#5 Merlin Entertainments CEO, Fiona Eastwood: Our Biggest Competition? Kids On Screens

0:17Hello, welcome to Big Boss Interview. you. I'm Fliss Hanna and I'm about to chat to Sean because Sean you've been interviewing someone about the ups and downs of their business. I see what you've done there Fliss. Yes, Fiona Eastwood is the chief exec of Merlin Entertainment. People might not see the word Merlin plastered around the theme parks that they go to around the UK or around the world but they are a huge business. They have lots of their Legolands under their watch, Thorpe Park and plenty more in the off-in as well. So that was actually a key part of what we spoke about is how on earth they come across which brands to partner with which ones might be coming down the line further in the future so minecraft is one that springs to mind why minecraft exactly how when where all of these questions we get into and the running of the business is behind that because actually there have been ups and downs the business has struggled at times it's credit rating has been downgraded never a good thing for a household or a business or a country and so we talked about But navigating that as well, Fiona's been at the business for quite some time.

1:21She was chief operating officer before she became chief executive, as she is now. So we talked about that as well. There's so much to get into. And I think the bit that really stood out to me, maybe as a parent, was just how important Halloween is for this industry. You kind of think of the summer months, but no, this was a big deal, isn't it? Yes, that's fascinating. So one, the growth of Halloween, seeing it down that perspective. but also I was intrigued by then the comparison what is it about spring and summer that isn't smashing it the way it used to and so there were some interesting takes from there as well getting kids off screens was one of the things that they like to talk about a lot at Merlin because you're out and about but there's a link of course when you're having Peppa Pig theme parks and Minecraft theme parks very closely linked to the screen in the first place so a real interesting business to hear how Fiona Eastwood has been navigating recent challenges, where it goes next, and what all of us customers are doing, particularly when we want to take our kids somewhere over a holiday period, and maybe without the kids, not in the holiday period.

2:27Oh no, that sounds tempting. Let's hear what she had to say.

2:32Fiona, welcome to our Big Boss interview. Thank you. Great to be here. Now, the first question you ask anybody who's had theme parks on their mind over the course of a year is how's the summer been for you guys at Merlin? Yeah, so we are a global business and highly diverse. So we have a global leader in branded entertainment destinations. What that means is we have theme parks. We've got resort theme parks. We've got Legoland Park resorts. And we also have indoor attractions. So what that means is we're not, we can hedge in terms of weather because we've got indoor attractions such as London Eye, Madame de Sourds around the world.

3:08And we've also got outdoor parks. and so that means we're perfectly hedged for both weather and for geography because we are in 20 countries, we've got 100 sites and over 5 ,000 hotel rooms. So when you talk about the summer, we're actually only just going into summer in Australia, for example. So in terms of the UK, our summer was pretty good, the weather was fantastic and that always helps to get people out and about in terms of our business. Does it help? Because it also gets people out and about doing lots of other things as well, doesn't it? Yeah, no, it does help. It's much better if you're a thief.

3:42It can be too hot. I think the ideal temperature is about 27 degrees in terms of our business. However, yes, it does help enormously. If there's great weather, everyone feels more positive. But yes, you're often then competing with the beach. However, our big competition in many ways is the home. all of our research shows increasingly parents feel quite stressed in the home and want to escape and what we provide is that perfect antidote to that so getting people off their phones getting them off their gaming sets in their bedroom so we're providing that escapism whatever the weather be it a park or an indoor attraction you know we've got some of the much loved biggest brands in the world in terms of our suite of attractions.

4:27We have the biggest toy brand in the world, Lego is a key partner. We also have Minecraft, the biggest gaming brand in the world and Peppa Pig, the biggest preschool property. And we'll get onto a few of those sort of brands and how they're growing, how they're changing, which ones are, which ones aren't so much. I'm interested, even if you've got that offer for those families that you talk about, they still need to part with some money. Have you noticed trends this summer in the UK about how people are spending, how much they're spending, where they're spending with you? Yeah, I mean, you've got to look at our industry over several years.

5:06So for the last five years, we've had to adapt and be agile. We had COVID opening and closing sites that were open all year round. We then had revenge spending in 2022. So people escaped the home and had cash and savings that were over the last few years. And then we hit inflation, which of course impacted energy costs. It impacted the cost of food and also the cost of living. However, there is a growing experience economy. What is great is we recognise that people want to escape the home, come to an attraction, be together, because the moments to be together are increasingly precious. and what we provide that's quite distinct is what we call play.

5:53It's about creativity, it's about spurring imagination, be the Lego, be Pepper and Minecraft. That's all about families coming together to play. And you would have had that offer in 2024 as well. So I just wonder, almost as a comparison, it's been a big year for everybody, businesses, households, big changes going on. Did you see a change in how people were spending this summer compared to last summer? Yeah, in many ways. I mean, we've had the last few years to get used to a changing consumer behaviour. And we see that in terms of the advanced research we do. And we see it as we look at our performance.

6:32It's been pretty positive. There's certainly our accommodation in particular. So we've got amazing themed accommodation in our hotels. So you can stay in Chessington in a Christmas themed hotel room all year round for those that can't get together at Christmas. And what we've seen is the hotels have actually been very positive. And that reflects that growing short break market that we see in many, many markets. And indeed, we also see that we have to, as we always have, I mean, Merlin's been, its whole ethos has been around every family should have access to a day out and be together. So we've always priced and ensured we're affordable, be that our annual pass, Merlin annual pass which is an annual pass for visitors to come to our attractions.

7:20How much does that cost? It varies so there's different levels we also so we've got from bronze premium and it gives you different benefits and so that can be anything from£80 for the year and above we also have many partners that help us access families so Sainsbury's Nectar through to Kellogg's and this summer to reflect the strain on public on people's finances we ran a fantastic campaign which meant you had two theme parks for one and what that meant was the ticket to a theme park in the summer was 18 pounds. So you're clearly having to react to something that's going on here when you say people are finding their budgets tighter so just almost I guess the straight question is you know average spend per head coming to your places how did that compare this summer to last summer?

8:18We've actually seen growth in the average spend per head we've also seen growth in terms of accommodation because of the premium experiences we offer because people are looking like I said to escape the house and be together so we've seen some fairly positive trends particularly in food and beverage particularly in our secondary spends so but it's a mix it's you can't look at our audience as just one set of people there's different types of people no but for us to get a sense of how you know the economy is doing it's actually you know those those bellwethers are pretty handy particularly when you know we had a budget a year ago that lots of people particularly business those running businesses were talking about and one of the messages was coming out of that budget was that the changes the tax rises that were announced were to try and limit the impact on households and it was businesses that were shouldering a lot of the costs it does sound like from what you're describing that you know there was a level of consumer confidence that you've seen hold up throughout this year to some extent i mean a lot of it is the measures we've taken the investments that we've made you still need people to spend though don't you you need them to think i have this spare cash to go out and look at where i'm going to spend it you might win that battle but they need to have the money in the first place it sounds like they have had from your perspective yeah i mean we've seen some really strong if i look at the current month halloween and it all is we're a very seasonally led business so you have spring break easter you have summer and halloween halloween that we're in now we're seeing some really strong performance and that's in view of the amazing product we have if you take thought park increasingly halloween is almost half of its annual profits and that is because we have special rides in the dark um that you also have mazes there's that whole thrill that we're tapping into so i think if you have an amazing product an amazing experience people will pay i'm not suggesting the cost of doing business is easy right now but at the same time if you invest in the right things, do the right marketing.

10:25And we appeal to 60 million people a year. So we've got a really strong customer base to build on. I want to ask you about that Halloween trend at a moment. I just wonder whether, you know, part of it, when you see that, you know, it's not like Halloween is a new thing particularly, but maybe something you're offering is new. And so therefore, it, you know, attracts people in a different way than it did before. But does it mean that there has been a bit of a struggle in that spring summer offering to keep the levels of growth that you would have seen and people coming at those levels that means that you whatever you've got right halloween time you've not been able to maintain that momentum at other times of years the sort of you know maybe tiredness sometimes you see a word use not about the the concept of the theme park and these activities that people might go to?

11:13Yeah, that's not something we see in our research. We invested 350 million last year in our experiences in parks. And a number one priority for us is to elevate the park experience. We put a lot of effort into our frontline teams as well as those investments. So in terms of trends, last, as I mentioned, last few years, we've had COVID, we've had inflation. And last year, we actually had a pretty good year volume grew. So that showed there's demand for our experiences, demand in experience economy. And we also had a good revenue position alongside profits too. So last year was good. And this year, I'm six months into role.

11:54I've spent the last few months, almost whilst I have in depth and deep experience, I've been at Merlin for 10 years, I also came into the role, you have to as a CEO, looking at it from an outsider. So we've spent the last few months assessing the business whilst also flying the plane, but also looking at what we need to do to be more competitive, to ensure we are driving growth. And so we've moved from one to one business. So economies of scale, we had 100 plus attractions operating slightly differently. So we're consolidating our approach, we're centralising certain functions, and that's enabling us to then reinvest in those experiences and pull and drive demand into them as well.

12:41When you say last year was a good year, you saw that as being a good year for yourselves. I mean, we've seen things like the credit worthiness of Merlin, the way ratings agencies might look at the debt that the business has as a whole and the ability to pay, the confidence they will have in the timeliness of a company or a country to pay that back. We've seen that be downgraded. You know, there was a big net loss last year. There's been some big financial decisions that have been made. Others wouldn't see it as a good, healthy financial picture for Merlin at the moment. Yeah, I mean, that was widely reported.

13:18And that was based on the forecasts of where we were earlier this year. We're actually coming out of this year stronger than we expected because of a lot of those investments. But in terms of last year, that was actually a strong performance. We saw volume improve. We also saw good revenue and profitability. And we're seeing a lot of those investments now pay off. We also, earlier in the year, kicked off a transformation programme, like I mentioned, in terms of going from 100 attractions to one company. That's doing procurement differently. It also is looking at where we had duplication. We had three divisions.

13:55We're now one company, global and regionally led. And that's allowed us to remove greater efficiencies, productivity and take cost out of the business. So we're not resting on our laurels, nor no business would. But I've got a very strong growth platform that shared recently and built with the leadership team that we're really excited about in terms of future growth. And so do you expect this, you know, the winter, the bookings that will be maybe going into next spring, summer, how do you expect customers in the UK to be behaving now? Do you expect them to be spending more with you than they were the year before?

14:34Like I said, we've had a strong year so far. The year's not over. Many of our UK attractions will be up until mid-November and then reopen again for Christmas. In terms of next year... So that Christmas spend, I guess, you know, what's your feeling at the minute about how people are shaping up for this Christmas compared to last Christmas? Yeah, I mean, if you look at year on year trends at the moment and people do book later, but the accommodation is a strong bellwether for that trend. And we're seeing strong accommodation themed rooms. And that's because those are very special short breaks for a family to take.

15:09They're looking pretty healthy, but I can't share too much given the way we're funded in terms of that outlook. But in terms of next year, we have a really fantastic series of investments coming up. So we have the world first bluey ride at Alton Towers as part of CBeebies land, which I believe will be amazing and will be fantastic for us. We also have the first Paw Patrol land coming into Chessington. So really tapping into that broad family audience that will be coming into our parks next year. They are buzzwords, aren't they? And I'm intrigued as to how you end up, which ones you choose or if that is even the right word.

15:46And I'll get onto that in a moment. Just on, I wouldn't, with the Christmas stuff, I know you can't talk too much about sort of forecasting and whatever, as you've said, because of your ownership structure. But we do have a budget that hasn't happened yet, but will happen not long just before Christmas. What are you thinking about what is potentially the consequences of an end of November budget, the way we're teeing it up to be at the minute for your business, for the people who might spend money with you? Yeah, so I'm not only CEO of Merlin, I'm also on the UK Hospitality Board. And as an industry, we have had an impact from last year's budget.

16:28And we also saw at that point consumer confidence dip. The biggest concern with all of this is the amount of rumour and noise that's coming out, because the longer this is delayed, it does, of course, impact customers. They do start to hold back on spending. So the sooner we get to that point, I think it will be a positive. What we really want is a growth-led budget. You can't, just like in a business, you can't cut your way to growth. Higher taxation will also mean you can't grow if we're not careful. So we have three main asks. The first one is a VAT and to be competitive with our European neighbours.

17:06We know when we look through all of our trends, price is a key factor for both inbound and domestic people to holiday in this country and also go to restaurants and pubs and enjoy leisure and hospitality at its best. and so what we want is to have a level playing field with our European neighbours a VAT rate of 12.5%. We saw in Covid when VAT was reduced we saw a bump and we saw demand and we saw people wanting to spend and so we want to be competitive with our European neighbours they're at 10 % so at least get into 12.5 % we're in a better position. On something like that that clearly does impact people's sort of desire to spend if the price is lower and might give businesses more confidence if they think that's the environment they're in.

17:53How would it work, you know, if you saw a reduction there, but you saw an increase in income tax, so, you know, all of your working customers who would see an increase in the amount of taxes they're paying, would that be a better way to do things overall, if, as seems likely, the Chancellor does need to raise some money overall from somewhere? Yeah, look, VAT is massively important. What we saw when the tourism tax, the tax-free shoppings introduced, we saw fewer people coming into the country. So tourism from another country is also important. So I know you're mentioning tax rises versus the, that would be the domestic, but that international tourist is also impacted by VAT and the tourism tax.

18:38We've seen fewer visits coming into London, fewer stays in London, people are nipping to Paris to do their shopping. That means less hotel rooms, it means less flights, and it also means less employment. So by reducing VAT, that will drive growth both inbound and for domestics to spend in the UK. What's at risk for the hospitality industry, the entertainment industry with the budget? If Rachel Reeves doesn't get it right, the way you see it, you'll already be hoping that all these bookings are going to be coming for that Christmas period. Is there something at risk for just even the weeks afterwards if the tone isn't as your customers and you need it to be?

19:21Well, we've seen from the hospitality, it's the third biggest employer in the UK. It's£93 billion and employ 3.5 million people in the UK. We've seen from last year's budget and the changes to national insurance that there are now two pubs closing a week and there's also been 80 ,000 job losses. So not only does it impact the customer, it also impacts businesses in terms of those increased costs. But I guess at the same time, people hearing how Merlin has been doing and there's needed to be lots of cost cutting there for reasons that aren't really to do with a budget last year or a budget this year.

19:57There are ways to make it work in hospitality and at the same time there are business decisions that will need to be made that means cost cutting is required irrespective of what the Chancellor says? To some extent. I mean, of course, our business is impacted by customer confidence. You see it immediately if there is concern. And we're one of the first to see it because of those, because of the experience economy is a growth economy. Do you feel you are one of the first to see it? You know, do you almost, a budget is announced on a lunchtime, we all listen to that speech, and within hours can you detect how people are feeling on the back of it?

20:36To some extent. So, I mean, in terms of the November budget, a lot of our UK attractions are closed apart from the indoor ones. Yeah. Yeah. So, but you almost at this point, it's similar in other markets. If there's a lot of chatter from press and governments, you see it come through in consumer confidence, that's for sure. Now, in terms of what people can expect, you've mentioned a few of those, the brand names. I mean, too many kids are not brand names, are they? They're just like a way of being. but whether it's you know Peppa Pig, Minecraft you mentioned Bluey as well there are others in there what is it how do you go about deciding what is the next big brand that you want to engage in or is it others sort of telling you a little bit because Merlin is what's it 50 % or so owned by the owners of Lego for example so or at least in the last numbers I had I don't know what the Yeah, that's right.

21:32That's about right. So which way is the influence there? Are you sitting there going, do you know what, we need to get into Bluey? Or actually, is there a sort of bigger story going on here where the likes of Lego think, right, we want some toys on our shelves at a Peppa Pig Duplo. And at the same time, we want a theme park opening up. We'll have a word with you, say that's what we're after in a different market. And how does it come to fruition? Well, it's very much led by us. It's our business, whilst they are investors. and obviously we work closely with Lego and it's a fabulous brand, much loved and it's great to see the Legoland parks bring to life on a big scale the Lego product.

22:11And what we do in terms of which brands, it's all about play, it's about imagination, it's more than just the metal. The rides are hugely important, of course, but there's also those small moments. So if you take the Lego brand, we've just launched a new park in Legoland Shanghai and that uniquely has the biggest mini lands. And what's fabulous about that, as well as having the amazing buildings in China recreated in Lego, there's also moments to build. So it's fabulous being at the launch for that and seeing children and parents building in one of the areas, the Great Wall of China, and then, of course, the kids jumping over it.

22:49So we look at data, we look at stats, and for us, it's about partnering with the biggest, most loved properties that we know have huge fan bases that's one of the big levers for our future growth strategy is they're building that fan base we've got 60 million people now we want to get to 70 80 million and that will be driven by those brand partnerships such as lego and minecraft and others and at any point do you end up sitting around a table where you've got chief executive of a huge you know toy manufacturer and chief executive of a big streaming platform and a publisher you know whatever that might be where you're actually all talking at the same time because you know I'm not necessarily sure I'd have asked these questions 10 years ago when I wasn't so familiar with these brands but these days life changes and that's that's where you are it can be quite overwhelming and you feel like everywhere you look it's the same stuff popping up how does that happen look these bands are because they're much loved there's then demand to have them in lots of different spaces my background before was in building brand franchises So I know that there's appetite there and products and experiences and other elements follow after that.

23:58I mean, this summer we launched our first ever Lego Festival, which is a connection of building. It was dance and it was also music. And that was fantastic. Not only does it mean you're providing something much deeper and a deeper relationship with your guests, but you're also giving them a different experience that only we can provide because it's based on that creativity and learning through play. I'm interested though with Minecraft. Do you feel, as somebody who's been around brands for so long, that there's been, is it a changing of the guard a little bit where there's this computer game now that is starting, that's been the essence of Minecraft, that is starting to dominate in different ways?

24:37Because a lot of the others we talk about, you know, they're from our TV screens originally. Yeah, that's a good point. I mean, ultimately, if you take Lego, they also became a game as well. I remember my son when he was little playing the Lego Harry Potter, for example. So gaming's been around for a while. But you're right. Minecraft, of course, started in the game, but now has a merchandising range. And we'll, of course, working with Minecraft, bring to life the first big experiences as well in a few years. Does it mean a different type of customer, a different type of family perhaps? Do they spend it a different way if it's Minecraft rather than Peppa Pig?

25:15I don't think no, because what's unique about all of the brands we work with, and indeed Pepper, Lego, Minecraft, it's about a fan base. So they absolutely love those brands and they want to experience those brands with their family. They want to come to us to play on a bigger scale. And so it's exactly the same in terms of thinking about how you bring those worlds to life on a epic scale, make it immersive, make it feel like you're in the brand. And you want to build stuff, clearly, whether it's on the sites you have or new sites. Are you able to get stuff built amidst all of the things that you have going on at Merlin?

25:57If you decide, right, we want to go ahead and get this done, can you build something as smoothly as you would like to? I think, yes, we can build things. We proved and we've got two new rides coming next year. And we had hotels last year at Warwick Castle and indeed at Legoland Windsor. so yes we can can it be improved absolutely and working with government and working with our partners that's certainly one of the areas of opportunity is how we cut some of that red tape and make it faster and better what what is the sort of biggest blocker because that'll be another one we're starting to get you know wind a little bit aren't we of of more planning changes planning and planning reforms that are on their way and people wondering why hasn't any of this sort of kicked in and got going yet.

26:41What for you, is there a blocker that you've got right now that you feel would just enable you to grow as a business much more quickly if it was removed specifically? There's nothing specific. Like I say, we work really well with our partners, be it local councils, local government, and indeed the main government. And it's something that there's always ways to improve it. There isn't one thing I'd point to other than how can we move a bit faster. Can I ask you about Madame Tussauds? Is that a difficult one at the moment for you to decide sort of what to do with it? The brand value sort of being reduced on that.

27:17We've heard of many of the brands that you've talked about where that brand value is growing and growing. But in every business, there are tougher sides. Is that one of them? Look, Madame Tussauds is a fantastic brand. It's like 150 years old, and it still delivers incredibly well. But all All brands need to be revitalised. All brands need to be reviewed. Who's the target market? How do we reach them? What's the right product? Is it worth less? So do you guys value it less now than you would have done previously? There was part of the question earlier around the impairment. That's just an accounting piece.

27:54It's just around the brand value on a balance sheet. But ultimately, it's still a brand we're absolutely confident in that we back and we can still see growth. It does need some element of being rebooted. And that's what we're working on at the moment with our brand teams and some exciting plans underway. Is that hard in a modern age where people maybe don't need to stand next to a statue of a celebrity to have an image of them doing something with that celebrity? No, you'd be surprised. I mean, not far from here, where I am in London, is, of course, Madame Tassau's Baker Street. There are still queues around the block to get into Madame Tassau's.

28:31it's still an iconic attraction and part of any visitor's visit to London. I mean, our attractions in London, one in four visitors to London come to one of our attractions. So they're still huge. And the Madame Tussauds brand, you still see it's a selfie. So it still taps into that Instagram, that brag factor. And it's just if Madame Tussauds were alive today, what would she be doing? What would she be using? That's some of the questions that we're asking ourselves. There's also an element, the Madame Tussauds brand in particular, because it tends to be an inbound tourist, has been impacted by some of the trends I mentioned earlier in terms of inbound visits to London.

29:10But also many cities around the world still haven't recovered from an international perspective from Covid. So there's still fewer inbound visits to these big cities than there were pre-Covid. And in this portfolio of all of these different brands you've got, when you mentioned Minecraft, is that going to become one of your own parks that you own and run? Is that the plan? The plans at this stage are incredibly exciting. We're working very collaboratively, as we do with Lego, with the Minecraft team. And it's fantastic to see some of the ideas that are coming to life, both temporary and permanent and in different formats.