Murphy's law - the man behind new pubco Balaclava

Mark Stretton meets Leo Murphy, the man behind new pub company Balaclava.

The trade has been swamped by various catastrophes including foot-and-mouth disease and more recently the atrocities of September 11.

The prospect of trying to launch a successful pub company in the current climate would seem akin to mission impossible.

While some attribute crippling losses to these events, others have quietly gone about their business.

Far from being forced into submission, Leo Murphy, former commercial director at Greene King, has launched the Balaclava Pub Company.

The company was officially launched in October with a bash at the Hussy at Brownhills, Walsall.

"The adverse conditions, appalling weather and devastating acts in America meant we did experience very flat trade for a time," said Leo. "It reminded me very much of when Princess Diana died. The shock and horror of it meant people felt the need to grieve. It seemed nobody went out and I think a lot of the trade suffered.

"But overall sales are still in line with expectations. Most of our pubs have reported a 35 per cent rise since we took them over. Don't get me wrong - I want sales up 100 per cent, but we're doing okay. Besides, Christmas is coming, which is a great period."

Balaclava is Punch's first official corporate tenant with 26 pubs all leased from the pubco giant. "All other multiple tenants have so far been by accident," said Leo.

"A person would take a pub, make it successful and then decide they wanted another and so on. We are the first company to intentionally take a block on mass."

The Punch-Balaclava deal came about when both parties went to buy a group of ailing pubs. Leo had been looking to acquire a block of pubs for some time.

He heard of 32 pubs in receivership, from two contacts - a pal at a property consultancy and another at BDO Stoy Hayward, the adviser appointed to find a buyer for the business.

He moved quickly and having looked at the sites he set about raising the start-up cash. He raised the money through Barclays Private Equity and bid £600,000 for the business.

He was on the verge of a deal when disaster struck. It emerged the estate had already been broken up with Punch buying eight.

Leo contacted Punch chief executive Stephen Lambert, who he knew from his time at Greene King, to declare his interest.

"I was interested in taking some of them as tenant," said Leo, "but only at proper discounts on the beer and machines."

That was the end of the beginning. During negotiations he looked at 80 Punch pubs before going for 26 to launch the Balaclava Pub Company.

The company name does not come from a fetish for a winter garment designed to keep your head warm, but is reference to the Charge of the Light Brigade and the Battle of Balaclava.

The company is community-focused with many of its pubs in urban areas. It looks at pubs that other larger pubcos have possibly overlooked.

Leo says the "hurdle rate" (the break even point) for his pubs is around £3,000-a-week, a figure which flies in the face of the £6,000-barrier most groups require to work as a managed pub.

"We operate differently," he said. "We don't have headquarters with marble halls and we don't drive Mercedes. We are a lean, fast moving company."

As well as sacrificing a lavish HQ, Balaclava will not be undertaking £250,000 refurbishments, said the managing director.

While avoiding properties that "are only ripe for burning", the company will continue to look at community-led pubs and look to add value to outlets that are not maximising sales. "It's all about basic retailing," he said. "A lick of paint or something more dramatic if needed, good lighting, putting on lots of activities to draw people in and giving the customer what they want.

"Listening to what people want is what it's all about."

This is a point the Balaclava head draws upon again and again - if people want food give them food, if customers want a no-smoking area, install one.

"I went to a pub in Cambridge recently which operated a total smoking ban and it was packed because that's what the locals wanted," Leo said. To qualify, he is quick to add that the industry needs to self-regulate with regard to smoking.

Leo, a product of Henley Management College, said he wished he had got involved in the trade 20 years ago.

He originally went to work for Greene King on a consultancy basis in 1997 to help it integrate 300 newly acquired pubs. At the end of his three-month contract he says he was "bitten by the bug" and ended up staying.

He quit after three years, recognising the need to do something for himself.

He has assembled a talented management team at Balaclava, most notably chairman Alan Jackson, previously of Whitbread, Oriental Restaurant Group and more recently City Centre Restaurants fame.

He has also compiled a talent file for potential managers. Once he has found the right kind of people he intends to keep them. He has devised an 80/20 bonus scheme for his managers whereby 20 per cent of any increase in profits is kept by the licensee. For continued performance the scheme moves to 70/30, and any licensee hitting the targets over a 12-month period will receive a month's bonus salary. "We treat people like human beings," he said. "We have a range of benefits and make a series of provisions which allows them to concentrate on running the business."

In true Light Brigade fashion, Leo plans to charge forth with company growth. "We want to have 60 pubs by March and about 100 by Christmas 2002. We want to have the critical mass, eventually growing the business to around 250 pubs."

Leo plans to have a mixture of leased and freehold sites and says not all leased pubs will come from Punch. "Trading wise it doesn't make any difference but we feel it's important to have that diversification for the balance sheet."

He has set a ceiling on the company's size because he says he wants to maintain strong relationships with his licensees. "We will not grow Balaclava any further because beyond that you become a different animal.

The dynamics of the company would have to change and we would lose that vital intimacy with our licensees and customers."

Balaclava Pub Company​

Leo Murphy on...​

• ...licensing reform:​ "The law needs changing desperately - it's archaic - those operators in town centres must be losing so much trade."
• ...red tape: ​"There's too much of it but then we have come to expect it. Unfortunately, we are fast becoming a nanny state."
• ...smoking in pubs: ​"It's all about giving people what they want. If customers want smoke-free areas that's what they should have but the industry should self-regulate."