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The Big Interview: Alistair Arkley

By Phil Mellows , 19-Nov-2012


Arkley: "There used to be a logic to the pubco business model, but it’s changed in recent years"

As the sun sinks over the plains of the Serengeti the last light of the day glitters in the golden dust, stirred into the cooling air by the hooves of 10,000 wildebeest. In the distance the breeze shudders the canvas walls of a lonely tent. Inside, Alistair Arkley, taking his seat for the evening’s repast, suddenly halts and points a quivering finger.

“Ooh look,” he says. “They’ve got our plates!”

Wherever he might be, Arkley is these days always checking out the crockery. He’s taken a strong interest since becoming non-executive chairman of Stoke-on-Trent manufacturer Steelite. You never know where their plates are going to turn up. And yes, he did once find them in a tent on the Serengeti.

Less surprisingly, though, you’ll also find them in his pubs. Chameleon Bar & Dining comprises six destination food pubs run under management dotted across the north of England, a relatively modest venture for a man who, for more than 20 years, has played an active role in the development of the industry.

Following the Beer Orders of 1989, when Arkley was managing director of Camerons Brewery in Hartlepool, County Durham, he was among the first to spot an opportunity to create a new kind of tenanted pubco, independent of the brewers.

He raised £50m to form Century Inns, and after it went to feed the growing beast that was Enterprise Inns in 1999, he started all over again. New Century Inns (NCI) expanded to 49 pubs before it was bought in 2007 by Greene King for £32.6m, earning its in-vestors 20 times the cash they’d put into it.

While not unblemished — his Passionate Pub Company was a victim of the recession in 2010 — it’s a persuasive track record that’s earned Arkley the respect of the pub industry and beyond, especially in the Aberdonian’s adopted north-east.

There he’s been active in various bodies, including the regional development agency, with which he served while he had “time on my hands” following the Century Inns takeover.

It was at that time that Chameleon was born, almost by accident, as he explains.

“After Ted Tuppen unexpectedly took us over I bid for companies like Vaux but never quite got them. Competition was becoming fierce and we had to settle for being the under-bidder.

“New Century Inns was set up as a base to buy individual tenancies, but in 2000 we had the chance to buy three managed houses so we needed a business to run them — but it was only supposed to be while we were waiting to buy 1,000 pubs!”

Former Punch Taverns man Phil Strong, who had teamed up with Arkley to make the big acquisition that never happened, became managing director of the set-up, then named Chameleon Pub Company, and Barry Whitehead, who had worked alongside Arkley since the early days, was drafted in to handle the finance side.

“We had 10 other pubs leased out at the time but they were run as entirely separate businesses. It was quite striking to see both sides of things — as a landlord and a tenant.

“We sold NCI in 2007 just before the property crash,” he continues.

“It was exceptionally good timing. We had three big companies bidding for us at the same time. We kept Chameleon going and moved to buying freeholds.”

There are currently three freeholds and three leaseholds — with Greene King, Thwaites and Marston’s.

“We’ll be buying more, but we’re keen to get it right. We want to get to six or eight freeholds and improve the quality of what we do — make them bigger businesses turnover-wise and more focused as destination food places based on local sourcing and a nice ambience.”
Broadening horizons

But these days pubs are only one facet of Arkley’s interests. “I’m always keen to do other things and, as time goes on, I’m going more ‘plural’,” he says. “Somebody buys your business and you’ve got to work out what to do with the money, how to spread your risk.”

As well as the crockery he’s become a business angel, investing in a diverse range of sectors through Hotspur Capital Partners, “which is into eight or nine businesses for £10m”.

“Anything that’s hospitality, though, I do directly.”

At the moment he’s enthusiastic about an EPoS application that helps pub chains to sell more effectively by drilling down into sales patterns and highlighting the quirks.

“Pub retailing needs to be more like that,” he says. The system is ‘on test’ with a certain pub operator thanks to Arkley’s intervention.

“I’m opening doors, buying people dinners,” he says. “I also like the intellectual challenges of things like this. I find it interesting. It’s quite exciting — but not risk-free.”

His angel status fits well, too, with his broader activities promoting enterprise in the north-east.

“I was always a do-gooder on the side, in local government and this and that. But I was always trying to buy a big business.”

There’s one sector that, for the time being at least, is ruled out.

Arkley seems saddened by the problems the tenanted trade has got into since he left it.

“There used to a logic to the pubco business model, but it’s changed in recent years.”

He believes the opportunities created by the Beer Orders, which Arkley himself pioneered, were soured by the securitisation of debt, as pubcos expanded through loans guaranteed on the back of future rental income.

“It brought an escalation of pub prices and a bubble in values in 2007. The model worked fine at the beginning. There was enough margin to share, but then it got too tight for the pubcos. Pub prices went through the roof, they were double-digit multiples of earnings and that was unsustainable.

“And pubcos failed to take into account the sustainability of the tenant. They forced them to keep going in the pub when they should have dropped the rent or freed them from the tie. So people went bust and rental values fell.”

Arkley compares the way big pubcos behaved in the debt crisis to the way banks behaved when the credit crunch hit, stifling investment in pubs.

“Decision-making was pulled up through the organisation. It became incredibly bureaucratic and quite frustrating.

“Now there’s a low level of trust between landlord and tenant,” he says. “The sad thing is the lack of goodwill. There’s not a lot of evidence of partnership, though it’s not so bad in smaller companies.

“I’d be wary of taking a long lease now. We have a tenancy with Thwaites so we can get out of it more easily.”

Arkley is encouraged by the “more savvy” people taking a leasetenancy now, and he believes that while returns might be lower, they can at least be enough to make businesses sustainable.

“Pubcos have still got to get the balance right in the deal, and I think they should allow tenants to leave the pub at rent review. Then you’ll get a proper negotiation. I question the independence of valuers and arbitrators when it comes to assessing rents.

“I don’t think I’d do a tenanted pubco again,” he adds. “You move on. But there could be opportunities. Things are cyclical. The right pub at the right price with the right tenant could make money.”

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