S&N's Gray expectations

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Scottish and Newcastle Pub Enterprises has just won official approval for its franchises. Phil Mellows talked to marketing director Martyn Gray....

Scottish and Newcastle Pub Enterprises has just won official approval for its franchises. Phil Mellows talked to marketing director Martyn Gray.

Funny the way things turn out. In the late 1980s, Scottish & Newcastle was fighting off a takeover bid from Elders, the Foster's brewer, and it invited a bunch of journalists up to Edinburgh to show them the heritage that was at risk should the Australians get their hands on the company.

One of the pubs visited was the legendary Fiddlers in Grassmarket. In the event, it didn't take invading Aussies to put an end to the Fiddlers - just market forces and the creation of a new way to operate pubs.

Walk through Grassmarket today and you will do a double-take at the stylish café-bar with a trendy name on the corner where the Fiddlers used to be. For the last few months it has been Bar Alba, and is doing very nicely. The reinvention has not only turned round several years of declining trade at the site but also made it a place that S&N is once again proudly showing journalists.

Bar Alba is run by S&N Pub Enterprises (S&NPE) licensees Paul and Ann Kinnoch (pictured top with S&NPE's Martyn Gray)​. They were drafted in to launch the concept, one of a new city centre brand called Baroque.

Its success - S&NPE is aiming to open 15 of them - is one product of what amounts to a new kind of pub company that is emerging from the old S&N leased estate. Since a trial with half-a-dozen pubs in April 1999 the company has been converting its 1,100 houses - which are actually owned by the Royal Bank of Scotland and leased back - from lease agreements to franchises. About 730 have so far switched.

That process received a boost a couple of months back when S&NPE won accreditation from the British Franchise Association (BFA). It is not the first pub company to be recognised in such a way. Inn Partnership, the franchised estate recently taken over by Pubmaster, has that claim to fame. But for S&NPE it is a significant step forward.

"It is a public endorsement," said marketing manager Fiona Robertson, the woman responsible for pushing through the application in the space of 18 months. "It gives reassurance to the marketplace, gives us access to a whole new raft of licensee recruits and brings us into a new sphere, the sphere of small businesses.

"Accreditation tells us we are at the leading edge of small business development. We are now benchmarking ourselves not only against other pub operators but against the rest of the franchise industry."

S&NPE's decision to go down the franchise road was a bold one, but it makes sense for a leased pub sector whose lifeblood is the quality of the licensees that it can recruit.

Intense competition has forced companies to throw their recruitment nets wider, and offering a franchise means, in effect, that S&NPE can dip into a pool of talent the pub industry has not fully exploited in the past.

"We have people coming to us now who are not looking for a pub, they are looking for a franchise - some of them are now coming to us through the BFA," explained marketing director Martyn Gray. "They look at the support we offer, they look at the business opportunity. Principally, they are asking whether they can make money out of it."

It is the higher level of support that, for Martyn, marks the fundamental change that the company is going through. While they are still, strictly speaking, lessees, franchisees get EPoS systems, training, stocktaking and accountancy services from S&NPE, putting them into a halfway house between managers and tenants.

"Generally, the franchise has enabled us to widen our scope," Martyn continued. "We have recruited a wide cross-section of people - from pub managers from other pubcos to those from outside the industry who look on it as a business opportunity."

S&NPE's own website - www.pub-enterprises.co.uk - has played a large part in this, attracting, as you might expect, a casual, unserious audience, but at the same time a better quality applicant. It has also made it possible for them to get into the pub much more quickly than before.

Martyn's description of the pub industry of the 21st century as a "segmented market", however, suggests that the franchise is designed to appeal to a special kind of business person.

"Some aren't interested because of the constraints it can put on them, but for others it's a boon," he said.

"For a lot of newcomers our close involvement in the financial side is essential. It means that for the first six months they can concentrate on front-of-house, building a relationship with their customers instead of having their heads in the books."

S&NPE's own version of the area manager, called business consultants, have had the number of pubs they look after cut to 35 - the typical figure for a tenanted estate would be more like 50.

"That means they have time not simply to ask how business is but to go into profitability, wages, percentages," said Martyn (pictured)​. "Overwhelmingly businesses fail because of financial mismanagement. This way we know how much money they are making and pick up on problems early. There are no shocks waiting for us and we can have a sensible conversation about how we can make it work."

The franchise has made it easier for some licensees to expand and take on second and third pubs. The Kinnochs, for instance, continue to run the Tyneside Tavern at Haddington, East Lothian.

"We have a small but significant number of multiples," said Martyn. "It requires a different level of skill. You have people running pubs for you and the systems you get with a franchise helps them to control the operation."

The S&NPE franchise, which is a three-year agreement in England and Wales and a six-year deal in Scotland - is now assignable after two years, bringing it into line with other pub leases and making it more attractive to serious business types.

Like any lessee or tenant, franchisees go into their pub with a business plan agreed with the company. Unusually, however, this might include operating as one of S&NPE's brands.

These include the still expanding James H Porter and Millers Kitchen, the new Village Inn, a rural local set to grow to 30 or 40 strong, Football Crazy, a pub with a strong link to a local team, and, of course, Baroque.

Entrepreneurial licensees with ideas of their own might balk at running a brand, but for the right kind of business person it brings the benefits and security of training programmes, marketing support, central purchasing and design services - as well as the opportunity to replicate a successful formula.

"We have targets for our brands and do a lot of work behind the scenes, for instance demographic profiling, that might identify a site as right for a particular brand," said Martyn. "We try to take the franchisee with us on the idea, but if the licensee is not 100 per cent behind it, we can wait."

In some cases, S&NPE has demonstrated an uncommon flexibility. It recently bought two adjoining pubs in Ashford, Kent - O'Brien's and the Prince Albert - and has begun work on knocking them into one to create a community pub that combines a traditional bar with a pool and dance area for younger customers. It will be run by former hotel manager Richard McAllister.

The company plans to continue to expand its estate, picking up individual properties and, in most cases, investing heavily in order to transform them into pubs that can perform in their local marketplace.

Meanwhile, the BFA will continue to monitor S&NPE's standards and its logo will appear on the company's stationery.

"We will use it to market our professionalism," concluded Martyn. "It's a seal of approval that says we are a professional business and that r

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