Pub companies: follow-up - Business, Innovation and Skills Committee Contents


Memorandum submitted by Marston's Pub Company

1.  EXECUTIVE SUMMARY

  Marston's Pub Company (MPC) has taken very seriously the conclusions and recommendations of the BESC investigation into leased and tenanted pub companies. Not only has MPC launched a range of initiatives designed to address the significant business issues faced by our tenants and lessees, but also it has played a full and active part in the British Beer and Pub Association's efforts to develop accords with Lessee representative groups.

  MPC is fully committed to the agreement between the BBPA, BII and FLVA. MPC will revise its own code of conduct in order to meet and exceed the new standards established by the BBPA/BII/FLVA agreement. Our revised code will underpin our relationship with our tenants and lessees and will be provided to them whether existing or prospective. This code will be binding on MPC and its customers where appropriate.

  MPC, as a member of the BBPA, is also fully committed to the Pub Independent Rent Review Scheme (PIRRS) which has been launched recently.

  MPC is passionate about the value of the tied pub model and remains convinced that it offers real value to tenants and lessees, the Company itself and consumers. MPC is committed to trading responsibly and to the mutual benefit of all parties involved in any agreement.

  MPC believes that significant improvements have and will continue to be made to the operation of tied agreements. As a result it argues that further action or intervention in the industry will be unnecessary or indeed counter-productive.

2.  MARSTON'S AND MARSTON'S PUB COMPANY

  Marston's has been brewing beer and running pubs for 175 years. It owns about 2,200 pubs and operates five famous cask ale breweries. It also owns its distribution fleet and employs an extensive team of Beer Quality technicians which concentrates on raising the excellence of cask beer sold in pubs. Marston's is a significant employer in the Midlands.

  Marston's Pub Company operates 1,700 tenanted and leased pubs in England and Wales. It has a very flat structure    there being only two layers of management between lessee and Managing Director. Alistair Darby runs the division. In his first 14 months in the role he has visited 400 pubs and spoken extensively to tenants and lessees. He has also chaired the BBPA working party tasked with addressing the findings of the BESC report. MPC has also undertaken an in depth survey of lessees' and tenants' attitudes through CGA, which interviewed over 200 pubs.

3.  BUSINESS INITIATIVES LAUNCHED TO ASSIST TENANTS AND LESSEES

i)   Pricing

  Around 75% of MPC's tenants and lessees are tied for wines, spirits and soft drinks. In the autumn of 2008 it reduced the prices of these significantly using Booker Wholesale as the competitor benchmark. This had the effect of moving £1 million of margin into tenants' and lessees' businesses — about £1,000 on average per pub. As a result volume sales have risen significantly.

  In April 2009 MPC passed on lager price increases £5 per barrel below those recommended by the supplying brewers. In addition an extra £5 per barrel of lager bought between April and September would be refunded in October 2009, on condition that tenants and lessees agreed to clean their beer lines weekly, to confirm that they had professional stock takes and to stick to their contractual agreement. Over £40,000 was refunded in October to 159 tenants and lessees. It is sad to note that, despite considerable promotion of this scheme, less than 20% of eligible customers chose to participate when invited to do so.

  MPC has continued to offer tactical price promotions to pubs under specific competitive pressure. These offers have had mixed results confirming that success is dependent on a committed tenant or lessee and adequate space in the pub to cope with increased volumes.

ii)   Support

  MPC has provided £3 million of rent and discount support to lessees and tenants over the last 12 months. It has also trained all of its BDMs to conduct in depth business reviews with tenants and lessees so that they can identify together opportunities for sales growth, margin improvement and cost reduction.

  MPC also has a dedicated team which provides extensive business building advice through its regular Bar runner magazine, its Full House manual and by supporting industry events such as National Pub Week in cooperation with Justice for Licensees.

  MPC uses the buying power of Marston's to offer services such as refuse collection or pub consumables to its tenants and lessees at better rates than can be achieved individually. It also provides advisory services, for example for utilities or business rates, to enable tenants and lessees to cut operating costs. MPC earns no commission from any of these services.

iii)   Licensee Skill Development

  MPC has always had a strong track record of offering high quality training both to existing tenants and lessees and new ones. During 2009 MPC has added new programmes designed to address the increased strain imposed by the consumer recession. Two courses, The Profit Improvement Programme and The Rescue Package, have proved very successful. They have been especially useful when allied to extended repayment plans as a result of tenants and lessees falling into arrears.

iv)   Agreement innovation

  MPC has recognised that more challenging market conditions require greater choice in agreements available to tenants and lessees. As a result MPC has launched four new agreements in 2009.

  The Tracker agreement converts a fixed fortnightly rent payment into a variable charge levied on barrels of beer purchased. This agreement charges rent by adding £75 to each barrel purchased up to 200 barrels. At this point no further charges are levied and all incremental barrelage is rent free. The agreement therefore allows rent to flex with the ups and downs of trading and rewards endeavour. In addition all machine income after tax and rent is taken by the tenant to help increase revenues.

  The Premium Tracker agreement builds on The Tracker agreement by adding additional support through a weekly reverse premium of up to £200 for the first six months and a free first delivery of stock. This agreement is used to give specific tenants a fast start in their pubs.

  MPC now has about 100 Trackers in place.

  MPC is trialling The Advance Agreement. This gives tenants and lessees high discounts on all purchases (£120-£130 per barrel on ales and £170 per barrel on lagers) in return for an additional payment. This payment is calculated off a reduced volume target resulting in a benefit of about £5,000 to the average MPC pub. The agreement also includes a more rewarding AWP income sharing mechanism. The Advance agreement sits alongside the existing lease and can be taken up subject to a few basic criteria being met. MPC believes that this agreement addresses the key issue which affects landlord—lessee relationships by supplying beer at competitive market prices.

  The Retail Agreement is now being rolled out by MPC into 90 pubs. In these pubs the retailer earns 20% of the net take from which income is earned and staff paid. MPC takes responsibility for everything else from repairs and refurbishment to tills and utility bills. The agreement provides a very low risk entry into a pub business—the retailer only requires a refundable deposit of £5,000—and all the expertise of Marston's pub retailing skills. MPC expects this agreement to expand significantly over the next two to three years.

  Finally, MPC no longer incorporates lessee/tenant AWP income into its FMT rent calculations.

4.  CONCLUSION

  MPC is fully committed to the BBPA/BII/FLVA agreement and PIRRS.

  MPC has evolved rapidly to improve the sustainability of tenants' and lessees' businesses. MPC will continue to innovate in the face of a challenging consumer environment.

  MPC is passionate about working cooperatively with its tenants and lessees to improve relationships and will continue to support the BBPA's efforts to build agreements with Lessee representative bodies.

  MPC argues that significant progress has been made in the aftermath of the BESC report and that it is now time that the industry is allowed to implement the initiatives to which it has committed without further distraction.

18 November, 2009






 
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