Punch: we need to evolve our model

Punch Taverns leased pub business model needs to evolve, new head of the division Roger Whiteside has told City analysts.

His comments came after finance director Phil Dutton estimated that 20% of beer volumes had been lost in the sector in the past 18 months.

Those pubs that had been re-let within Punch had been let at lower rents, contributing to a 7.3% reduction in rent income overall with machine income currently running 16.4% down.

Whiteside said that its beer income growth had been margin-driven not volume-driven, reliant on its ability to pass on wholesale price increases to its tenants.

Rent growth could not be assumed unless pubs were in growth. Whiteside said low turnover pubs were struggling to survive and more pubs generally needed to broaden their appeal.

He estimated that 70% of Punch's leased division were primarily wet-led. But 44% of the tenanted estate was currently seeing like-for-like volume growth, which was an indication that leased pubs can compete with companies running managed pubs.

Whiteside said he expected beer volumes "to bounce" upwards before continuing their long-term decline.

He conceded that without income growth licensees will require a "larger share of the cake". However, he said that pubs unable to broaden their appeal will fail.

Transparency and trust​

Whiteside also told analysts that, previously, relationships with licensees had lacked "transparancy and trust".

The long-term plan within the Punch's tenanted division involved stabilising its pubs, providing on-going support and then creating a platform to allow the business to go back into growth followed by "sustainable value creation".

Whiteside said there was a need for strategic change — a pub-by-pub estate survey was underway which was looking at the market potential for each pub.

The aim was to create a "win/win" partnership with tenants. Higher recruitment standards would be set with much greater transparency on the potential profit and risk involved in each pub.

"We need to be much more transparent about what earning potential will be," he said.

A new lease agreement will aim to motivate business growth. Analysts were told that an expected spike in returned keys after Christmas had not materialised. Licensees departures were desribed as "steady although higher than last year".

The company had let a total of 465 pubs so far this financial year, an increase of 30% on last year. Whiteside said the turn-around is likely to take longer than the Spirit managed division, which would take three years to complete.

To date, Punch had received inquiries about buying their pubs from a 1,000 licensees — so far 23 or 24 had progressed to sale completion with more on the way.