Nervous of distracting the angry bloggers from running their pubs I can be certain of only one thing in a sector that does not even provide unanimous support for its own trade charity — there is nothing I will say that we can all agree on.
The need for change
As always when taking on a new challenge I spent my first week working on the front line with a lovely couple in a small pub located near Nottingham. Their enthusiasm and commitment to their own small business was wonderful and motivating, but I could see that with the right people and resources we could add value as they sought to adapt their pub’s retail proposition to a challenging market.
Brimming with enthusiasm I returned to the office to be confronted by a coach load of Fair Pint campaigners carrying a black coffin! It still brings a smile to my face recalling the bemused looks on their faces as I arranged to invite them in for a coffee and a chat when they had just been refused entry at the shuttered offices of their first port of call.
Soon after came the spectacle of Punch chief Giles Thorley and Enterprise’s Ted Tuppen doing their best to skate on thin ice in front of a select committee throwing rocks. Less pleasant is recalling the frosty put down at my first British Beer & Pub Association council when I had the audacity to suggest that maybe some of these people had a point. But then again it was easier for me given I had come from outside the sector.
A new vision
While Giles did his best to protect the business from the seismic shifts in his complex debt structures, my job was to focus on the operation and set us on a course to recovery. So began our Pathway to Partnership programme in which we set out not only to change what we did but, just as importantly, the culture governing the way we did it.
We wanted to be the most trusted as well as the best company in the sector — it was an ambitious aim given our reputation and we knew we had (and still have) a long road ahead — but at least we knew where we were headed.
The first thing we had to do was to try and stabilise the business. Recession on the back of the smoking ban meant pubs were failing in record numbers, so we doubled our spend on financial concessions and faced up to the inevitable conclusion that not all pubs could survive. We split the business into core and non-core, wrote down the values in the books and started disposing.
It starts with transparency
If we wanted to be trusted we had to start by clearing away the smoke and mirrors surrounding the tied pub offer. So I began work on the new code of practice. I wanted all licensees to understand that when they rent a tied pub they are agreeing to pay more for their beer than a free-of-tie operator as a way of gaining low-cost access to the business and keeping their fixed rent low.
We wanted them to be able to choose what rent and discount mix best suited their risk appetite (which included free-of-tie prices if that is what they really wanted) and be under no illusions about what they might earn from their pub if they performed to their business plan.
We spent months holding licensee forums to find out what our partners wanted, appointed a partner service manager to help me handle all the complaints and set about a long list of changes to be implemented in the new code and new suite of agreements. No upward-only rent reviews, fair treatment on machines, multiple guest ales, incentive payments, clarity on repairing liabilities, help if things go wrong, low-cost dispute resolution and so the list went on.
We like to think we helped set the tone and appetite for change in the framework code for the sector.
The simplicity of the model
We all like to make things more complicated than they are, so we based our strategy on the simple concept of right pub with right partner helped by Punch support.
It all starts with having the right retail vision for a pub and, for the most part, that meant recognising that relying on beer sales alone would not work anymore.
So with a new focus on core pubs we increased the level of investment (normally involving building food facilities) and set out trying to make them the best of their type in their catchment area. They would remain mostly wet-led community pubs, but now offering a well-invested customer environment with more food, cask ale and entertainment. We have created some fantastic pubs along the way and are only about a third of the way through the core estate, so there is still plenty to go for.
There’s no point in having lovely pubs unless you have the right people running them. The level of sales in these pubs will not typically support the overheads of a managed chain, so the challenge is finding the right people to run them as their own business.
That’s not easy, especially when you are under pressure to keep the estate fully let, but it is the most important part of the job. You have no chance of attracting the right people unless they can see exactly what is on offer and how they’ll be rewarded if they succeed — that’s what transparency and our new partnership agreements set out to do.
The Punch Buying Club
So, right pub with right partner, how can Punch help? Well, it starts with the fact that as freehold owners of the pub half of our profit comes from rent, but the other half comes from the margin we make selling beer to our tied pubs.
It is in our shared interests to help our pubs sell more beer — that’s why we call it a partnership.
Having come from building Ocado, I was enthusiastic about the prospects for a digital world, and so the concept of an online community of club members was born. Today the Punch Buying Club has more than 3,000 members not just placing orders but sharing their views on an open blog and participating in new schemes such as our free Wi-Fi rollout. So, all you sceptics out there, I told you so, and we have barely started on the list of opportunities.
BRM to PDM
I am excited by the opportunities online, but there is no substitute for the face to face relationship with our teams out there in the field. If we want to be the best company to do business with we have to have the best business relationship managers. So we carried out a review of the role and made some major changes.
First things first, we reduced the number of pubs they had to look after from 55 to 45. Then we started building teams of in-house specialists to support them.
They already had property managers, so we added chartered surveyors to remove rental valuation from their role — it’s pretty difficult to develop positive relationships when you are constantly suspected of looking for advantage in rental negotiations.
Then came more food specialists, cellar specialists and new this year we have added business launch managers and franchise specialists for new starters. Our pubs have never had access to so much support.
Renamed ‘partnership development managers’ with a focus on helping partners develop their retail offer, we want them to be professionally recognised as the best available, which is why I was over the moon when our candidates took first and second place in the Association of Licensed Multiple Retailers awards last month. We will not rest until we get that best leased pub company award.
The real free-of-tie option
We all argue about the causes of pub closures, but one fact is inescapable and that is that the volume of beer consumption in pubs has fallen by a staggering 45% since 1999 and is still falling. In that environment only those who can adapt will survive. When I joined Punch we owned 7,500 pubs. As I leave, we are down to 4,500 and the disposals will continue until we reach our target of 3,000 core pubs.
Our disposal programme has released thousands of free-of-tie pubs into the market (my former colleagues running Booker have reaped the benefit of that), but the sad facts are that only 60% of those newly free-of-tie pubs stay open as pubs.
Many of the complaints about the tied pub model have been justified and are being resolved, but let’s not make the mistake of destroying the rental model for pubs.
The economics of extracting tied pub buying terms from the brewers make it attractive to own pub freeholds and offer them for rent. If we remove that then owning pubs to rent on a free-of-tie basis is economically far less attractive.
So be careful what you wish for — if regulation forces pub-owning companies to free them from the tie then I predict that pub disposals will increase and this will risk closing more pubs than even the combination of tax escalator and supermarket pocket money-pricing has accomplished.
Needless to say, I am proud of what we have achieved at Punch in recent years and I promise you the much-talked about debt burden has been no obstacle to the progress we have made, other than the inevitable organisational disruption of de-merger. Financial restructuring negotiations exist in a different world, but we know this will need to be resolved to stop those worlds colliding in the future.
I have enjoyed my time working at Punch — I have worked with some great people to build the foundations for a long-term sustainable business. I believe we have substantially improved our reputation — my complaints pile is a fraction of what it was and the booing has stopped at awards ceremonies! But I recognise that we have a long way still to go and I have every confidence the team at Punch will finish the job.
Let’s just hope the regulators don’t go and ruin it all.
So, in closing, I have a simple message for all you angry bloggers — get ready, set, go.