Marston's tenanted pubs return to growth

Marston's has hailed the impact of its quasi-franchise Retail Agreement in helping to return its tenanted division to growth for the 26 weeks to 2 April.

The Retail Agreement, which sees licensees typically earn 20% of turnover to pay themselves and staff with Marston's buying everything centrally and paying all other bills.

The model allows licensees to focus on maximising sales and motivating staff without administration and purchasing price distractions. It has converted 227 sites to date and hopes to operate 600 pubs under this lease by September 2013, including another 100 by the end of the financial year.

The average profit per pub in the 1,660-strong tenanted estate rose by 1.5% for the 26 weeks on last year with total revenue up 4.5% to £85.9m. Underlying profit was £38.6m — an increase of 0.3% — which the company said reflected the "stable performance of pubs on long-term traditional agreements, and the profit uplift being achieved from Retail Agreement pubs".

In its traditional leased estate, revenue was up 0.2% with operating profit up 0.8% on last year. "Rents were up 2.7%, demonstrating that our rent setting process has been consistent, fair and implemented with regard to the sustainability of the pub," said chief executive Ralph Findlay.

"In these pubs, tenant stability is high, with licensee changes less than 10%. The stability of profits and licensees demonstrates that tenanted and leased pubs, operated by skilled retailers, are capable of meeting the challenges of the current economic environment."

In the remaining 600 pubs, set for conversion to the Retail Agreement, profits were down 3% — a "significant" improvement on last year. "The rollout of the Retail Agreement has contributed a further £0.7 m of profit growth this year, offset by a profit decline in the pubs yet to be converted," said Findlay.

Operating margin for the division was 1.9% lower at 44.9%, primarily due to the rollout of the Retail Agreement. Marston's invested £13m, Including around £6m in Retail Agreement pubs and £7m in on-going maintenance. The average expenditure per conversion to the Retail Agreement is £50,000 with a targeted return on investment of 20%.

Across the group — managed pubs, tenanted and the brewery — revenue rose 2.8% to £317.9m with underlying operating profit up by 1.4% to £66.4m and underlying profit before tax up 5% to £29.2m.

Managed pubs​

In its 486-strong managed Inns & Taverns estate, revenue rose by 3.6% to £181.7m, reflecting the contribution of new build pub restaurants, like-for-like sales growth and the disposal of a number of town centre leasehold sites. Underlying operating profit of was up 3.9% to £26.5m.

Total like-for-like sales were 2.4% above last year, with like-for-like food sales up by 4.7% and like-for-like wet sales up 1.5%. Average food spend per head has increased to £6.24, driven primarily by increased sales of starters and desserts, which saw a 10% jump.

Findlay said it demonstrated that "pubs which offer value for money in a high quality environment continue to enjoy strong consumer demand, despite the difficult economic backdrop".

He said: "The popularity of our value offers, which include trading formats such as 'Two for One' and '2 meals for £10', has contributed to a 10% increase in the number of main meals served to over 12m in the period. We have held the price of our award-winning children's menus, achieving a 16% increase in sales of children's meals to over one million per annum."

Martson's achieved a 0.1% improvement in operating margin through lower food costs and tighter labour control. It invested £17m on new builds and £14m on the existing estate, including 23 pub refurbishments.

It has opened eight new sites this year and remains on track to reach its target of 20 at the end of the financial year. It is planning a further 25 the following year.

Average turnover at pubs built since 2010 has improved further, with average turnover up to £27,000 a week from £23,000 last year and well ahead of its £20,000 target.

New-build sites also continue to generate a high EBITDA return on capital — increasing to 18.6%.

Brewing​

Overall beer volumes were up 4% on last year, with premium ale volumes up 6%. Total revenue decreased by 2.5% to £50.3m, reflecting the timing of Easter and lower standard lager volumes in the independent free trade. Underlying operating profit increased by 1.4% to £7.3m.

Its freetrade account base has increased by 8% to over 3,100 customers with cask ale sales up 6%.

Off-trade sales now account for 47% of its ale volumes. Across its premium ale range, Marston's was up 4%, Hobgoblin up 10% and Ringwood up 12%.

Operating margin was up by 0.5% to 14.5%. "Costs were broadly unchanged and we anticipate this to be the case for the remainder of 2011 because the majority of our supply contracts are at fixed prices," said Findlay

Current trading has seen a positive uplift with managed house sales up 3.2%, including food sales up 5% and wet up 2.7% for the 32 weeks to 14 May. Like-for-like sales for the nine weeks to 14 May are up 5%. Tenanted and leased like-for-like profits are also up 0.4% and own brewed volumes up 4%.