Marston's: hitting new-build home runs

Build it and people will come, is a line from Kevin Costner's 1989 baseball movie Field of Dreams.

It's about an Iowa farmer who digs up his cornfield to build a baseball pitch, certain that people will turn up in their droves.

It's also the tagline Marston's is using for its ambitious £140m new-build programme. Unlike Costner's movie character, though, Marston's plan is based on a good deal more than fingers-crossed optimism.

One test of whether company strategy was mostly right during the fat years of the economic boom is whether a company is in a position to buy or build good-quality pubs now as the economic headwinds blow hard. JD Wetherspoon is opening more pubs this year than it's done for half a decade.

Greene King pounced on 11 high-quality Punch managed pubs for £30.4m in June. Marston's raised £169m from shareholders two months ago to take advantage of what Andrew calls a "two-year window of opportunity" (£29m will be used for opportunistic buying back of debt).

The company currently runs 503 managed pubs, of which 30 are similar new-build sites. It's found that these green-field pubs are producing impressive rates of return and are actually lower risk that single site acquisitions. The 30 sites it's built in the past five years have tended to cost around £2m each and produce a turnover of £20,000 per week (50% to 60% food sales), producing an EBITDA rate of return of £300,000 per annum or 15%. So Marston's is backing itself and moving into over-drive in terms of organic growth, taking advantage of what it calls "favourable" market conditions.

Andrew points out that there is currently a plentiful supply of high-quality sites with few competing buyers — developers are also under pressure to do deals to bring in cash and keep their banks happy. Construction costs are currently be-tween 10% and 12% of what they were a few years ago.

Partnership​

Underpinning the new-build strategy is an informal partnership with Travelodge that allows Marston's the flexibility to compete with Whitbread in taking the best arterial road and business/retail park sites. (Andrew thinks a co-located Travelodge is worth around £3,000 a week in sales to the adjoining pub.) Anyone in a position to spend £140m building pubs in the current straitened economic circumstances is able to drive pretty hard bargains.

But Marston's is keen to build long-term relationships with the cast of property developers, property agents and contractors it will need to action its Big Plan. It's paying the highest introduction fee in the marketplace to property agents — a chunky £30,000 per site. Andrew says that Marston's has a stream-lined decision-making process that allows a seven to 10-day turnaround on potential sites.

"And we don't chip at price once we've struck the deal — we deliver what we say," says Andrew. "It means that we stand a chance of remaining buyer of first choice when the market returns."

What may be a little surprising is how well advanced the 60-pub plan already is. Marston's wants to build 48 pubs it calls its "180 core model" for £2m each and 12 larger pubs, which cost around £2.8m to build and are 50% bigger.

Both trading templates have been thoroughly road-tested within the new-builds already open.

The larger format pubs ("Magnums") will only ever house Marston's Milestone trading template.

Milestone, a name used internally and never on pub signage, has been trialled at around eight existing pubs. The menu is a combination of value carvery (£3.99 for a small plate or £5.99 for a larger one during the week; £6.99 on Sundays) and mainstream pub fare with innovative twists.

The twists include sharing dishes, New York bagels, a deli selection and chocolate pudding served in a stylish earthenware pot that customers can take home. The model calculates that 250 covers generate a £10 spend per head across 15 cover turns a week to produce average weekly takings of £37,500.

The Trading Post in Kettering, which saw a £500,000 investment to boost trading space by 1,000sq ft, is turning in these numbers. "These are still definitely pubs, but pubs that are selling a heck of a lot of food and still busy after 9.30pm," says Andrew.

The smaller pubs will house the Milestone template and also Marston's Two-for-One offer. The latter offers, as the name suggests, a two-for-one deal on all main meals all day, every day, plus a choice of 24 specials to tempt diners off-piste. The latest new-build Two-for-One — there are 22 in total within the estate — is turning over £23,900 per week (its 180 covers see an average spend per head of £8.85 and are turned an average of 15 times a week).

New sites​

So where will Marston's find its 60 new sites? Andrew shows me a map of the UK dotted with red ink, which indicates 51 sites are already pin-pointed. He mentions a site, for example, in King's Lynn, Norfolk, that I know well, asking, though, that I don't give exact details in print. Suffice to say, it's a prominent location on a key arterial road leading into the town — the only managed out-of-town competition is a Whitbread pub-restaurant on the opposite side of King's Lynn, next to a Premier Inn.

Elswhere, in Stamford, Lincolnshire, Marston's has bagged a site next to a well-known supermarket in a town that has no other sizeable managed pub with a large car park. There are around 15 of these in legals with another 25 locked into exclusive negotiations — Marston's is already on site at nine green-field locations. There are another 50 sites in the UK "of interest".

Andrew is a 29-year veteran of Marston's and has overseen a radical evolution of the managed division during his time. Just 10 years ago, it ran 400 more pubs than it does now. In the past six years, food sales have moved from 23% of overall turnover to 38%. Only 30% of the current managed estate are survivors from the old pre-1999 Wolverhampton & Dudley Breweries managed estate.

The new-build plan is the next step in the journey towards higher turnover, food-led pubs. On completion, 60 new-builds stand to make a material difference to Marston's overall earnings profile, moving managed earnings from 42% to 47% of group earnings.

Andrew says the next three years of his life are mapped out. "I'm building 60 new pubs while making absolutely sure we don't drop the ball on our existing business. We have absolute clarity on our investment time-scale. We have a unique new-build strategy and the current economic climate means we are in a position to secure the best available sites throughout England and Wales."

If the Marston's strategy is right, the plan amounts to a series of balls hit for home runs. Might it make sense to invite Kevin Costner to open a few?