Marston's: new leases will raise pub appeal
Marston's believes its new lease agreements will help raise the consumer appeal of its pubs and represented a positive reaction to on-going regulatory and economic pressures.
The pub company and brewer is to roll-out its new Retail Agreement, which offers tenants a percentage of profits, to 600 pubs in three years and offer the rest of its estate free trade prices under its Advance Agreement — first revealed by the Morning Advertiser in February.
Chief executive Ralph Findlay warned the changes would lead to a reduction in income from the traditional tenanted and leased model.
Despite an improving trend, the pubco's like-for-like profit dropped 4.5% across its 1,700 tenanted and leased pubs for the 26 weeks to 3 April.
"The primary objective of these plans is to raise the consumer appeal of our pubs thus increasing market share by effectively responding to market trends," said Findlay.
"There are consequential benefits which arise: a reduction in overheads over the next two years; a reduction in the proportion of the Group's income which comes from the traditional tenanted and leased model; and a proactive response to the impact of continuing regulatory interest in the operation of the tenanted and leased model."
Retail agreement
Under the Retail Agreement, which has been trialled at 63 pubs, licensees typically earn 20% of turnover to pay themselves and staff with Marston's buying everything centrally and paying all other bills. The model allows licensees to focus on maximising sale and motivating staff without administration and purchasing price distractions.
"The Retail Agreement allows us to have much greater control over the retail offer in a pub, and has led to improved pub standards, greater development of food offers, and increased investment in amenities (such as kitchen equipment, pub gardens and Sky)," said Findlay. "It permits us to bring our retailing expertise and buying power to the partnership with our retailers."
He said that he expected an annual profit improvement of £10,000 per pub under the new agreements with Marston's investing £50,000 per pub.
Free of tie
It will offer a further 1,000 of its licensees, operating under longer term leases, the chance to switch to its Advance agreement offering free trade prices on beer, wines and spirits in exchange for a rental uplift.
"A significant benefit of the Advance agreement, compared to other similar 'high discount' agreements on the market, is that it is structured to provide an immediate cash benefit to the licensee. This can be invested in the business by the licensee to drive growth.
"Licensees taking this agreement will be able to compete more effectively with the free trade market and will enjoy complete pricing transparency."
Pubs that implemented new business-building initiatives on the back of the Advance agreement have seen volumes grow by 5% year on year.
The agreement stands alongside the existing lease and allows beer to be bought at free trade prices in return for an additional payment on top of the rent.
This payment is calculated to be £3,900 less than the extra discount stream in year one, in order that the lessee can invest in initiatives to grow his business.
Findlay said the company would also offer free of tie options, including on machines, to licensees but it does not expect take up to be significant.
It will sell around 60 tenanted pubs in the next 18 months. The pubco now has 83% of its pubs let on substantive agreements.
