Tenanted pubcos and the long game
31/01/2014
Almost wherever you look at the moment, there’s evidence of tenanted pubcos upping their game. In a fiercely competitive world, the tenanted pubcos are doing their bit – acting with a retail-minded focus, investing, using their scale to deliver competitive advantage to their licensees, competing hard to recruit the best licensees.
One small but positive sign was to see senior executives of the major tenanted pub companies last week in Morzine, France, mixing with some of the cream of the UK’s retail community on the Association of Licensed Multiple Retailers annual ski trip. There were senior representatives from Punch, Paul Pavli and David Wigham, the head of Spirit leased, Chris Welham, Mick Howard from Star Pubs & Bars and others in attendance. It’s an important change for the better. There have been times in the past when the tenanted world has seemed like a “them and us” kind of existence. I’ve been involved in major pub sector award ceremonies where the tenanted top brass couldn’t even be bothered to turn up to celebrate their tenants’ successes. The ideal virtuous circle of pubco and quality tenant must replicate the Domino’s UK model where the two sides of the property and retailing equation mix socially to break down the barriers of mistrust that too often have dogged the tenanted world.
Just this week, Propel has reported a host of news stories that point towards much-improved relationships within the tenanted universe. We reported that Spirit Pub Company and Pesto, the multi-site operator led by Neil Gatt, had abandoned a two-pub partnership in Yorkshire – and the pubs will be transferred to Spirit’s managed division. On the face of, it’s a story of failure. I’d argue a contrary view. Spirit has embraced the multi-site community, who now run almost 25% of its leased pubs. It is showing a determination to invest and innovate, with turnover leases introduced for retail partners like Peach Pub Company. The Pesto partnership was more evidence of this eagerness to experiment. But not everything you try when you are being bold will work. In the past world of pubco/tenant relationships, Pesto would, likely, have been made to stick to the terms of its lease, continuing in situ, losing money and creating bad will. It’s a positive that Spirit has allowed Pesto an “out” so quickly. Spirit, with a decent brand portfolio now, has ready-made solutions for the sites – and the quick and non-punitive action here will burnish its reputation among the UK’s growing band of high quality multi-siters.
Punch Taverns led the tenanted pubco way in re-casting its internal culture. Just ask Brian Whiting, of gastro-operator Whiting & Hammond, how eager Punch is now to back quality retailers with investment and support. This week, Propel reported that Punch is applying its Champs sports bar concept to a site in Washington. It’s an example of a pub company generating an exciting and rounded piece of retail format off its own bat.
Innovation and investment is also in evidence elsewhere among the big tenanted operators this week. Marston’s, which deserves credit for pioneering franchising in the sector, announced developments in online communication and Star Pubs & Bars is investing a record amount, circa £18m in its tenanted estate. This morning, Propel reported that almost £1m will be spent on six pubs in Lancashire. Part of the supposed benefits of the tied pubs is that the relationship can support licensees in tougher economic times. Enterprise Inns chief executive Ted Tuppen told Propel this week that the company’s estate in Plymouth has survived the 22-strong pub cull the city suffered last year thanks to the support the pub company model offers. The claim deserves to be taken seriously. And, last but not least, Greene King’s future is clearly all about a growing managed division. But it’s still hard to imagine a Greene King future without tenanted pubs - and it’s good to see it supporting its two Michelin-starred tenant Tom Kerridge with investment, as Propel reported this morning.
One story in Propel this week points to the on-going danger that the major pub companies must avoid. It has been an oft-repeated statement of faith that outstanding pub retailers should not be penalised by their landlords for their success. Too often tenanted companies have moved Fair Maintainable Trade goalposts to earn more in rent. Former Greene King tenants Tony Leonard and Dominic McCartan were stellar performer for the company at their two Brighton pubs over the course of 12 years. They ended up, in my view, over-rented, Lo and behold, they are now producing £1m of turnover from the tiny, tiny Snowdrop in Lewes in East Sussex after walking away from their tied pubs. The long-term plans now being actioned by our large tenanted pub companies will require pubco self-restraint when rent review time arrives.