Power and Thorley
Giles Thorley speaks to Mark Stretton on the beer tie, licensing reform, flotation, and life in the executive chair at Punch.
Giles Thorley wants the industry to impose a national pub day on the British public. "Everyone else has one, so why not us?" he said.
"We have national be nice to your neighbour day and all sorts. Chris Evans managed to successfully launch national nurse day and apart from anything else, what that did was highlight a very important group of people. Why don't we do the same for pubs and publicans? We need to shout about our industry."
If ever such a day was launched, some of those in the trenches might not choose the Punch executive chairman to lead the celebrations. He and his fellow board members have emerged as licensees' enemy number one in recent weeks as the debate over the beer-tie model once again came to the fore with its recent £600m float.
"This is not a new issue," said the executive chairman. "I think you have to look at the totality of the offering, not just beer prices. The Office of Fair Trading has investigated this industry so many times and is very relaxed with the competitive nature of tenanted pub companies.
"The very same thing was investigated in Europe a few years ago. The worry was that by having the tie we were restricting the choice to retailers and restricting the access of brewers. The decision was that no, we were not."
The Punch chief acknowledged there were unhappy customers on his books. "Despite the findings, there is no smoke without fire and you have to be realistic and say that the relationships with retailers are not as good as they should be.
"Now that is not just within Punch but it does seem to be a particular issue with us at the moment. We have to take that seriously and we have to do something about it."
The demand for Punch pubs is as intense as ever. The company has 1,200 potential licensees ready to step in and a further 4,000 on its database. With such a mass of human resource at its finger tips, could it not afford to be aggressive, particularly with rent charges?
"Absolutely not. We are not aggressive with the rents - it's not sustainable to be aggressive," Giles said.
"Revolving door licensees are no good to us. The cost of finding and replacing would be too great, not to mention the affect on the particular business."
Giles, 35, says fundamentally, things are not as bad as they seem. "Look at it in terms of statistics," he said. "We collect over 99 per cent of what we bill - overall it works. I'm not suggesting that there aren't people who are suffering, but if it were true across the estate we would be really struggling to collect our invoices, but we're not.
"What we have to do is address those retailers who are in trouble. That is a challenge because we have to assess whether it's down to the quality of the pub, the individual themselves, whether it's the type of offering or other reasons why a pub might not be performing. It may not be just the rent or the price of beer.
"If it is the rent we would be the first to do something about it. People also forget that a pub is a home and a business and £20,000 to £30,000 for such a property is not a great deal, especially if you look at what has happened in the private rented sector, where prices have risen 30 per cent."
Giles defends the price of beer charged to tenants. "The gross profit on most items, with the exception of some premium bottled beers, is well in excess of what you would expect for most retail items - somewhere between 30 and 50 per cent - a significant profit."
The fair maintable trade of a pub, used to calculate an appropriate rent fee, is assessed by judging what an "average" operator could achieve including the gross profits on Punch price lists, any food, and machines.
The local market for a particular pub is also reflected in the rent. The range is somewhere between 10 and 15 per cent of turnover. "Ironically the bigger pubs are often somewhere at the bottom of that range," he said. "This is because a larger proportion of sales are attributable to the skill of the operator."
Giles said operating a pub was a highly-skilled job. "Running a pub is the most difficult thing in the world," he said, "That's why you need to give so much credit to those who do it. If you meet a good licensed retailer, they are absolutely the most captivating people in the world - they have to be - they are on show in their own home every single day."
The Punch boss says people forget that there is a big upside to taking on a pub. "The majority of our pubs are on lease," he said. "That is a valuable asset. We are seeing assignment premiums in excess of £50,000 - that value is generated by the retailers." Some leases within Punch have changed hands for six-figure sums.
He says there are some great things happening below the surface at Punch, particularly with training. The company recently scooped three awards at National Industry Training Awards (NITAs).
Punch is labelled as a major player set to take part in the future restructuring of the tenanted pub sector, along with Enterprise Inns and Pubmaster.
Recent press speculation suggested that Punch might have Pubmaster in its sights, a rumour quickly quashed by both parties. "There are 60,000 pubs in the UK," said Giles. "There's lots to buy. A deal of that size is not likely to be our first priority. I have bought and sold 12,000 pubs so I know of one or two.
"We are a newly floated company - like a newly born child - we need to learn to walk first before we can run. When we learn to walk, we will learn to run and when we're running, we will be running very fast."
Giles says the business plan is organic but the group will look at acquisitions. It will buy around 300 pubs each year through a mix of both. Bigger things can be expected when the company is up and "running".
Of his perceived rivals, the Punch boss has nothing but good words. "Ted Tuppen has done an incredible job," he said. "John Sands has also done an amazing job. He ran that business in the Brent Walker days when it had no money. Look where it is now."
Some suggest that because Enterprise recently secured the Nomura pubs that Giles knows so well, and the Laurel tenanted business, there is nothing left to buy and that the company has an organic growth plan because there is little other option. "Complete tosh," said Giles.
Within the estate, Punch is embarking on an unrivalled level of investment. "We will be spending between £30m and £35m on capital expenditure this year - more than any other tenanted pub company," said Giles.
Recent press speculation suggested that he might be looking at a deal with Scottish & Newcastle. Not so, said Giles: "S&N hasn't got any pubs left! There are just far too many rumours."
Of the managed pubcos, he said: "Operators, like S&N, have re-invigorated the pub. When I was a student (he studied at Queen Mary College, University of London) there was nothing going on in terms of pub development - maybe a wine bar but that was it. A whole generation of people fell out of love with pubs. Now people are enthused by pubs."
The proposals for licensing reform have sparked furious debate among industry leaders and Tim Martin, chairman of JD Wetherspoon, has not been particularly kind about Giles, nor other tenanted pub chiefs. "I have never met the guy, he has never spoken to me, so I don't know what he has against me," Giles said.
"I have been so badly mis-quoted over licensing. I have concerns but I don't understand the ostrich-in-the-sand types - you cannot resolve the issues that way. It will mean whatever you get you are stuck with.
"You can say 'oh well I was never involved so I can't be blamed for it' but at the same time you can try and use your influence to make sure it
