospective rose-tinted spectacles of Route 66 etc, in the US the brand has tried to maintain a contemporary stance, today very much middle of the road in terms of service offering and pricing; with brands such as MegaBus and BoltBus and others seeking regional and country-wide market-share of low-cost travel. This presented the exec team with a major branding dichotomy between UK perception and US reality.

In the UK bus and coach market, FirstGroup had to contend with Stagecoach's low-cost offering, and National Express' mainstream mid-market offering, aswell as of course available rail services (part of which it runs) and national airline services, which reflect much of the premium level travel sector.

With bottom, mid and top tier sectors already catered for, first impressions were that Greyhound UK could not compete head-on with 'incumbent' MegaBus, nor 'well entrenched' National Express, and so by default must be positioned as a road equivalent to rail and air – which of course it could never realistically be.

Its natural position was as a direct competitor to MegaBus. Yes it would be second in the marketplace but it hold far greater customer attraction, and could have 'owned the low-cost road' had its offering reflected the wants of target user groups, which when considered properly would not have cannibalised FirstGroup's prime rail customers, by offering very different travel experiences.

Greyhound Lines has been the archetype of American city to city transport (both trans-state and inter-state) since its birth in 1914 and evolution into a 'big corp' operator by 1929. As described in previous weblogs, the name became endemically interwoven into America's public consciousness during the Great Depression years as millions travelled across the USA in search of work.

It's personality invariably changed along with the economic fortunes of America, as personal travel needs merged from the pursuit of work to the pursuits of pleasures, its ability to offer transport links to industry and leisure through an ever expanding route network (often via M&A) giving it an unprecedented standing in the low-budget traveller's psyche. The brand share of mind grew through inclusion in Clarke Gabel films of the 1930s, inclusion in Chuck Berry (and others') Rock 'n' Roll songs of the 1950s and Simon and Garfunkel folk-pop songs of the '60s, and of course countless appearances as the contextual backdrop for an abundance of striving film characters.

The whole point of Greyhound, from its origins to today, is that far beyond the emotionality of its its cultural references, is that it offers a well recognised package of low-cost, few frills and and often frugal, transport. It was not all about the product (the bus) but all about the journey and the knowledge that Greyhound Lines would take you to or close to a chosen destination (the network).

However, underpinning the brand was the notion that the physicality of the bus actually imbued the spirituality of the journey – the two melded together through shiny corrugated aluminium, and bright orange front and rear marker lights which often because of the close proximity to the bus' destination boards literally shone on travels end.

The Greyhound bus had then become a cultural phenomenon, to ride a Greyhound was to “Ride America”, even if the experience itself was not always a perfect one, more often the case during recessions for social reasons. It succeeded in becoming a “Travelling 'Fan-Fare' for the Common Man”, whereby it gained its fans by virtue of the fares ascribed and the experiences had, whether good, average or indeed bad. But at heart it was cheap, dependable transport.

2. Misdirected Product Offering –

FirstGroup chose to reflect the style and service package of today's contemporary American Greyhound for the UK. Whilst that choice obviously expanded the norm and made brand management elements easier to deal with – presumably using a standards based corporate ID catalogue – the very flavour of an expected 'Classic Greyhound' was lost. FirstGroup was introducing 'New Coke' where the market appeared to longingly await 'Classic Coke'.

It is obviously not operationally feasible to wholly replicate the look & feel of the original American experience. Not all UK operators wish to deploy a high capacity 3-axle single deck bus (the US icon) given its lesser practicality and higher running costs and hardly wish to commission a special versions clad in an aluminium skin. Yet although an obvious problem exists in seeking to transplant the aesthetic DNA inherent in those freeway cruisers, it seems that no meaningful fettling of the 11 Scania Irizar PB coaches was made. No doubt because of the additional set-up costs of adapting near standardised 'euro' coach bodies to appear American and the fact that such adaption would have rendered a lower residual value on each vehicle and reduced the ability to repaint and re-use elsewhere within FirstGroup. An understandable compulsion to not undertake major modifications.

However simply clothing the standard 'euro' coach-body in the contemporary Greyhound livery of primary blue and secondary grey-silver (a reversal of the classic format) over a conventional 'long eared rabbit' coach-body, had the meaningless outcome of creating a sheep in wolf's clothing, not vice versa, as would have been the intention.

A small token to link to American culture was the provision of female names for 11 coaches drawn from yesteryear pop songs, to personalise and project a comforting personification; this no doubt influenced by the popularity of Eddie Stobart trucks, and is reminiscent of naming railway locomotives.

The supposed USP of the service were items such as on-board power sockets, WiFi, extra legroom and reclining seats (in addition to standard service items such as seatbelts, toilets and CCTV). But the media-device related items are increasingly seen as an entry level necessity by the 'connected' public, and those comfort related items whilst momentarily enjoyable are not a powerful purchase attraction upon the majority of short and medium distance routes.

Thus, the external and internal product package has little inherent differentiation and so attraction.

3. Misidentified Payment and Price Positioning -

As stated, given FirstGroup's perceived lack of opportunity in the low-cost and mid-stream coach travel markets, the company decided to seek out a premium pricing policy by which to launch Greyhound UK.

The exact rationale for this remains privately held by the BoD and management, but it seems obvious that Greyhound was viewed as having to become commercially self-financing as soon as possible so as not to be a drag on broader group profitability. Also, the latter-day 'top-down' expansion of a brand into mid and low tier sectors is theoretically far easier than trying to grow upwards.

To support this approach, it was decided that in one region (South Wales) the brand should offer a 'premium' orientated shopping-shuttle service from Swansea to Cardiff via the Bridgend Designer Shopping Mall.

This itself gives a clue to the general business model, whereby it appears, that the routes and pricing chosen were to in effect target the leisure shopping pursuits of the wealthier 'grey-market' (over 50s) situated in pockets of the Wales, but primarily on England's South Coast with day-trip and weekend-trip interest in going to London.

Thus from very general interpretation, it appears that the bias of passenger numbers were actually London-bound, which is a reversal of the notional routing (ie outbound from London). This is supported by the number and location of pick-up points.

[NB this often the case for operators that seek to both appear London-centric and reduce operational overheads. The company itself based in Empress Road, Southampton].

Although there is on-line advertising toward the business traveller set, it is unlikely that business people would choose to travel by road as opposed to rail given the far greater likelihood of travel disruption.

So whilst a tenable, indeed praiseworthy, marketing and business strategy for any other coach business seeking to provide a more upmarket package for deep pocketed (privately endowed) pensioners, small female groups and couples, such a start-point for the UK business meant that Greyhound UK was soon euphemistically called “Grey-Pound” by younger travellers.

[NB This was learnt of a couple of years ago from conversation with only a few coach travellers in Victoria Coach Station, some of which felt 'alienated' by the brand that was so well known to have previously served them in the USA]

The negative aspects of the ticketing model chosen may well have had a severe impact on user popularity, return custom, and so a firm and steady income stream. The disadvantages appear as:

A. Use of a flexible-pricing structure (commonly seen in the airline industry)
B. This applied on a per journey, capacity-specific basis (ie ever shifting)
C. Thereby providing little cost assurance to the passenger (esp “walk-up” cash payers)
D. Non-standardised payment facilities
E. Acceptance of cash vs cards vs both on different routes
(presumably because of differing socio-economic dynamics)
F. Notional promotion of 'on-line' booking
G. This less amenable to older users
H. Charge rates for telephone bookings (as opposed to toll-free)
I. Typical use of multi-shop counter-bought tickets
J. Use of 'e-tickets' (reference numbered)
K. Typical dislike of 'e-tickets' by older clients

4. Misallocated Routes -

At the 2009 launch of Greyhound UK, it was a real surprise to investment-auto-motives to view the initial very few (and later hardly expanded) routes to be run.

London – Southampton and London – Portsmouth were the first offerings, these hardly seen as providing either capacity or cache for the newly arrived icon.

[It is not until one objectively takes an overview that the real raison d'etre of these routes ((ie 'Grey-Pound) is understood].

London – Fareham joined the tiny network thereafter, with the addition of Swansea - Bridgend – Cardiff and lastly London - Glasgow (overnight).

This then relates a somewhat disjointed approach to network creation, which is best done organically so as to maintain public visibility and share of mind; although the similar rationale to connect provinces to regional hubs (London & Cardiff) is clear.

However, the latter addition of London-Glasgow (and vice versa) is less convincing, since it does not accord to the strategy rational, and is viewed as a parent-led decision to maintain contractual obligations and so a necessary addition. This especially so without an Edinburgh leg, which would provide a greater capacity boost from wealthier pensioners and couples seeking weekend or week-long holiday trips to London. Once again the apparent obvious potential has not been exploited, and so raises questions regards business intent.

Furthermore, there appears to have been overt over provision of the South coast service, with what are high-cost but poorly capacity utilised vehicles running once every hour - highly uneconomical.

To gain true public exposure, and so build the business, Greyhound should have ideally also been running services westbound and northbound from London Victoria along the M4, M40 and M1 motorways with reach into other regions. A charter basis to provide flexibility and avoid regulatory conditions of scheduled services. This would have been achievable by re-allocating what were under-capacity vehicles to such routes, and aligning the South Coast – London service primarily around early morning outbound and evening return departures, with some interspersed through the day (perhaps every 2.5 hours) to maintain daytime travel connections.

Summary -

To summarise, it appears that the very core of the business model contained drastic strategic and operational mistakes. This unfortunately achieved via dilution of the brand's central persona, failure of its vehicles to fulfil the subtleties of an expected Greyhound experience, poorly constructed ticketing methods and marginalised route allocation and so exploitation.

In short, a misdirected initial strategy created in late 2008 / early 2009 has been further undermined by unconvincing operational execution since.

The fact that the original 40 journeys per day on the London – South Coast run had been reduced to 8 in recent months, highlights that the vehicles were being re-appropriated to support other First Group services elsewhere.

An obvious final development was the loss of a dedicated management team as long ago as last year, the division now effectively in the hands of two FirstGroup bus depots.

Into Tomorrow -

But what of tomorrow? Could what remains of the Greyhound business unit, that is its few remaining assets, be provided with a better future via a fundamental review of the business and ultimately a turnaround of performance and fortunes?

Perhaps so, but highly unlikely to do so from inside FirstGroup, given its focus on re-strengthening its primary rail and road services, specifically the public embarrassment and consequential share price fall from loosing its preferred bidder status to on the West Coast rail line tender. That has given greater impetus for the likes of Virgin Group and others to try and further topple FirstGroup.

This then leaves the possibilities of

1. Discontinuation and absorb losses
2. Divestment via a trade-sale
3. Divestment to Private Equity

Of these three options, the third appears the most likely..simply because:

1. A gradual discontinuation has been underway, but in itself undermines the start-up efforts of the brand to date and damages its credibility. It also questions the business acumen of its original internal backers who supported the project, aswell as seen as absorbing sunk costs and so being effectively 'value-destructive' by share-holders.
2. A trade sale would of course give a fundamentally strong brand to direct competitors, an untenable situation. Conversely, any bidding competitor would be strategically hamstrung with no direct control of Greyhound US or Canada by which to synthesis and synergise operations, so offering little incentive to purchase.

3. A sale of the few remaining assets and UK brand rights to an empathetic, growth orientated, private equity house would be a positive outcome. It would allow FirstGroup to retain a minority stake, yet also offer a first-refusal re-purchase possibility at a future time after successful turnaround, or offer the potential for full exit at a much improved per share value.

A New Destination for Greyhound UK ? -

The ongoing deterioration of specific services (vehicles, drivers, routes and ticket availability) demonstrated that the division was being slowly wound down by FirstGroup. Press stories – such as the FT's on 27th September – confirming the wind-down process.
In perhaps a first sign of FirstGroup's lack of true commitment to Greyound UK, CEO Tim O'Toole said that it “was largely a re-branding exercise of existing services”.

Given the conjecture thus far, it may be viewed that the brand's UK future lies in the potential hands of the private equity industry. Itself presently in new growth mode seeking to attract a new intake of capital to be used for various UK national, European, American and EM directed funds.
Whichever fund takes an interest will have to already have a good understanding of the UK bus and coach market, with ideally past or present stakes in another well capitalised, well politically connected, and very probably wholly privately held, bus and coach firm. A firm, British or otherwise, which itself could offer the very necessary operational springboard.

Such a re-launch would require far deeper commitment than seen by FirstGroup thus far, and critically engage capable 'business drivers' who can actually see around the corner and far down the road.
Building a sensible, achievable, user-centric and exciting business model will the fund's prime expectation.

Whilst the expectations of any actual future customers of 'New Greyhound UK' will be to see the legend made properly tangible, enjoyable and a truly memorable experience.
That means 're-visioneering Greyhound UK' from top to bottom.

With a far greater melding of the Greyhound Spirit with the modern needs, wants and desires of youth, youthful and young at heart target client groups. That somehow means welding the physical iconographies of the American past – such as 'corrugated' polished aluminium (even if painted), the roof-top strips of orange marker lamps that theatrically underline the final destination – to the spiritual ideals of today and tomorrow – themselves arguably seen in socially spirited 'festival' culture.
The fact that the coach division already serves the Isle of Wight (renowned for its get-away festival events) along with island transport providers via with a single pass, provides one potential avenue for any New Greyhound UK.

Yet just as the Old Greyhound adopted airline practices in its pricing structures, so any new animal should look to the progressive efforts of participants in that sector to see what could be deployed.
When in actuality far from 'Route 66', the endless Idaho plains and anticipation of the blue Pacific Ocean, the very familiar British window-scape may need to be accompanied with far more theatricality inside the cabin.

This is something Richard Branson recognised when he considered expansion plans for Virgin Atlantic in the early 1990s, a potential avenue being the commercial rental of windowless aircraft, fuselages giving better crash protection, and internally sets of wall screens used to provide an altogether very different flying environment, with if required, the image of a porthole and sky outside beamed via an external camera.

Whilst it did not come to fruition it demonstrates the open-minded, creative thinking required when creating or re-creating a powerful travel brand.

An imaginary place made real where a whole raft of American and British cultural references from across the decades, today and tomorrow, could be juxtaposed and melded to create new attraction. Itself forming a fundamental part of a much needed refreshed UK commercial perspective which itself coalesces culture – service – industry.

Today, the commercial vehicle that is Greyhound UK could be said to be presently 'up on blocks'. However, in private equity hands it could be given four 'new legs' and settle into the 'starting blocks'. Once again set out to chase.

All the best from investment-auto-motives to whomever chooses to raise a new 'best of breed'.