Business Opinion
Marston's de-risks the high street
As managed pub businesses go, Marston's Inns & Taverns is as varied as any in the sector. Its 550-pub sweep runs from high-end high-street style bars through to new-build community pubs.
One distinct characteristic, though, is the proportion of the managed estate - 141 pubs - that slots, broadly, into the high-street category. By contrast, super-regional rival Greene King, which runs a managed estate 80% larger, has a much smaller high-street presence - it has a group of just 146 pubs it calls Town Local, a mixture of town-centre and town-local pubs.
The last few years have seen something of a reversal in approach at Marston's in respect of the high street. Half a decade ago it was selling brands like Varsity and Lloyds No 1 in an attempt to move away from the most capricious and competitive part of the market.
Both brands have enjoyed enormous success under their new owners, Barracuda and JD Wetherspoon. For a while Pitcher & Piano was on the market as well. In the event, the brand was retained and has seen new expert management in the shape of Mike Dowell, formerly of Costa Coffee,
re-invent it.
The branded portion of Marston's high-street business has been further boosted by the acquisitions of Eldridge Pope, which has seen the arrival of 15 Que Pasa, and Bluu
last year.
It seems to me that Marston's has gone through some sort of mental barrier in respect of the high street.
The company has come to regard the high street as a place where it's possible to earn good returns if it sticks to its knitting.
This means, in respect of its 46 branded sites in particular, a premium offer rather than a price-led one. With a batting average of £20,000 per week per venue the result is handsome profit conversion.
The collapse of the Litten Tree and Slug & Lettuce SFI Group a few years ago spoke volumes about the danger inherent in the high street for operators who sign up to
pay too much rent in poorly-positioned leasehold sites.
For a successful brand like Pitcher & Piano any roll-out in the high street inevitably has to take place in leasehold sites.
Recent openings for Pitcher in Brighton and Southampton have shown that the brand can out-perform tough competition in such sites.
I was impressed to see brand boss Dowell on the opening night of the Brighton venue watching staff performance carefully - and interacting with them - throughout the entire evening.
"Every single opening is crucial," he told me later. (I've attended site openings where the natural tendency for senior management is to slope off mid-evening).
At the recent Marston's results meeting, managed boss Derek Andrew was at pains to stress how the company was de-risking expansion. Pitcher & Piano is testing out new geographies and pushing into areas that are further north than its footprint hitherto, with openings slated for Leeds and Chester in the coming year.
The company is using the power of its covenant to persuade property landlords to contract on terms that minimise the downside.
One loss-making Pitcher & Piano site could, after all, make a real mess of return on capital levels across a much broader tranche of
the brand.
Andrew reported that Marston's has asked landlords for 25-year leases with a break clause at year 10. In addition, the company has also persuaded landlords that rent reviews at year five should result in a pre-determined uplift.
Marston's achieves a large degree of certainty on lease term fundamentals and an exit opportunity if, God forbid, the circuit shifts and a site ends up hopelessly marooned. (It's a lesson in contracting on favourable terms that legions of pubco lessees would do well to follow, of course.)
The controlled expansion in the high street is indicative of high levels of confidence in Marston's managed division at the moment. With food sales up 14% year-on-year, it goes into the forthcoming smoking ban with a fair degree of momentum.
