The next Tenanted Pub Company Summit will be taking place in London in February 2020. To be the first to hear about our 2020 programme, please register your interest by sending an email to firstname.lastname@example.org.
The MCA Tenanted Pub Company Summit is the only dedicated event for the tenanted and leased pub sector. The 2019 summit brought together 100+ senior executives from operators, investors and suppliers to this market, and delivered insight to help them get more clarity on the opportunities and future of this re-energised industry.
The best of the 2019 Summit:
- Star’s five-year investment plan Read more >>
- The M&A landscape for the tenanted and leased sector Read more >>
- The future at Punch Read more >>
- Supporting evolving businesses Read more >>
- Delivery: disruptor and opportunity Read more >>
- “Challenges and opportunities” panel Read more >>
- Investing in the next generation of the pub sector Read more >>
Following the afternoon conference, delegates enjoyed a networking dinner hosted by Kevin Georgel, CEO, Admiral Taverns. After sharing his thoughts on the current state of the tenanted sector, he introduced guest speaker Philip Kolvin QC, who shared anecdotes from his career as the UK’s leading licensing barrister, including his work with pubs, nightclubs, Uber and many others.
Star’s five-year investment plan
Heineken-owned Star Pubs & Bars was prepared to pump millions of pounds into its tenanted and leased estate in 2019, managing director Lawson Mountstevens indicated. Following the acquisition of 1,900 sites from Punch in 2016, some £140m had already been invested, with the focus being on continuing to invest in its portfolio, which would take priority over acquisitions for the following five years.
2019 will also see the group investing £14.2m in its Just Add Talent estate, which is run on an operator agreement model.
The pubco’s intention is to make its venues viable for the future by updating them to help increase trade, a strategy that has been carried out at pubs like the Coachman in Whickham, Tyne & Wear. The pub then went from turning over £3,000 a week to up to £10,000 a week, Mountstevens said, before adding that there are ambitions within Star to recreate the success of the Coachman, up to 150 times this year.
There would be a continued focus on the tenanted and leased model, he continued, explaining that “the opportunity for people in the leased and tenanted model is about being part of the local community.” Such integration into the community is a “sweet spot” for Star, he added. “Our vision is to own and invest in the right pubs. They have to be a certain size and scale. We have to invest in new talent and people who want to run businesses. Investment drives growth and we want to do that in the right way”.
As for the future, Mountstevens believed there was a bright one for the trade, even with difficulties caused by Brexit, but there was no real reasons why pubs could not thrive and survive in the coming years. He said the pub offered an affordable treat and night out, which is relevant in most circumstances.
The M&A landscape for the tenanted and leased sector
Sapient’s Peter Hansen stressed that having taken a lot of supply, and with limited exposure to the casual dining market, the sector was in robust health, with new money attracted to the segment due to attractive yields. He said that while clearing banks remained cautious on lending significant sums, direct lenders had stepped into the void, including the likes of Ares, ICG and Macquarie.
Discussing issues facing the sector going forward, he asked if the Fuller’s sale of its beer arm would lead to more pubcos exiting brewing and, if so, how this would affect the model of tenancies being a route to market for beer brands. He also posed the question of whether free-of-tie pubs would become an increasingly important part of the wider market, following Ei Group’s decision to divest of its commercial properties arm.
The future at Punch
Punch chief executive Clive Chesser outlined his three-year plan for the company, which will see £80m invested over that period. He told the conference that having around 1,300 pubs in the company, and being privately-owned by Vine Acquisitions, meant it could now focus on the future of its estate on a pub-by-pub basis.
On coming into the business in 2018 from Greene King, Chesser said: “I expected a tray full of problems when I arrived, but I didn’t get that. So when I arrived, I came to a clean desk and was able to say that what we’re doing next is focusing on growth and starting a new plan.” Having a small estate allowed future plans to be stripped back, he said, adding: “We’re small and agile. When Punch had 7,000 pubs, it was a machine”.
Supporting evolving businesses
A group of leading multiple pub operators called for the large pubcos to be more flexible in the way they support evolving businesses. ETM co-founder Ed Martin said: “Does a company at our stage really need all the support services? Can’t it just be a straightforward landlord/retailer relationship that doesn’t have all these extras? That would work well for multi-site operators that have their professional base already.”
His view was echoed by Peach Pubs managing director Hamish Stoddart, who said: “There certainly isn’t a differential pricing model that is transparent to us. In terms of dealing differently with a business our side, it’s not much more than crossing off one training course a year.”
There was also consensus among the group of a fear that their successful brands and empires could be taken away by their landlords once their leases were up. Martin, meanwhile, said that as a London-based business, ETM was reliant on leases and said “without the tied model, we wouldn’t have been able to grow. The majority of our sites are with Punch and they’ve helped us to grow. I would not say ‘no’ to a leased business as long as it was right and fair,” he said.
Having an estate consisting entirely of tenanted and leased sites was not something Mark Robson, co-founder of Red Mist Leisure, would consider. “It’s about a blend. The great thing about having a tied pub is that the barrier to entry is low and the investment is low, depending on the company you’re with,” he said. “But would I want 10 tied pubs? Probably not.” He went on to stress that he had never actually made money from a tied pub, saying: “I do know there are some in the sector who have, but the tenant needs to make money out of it and if the pubco is too greedy and the tenant ends up working a 100 hour week, then it’s not sustainable.”
Delivery: disruptor and opportunity
Gareth Nash, head of consumer insight at HIM and MCA Insight, updated delegates on the latest market data from HIM and MCA Insight relative to delivery, highlighting it as the fastest growing out of home channel. He pointed out that only one fifth of the Top 30 pub chains are offering delivery, compared to two thirds of the Top 100 Casual Dining chains. He acknowledged that delivery represents a threat for pubs, especially at dinner, with evidence showing that consumers are now increasingly ordering delivery as a treat for a night in, in favour of going out. With delivery forecast to reach £9.8bn in 2021, he urged pubs to look into the opportunities this channel could provide.
For more insights into delivery, please check MCA’s UK Foodservice Delivery Market Report 2018 >>
“Challenges and opportunities” panel
Ei Group chief executive Simon Townsend, Star Pubs & Bars managing director Lawson Mountstevens, Admiral Taverns chief executive Kevin Georgel and Punch chief executive Clive Chesser closed the conference by taking part in a panel discussing the challenges and opportunities in the tenanted sector.
Townsend vowed that the operator agreement is “categorically not going to replace the tied model”. He said that while the operator agreement had helped to propel Craft Union to more than 250 sites over the previous four years, it would never suit all pubs or publicans. Chesser agreed, adding that the tie would continue to evolve as the sales mix within pubs changes, such as the drive towards low and no-alcohol beer. Mountstevens said that the group’s Just Add Talent portfolio, which is a form of operator agreement, would grow to 150 pubs but was not appropriate for the bulk of its estate. He added: “It opens up opportunities for certain pubs and particularly those that require significant capital contribution. It takes a lot of risk out and allows us to recruit from a different pool”. Meanwhile, Georgel said there was evidence that some publicans were switching from the operator agreement back into a traditional tenancy or lease, explaining: “Fundamentally I think the essence of the leased and tenanted model is about ownership of the operator. I think that’s a nuance of those pubs, which is extremely valuable from a customer perspective.”
The panel were also challenged by the audience on what they were doing to address diversity issues within the sector. Georgel said that while Admiral has a relatively high percentage of female BDMs, the challenge was to progress that into more senior roles. To that, Mountstevens added: “We need diversity of gender but also diversity of thought and background”, something he said Star Pubs & Bars are doing a lot of work on. Further adding to the topic, Townsend said: “It also forces us to look at things like flexible working and career re-starts. We have to be honest about the fact that we haven’t made it that easy for a mother to return to her career after having a baby.”
Investing in the next generation of the pub sector
“One of the common themes that I picked up during the summit is an absolute commitment to innovation, positive evolution and a greater focus on consumers and our people. There is clear and growing evidence that people are seeking out more individual, more informal, authentic experiences, often championed and delivered by operators in our sector.
This, combined with the very significant increase in investment in recent years, is creating vibrant, exciting pubs in local communities, helping to drive what appears to be a growing propensity for people to stay local and socialise in their community. As we all know, wet-led pubs are seeing something of a resurgence, embracing the benefits derived from a beer category that is more exciting and engaging than at any time in my career and supporting the explosion
of gin and the growth of premium spirits and cocktails. And, as we all know, behind every great pub is a great operator who is truly tuned in to their local market, knows their customer, is nimble and able to adapt quickly.
That said, the challenges and complexities of running a thriving pub business that can successfully compete in its local market have significantly increased and I am sure that you, like me, are encouraged to hear how companies are continually evolving and investing in the support they provide to assist with these challenges. At Admiral this year we will invest more than we have ever done before and I know investment levels are up across most companies. Against this backdrop I am also encouraged at the re-emergence of people from outside our industry who are now considering operating their own pub business, and we are also seeing a reduction in the average age of applicant. All industries need new blood, fresh ideas, greater diversity, and this is something we need to continue to promote and encourage.
However, I do have one challenge for us all. If we are to ensure that our industry continues to evolve and respond to the challenges of the future, I believe that there is an opportunity to place a higher focus on investing in our people. I strongly believe we need to invest not only in our pub assets but also in the future leadership of our industry. Today we have seen some progressive strategies but as Peter Drucker once said, “culture eats strategy for breakfast” and we all know that culture is derived from our people and from great leadership.”