Lease is more at the Union

Union Pub Company, W&DB's tenanted arm, aims to convert 150 of its tenants into leaseholders by Christmas. Mark Stretton finds out more.

A potted tree stands in the middle of the Union Pub Company's open-plan offices with a solitary tag hanging from one of its upper branches.

The lonely yellow tag - almost lost in a sea of green leaves - represents the number of tenants switched from the standard three-year deal to a 21-year lease.

For every tenant that takes the leap of faith at the tenanted arm of Wolverhampton & Dudley (W&DB), another tag will be tied to the towering tree. Given that UPC has 1,150 pubs, the numbers aren't dramatic.

But UPC is about to turn a raft of tenants into leaseholders and by Christmas hopes to have 150 on its tree.

"We thought it was important to modernise the Union Pub Company," says managing director Stephen Oliver. "Really, we are among the last of the pub companies to adopt the lease model - we had never looked at it seriously before.

"Another reason why we want to go down the lease route is because it's more stable for our business."

Another benefit of longer-term agreements is finance for acquisitions. The Wolves bank manager will be much more generous if the company can demonstrate revenue streams for the next 20 years, rather than three.

But it is not just the company that wins. The lessee has a very real asset in the lease, which is assignable after two years.

"The lessee has more ownership," said Stephen. "Before, they would invest in the pub but be left with nothing at the end. Now they are the driver of the business with real gains to be had from doing well."

The lease model is not without its problems. Almost universally, it comes with a full-tie, meaning the lessee buys all wet goods from the pub company, which can lead to disharmony in the ranks.

The prices are often significantly higher than wholesale.

Pub companies say it is a share of the profits, a partnership, while some lessees say they are being squeezed to the hilt.

However, lines in the sand will not be drawn at UPC, says Stephen. "We don't believe there is any merit in over-charging. In terms of price, we are pretty much up there with the wholesalers. We have discounts of up to £110-a-barrel - nobody can compete with that."

Not so long ago, the Financial Times wrote a piece about the anti-competitive nature of the beer-tie. Stephen says that although the piece lacked credibility, it did help by bringing the issue under the spotlight. "It was complete rubbish," he said. "But what it has done is prompted the debate on the balance between beer and rent. If you go down the full-tie root it has to be commercially viable for a tenant.

"That is the way the market has to go," says Stephen. "Beer is becoming less important."

Stephen says UPC keeps a close eye on rent. "We hold a rent panel with an independent property expert to assess whether the rent is fair and maintainable.

"And we do drop rents - that we don't is an absolute myth. We are very conscious of the fact that people feel that assessments can be unfair. My brief is to drive profits so I do not sit on the panel - if I did, there would be a conflict of interest. You have to work for each other's mutual benefit. We can't exist without tenants and lessees and they can't exist without us."

Wolves has transferred 250 pubs from managed to tenancy in the last year. This month a further 104 will go across under "Project Genesis". An influx of managed houses plus a programme of disposals at the bottom end is gradually raising the batting average within the estate.

Stephen says the company is looking at further estate tweaks - presumably further churns at the bottom end.

Improving the quality of the estate is paramount, but more so is the quality of licensees and front-line staff. "If we were the benchmark for anything it would be the quality of our licensees," he said. "If we don't get that right, there is little point with the rest of it."

Part of the secret is the cautious approach UPC adopts to recruiting. "There is no doubt that in the past, like everyone else, we have taken in someone opportunistically when perhaps we knew they weren't right for the industry," he says.

"Now we try and put people off. I don't want to get someone in who isn't right."

The company is upfront when interviewing lessees. "How well do you work with your wife?" and "How will you feel if you see your wife being chatted up by a local?" are two questions often asked to newcomers.

The company talks plain English - literally - its lease guide has been recognised by the Plain English Society (PES). The purpose is to recognise companies who present words in their simplest form, free of jargon. UPC is thought to be the only pub company to win the PES crystal mark.

Parent group W&DB has rarely escaped the headlines in recent times. "As a company we have undertaken a lot of hard work in recent times - integration, fighting off hostile bids, closing brewings," said Stephen.

"We didn't want to go shouting about the business when there was still problems - we just wanted to get on with it."

We were also trying to work out how good we were against the competition."

What the company does know is that its average barrelage of 280 per pub per year is just about the highest in the tenanted sector, a good selling point perhaps to potential lessees.

There is still work to be done at UPC but the managing director is confident in the future. "We have a lot to shout about," says Stephen. "Our barrelage, the quality of our pubs and the fact that we don't treat our agreements as property plays, but as real partnerships, are but three things.

"We now feel its time to stop hiding our light under a bushel."

The Union Pub Company​

Number of pubs:​ 1,150Average barrelage per pub per year:​ 280Managing director:​ Stephen OliverHeadquarters:​ Marstons Brewery, BurtonParent company:​ Wolverhampton & Dudley Breweries