Pubcos insist future can be bright for tie

August 9, 2012

Lease and tenancy operators say they’re working hard to make pub careers more attractive. Scott Wright reports

IT’S often said that with problems come opportunities.

While the country’s major pubcos are unlikely to have relished the sustained criticism their business model, in particular the beer tie, has received in recent years, it does seem to have produced some positive change.
Granted, their opponents continue to call for an end to the beer tie (the government’s response to the most recent report from MPs on the Business Innovation and Skills Committee fell short of seeking its demise).
But leasing firms say they have changed for the better as a result of four parliamentary reports on their activities in the past seven years, with the benefits being realised by landlord and leaseholder.
Firms like Scottish & Newcastle Pub Company and Punch Taverns introduce various lessee support packages in recent months, while this month Belhaven owner Greene King launches a new suite of leasing and tenancy agreements to ensure it attracts and retains the best people to run its pubs.
Chris Sladen, head of business support at S&NPC, told SLTN that the spotlight shone on the pubcos has changed the industry for the better, with the firm now reporting a rise in the “quality and quantity of candidates” applying to run its pubs.
“It’s in our interest to generate more interest in the pubs, and part of that is being more user-friendly,” he said.
“For the whole industry, the debate over the code of practice and the BISC enquiry has prompted everybody to look at their arrangements.
“Everybody in the industry is looking to making their lease agreements as attractive as possible.
“That’s partly about self-interest in terms of recruitment, and partly because the industry has had a very clear steer from BISC.”
S&NPC isn’t alone in changing its outlook.
Greene King has responded to calls for greater calls for transparency in lease agreements by ensuring its new deals clearly communicate what’s expected of both parties.
From this month it is offering a new lease agreement and three new tenancy options, allowing it to attract the full gamut of potential lessees, from inexperienced and underfunded yet talented individuals through to more experienced operators.
The new lease, Horizon, is a 10+ year agreement assignable after two years; Touchstone is described as a standard tenancy; Touchstone Plus takes things a step further by incentivising tenants with rewards for meeting mystery shopper and sales targets; and Access allows talented individuals who lack financial backing to take on a pub, with GK sharing risk and funding training, legal and accounting fees.
In what’s thought to be a key development, the language used in the agreements has been Crystal Marked by the Plain English Society.
“With the Horizon and Touchstone agreements, we looked to simplify the language so the Crystal Mark status from the Plain English Society was pretty key,” explained Simon Longbottom, managing director of Greene King Pub Partners.
“We tried to write them in the same way we wrote our code of practice, so the documents are aligned – they look and feel the same.
“They’re just understandable for people who are coming into the industry or people already in the industry so they can quickly understand what it means to them and what the relationship is going to be like between us and them.
“The other area is around aligning objectives – at the heart of Horizon and Touchstone is how do we find an agreement that really, on both sides, represents risk and reward, giving both parties a shot of growth and making this business of ours successful.”
Longbottom conceded the BISC report has had some bearing on GK’s business, particularly with regard to the code of practice that governs its lease agreements.
He fully supports calls for greater transparency in leasing, accepting that “the tie has to evolve to be successful in modern teams”.
But as far as GK’s new lease and tenancies go, their development was driven more specifically by ensuring the agreements are clear and “provide a platform for growth”.
Meanwhile S&NPC, which is now a division of Heineken, has also made some pretty big changes lately.
A new team is now running the business, whose pubs are now wholly-owned by Heinken, following a major reorganisation 18 months ago, and it has a new approach for attracting leaseholders.
A new recruitment website was launched in April, and targeted internet advertising has been deployed to broadens its search for candidates.
Closer links have also been forged with the Heineken free trade team, a move said to have yielded more leads for the S&NPC team to pursue.
But external factors have also helped engender a sense of optimism.
While the fall in bank lending has created difficulties for some in the trade, it has meant that leasing has started to look more attractive for some free-trade operators.
Longbottom said GK was also tapping into wider economic changes.
“At the moment we have more applicants than last year, which is a positive thing,” he said.
“Since 2008, people are finding that circumstances have changed.
“We know that younger people are finding getting employment more difficult and we’re seeing an upturn in younger people wanting to join the business.
“We’re also seeing that people are leaving businesses they’ve been in
for some years and looking for alternatives.
“We think the tie model provides an outstanding opportunity for relatively low ingoings for people to run their own business and in some cases their own home.
“The Access agreement is important to us because we got frustrated when we met talented operators and retailers who just don’t have the funding.
“It’s what the tie model should be about – us providing know-how and support, but bringing really great people into our industry.”
Sladen is equally optimistic about the viability of the tie, but conceded wider trading conditions remain tough.
“Where it works, it [the tie] is a low risk, low capital way for somebody to come into the industry with a safety net of pub company expertise there to support them,” he said.
“The debate about the tie or no tie is actually a bit of a red herring, because it’s about the commercials and whether people are able to make enough money to make this an attractive business opportunity for entrepreneurs – regardless if they’re tied or not.
“And I think as long as people are able to make enough money then the tie model will prosper.
“Obviously what we’ve had over the past few years is almost a perfect storm of cost pressures and pressures on margins coming together to reduce the profitability of individual outlets.
“But I certainly get the sense that most of the major operators are looking at that and rebalancing it in the interests of being an attractive business opportunity for people coming into the industry.”