Marston's future models
Marston's chief executive Ralph Findlay has told City analysts that the "bar for long-term success" in the tenanted trade has been raised.
He pointed to more pressure on independent operators in the form of regulation, funding and market competition.
Marston's Pub Company MD Alistair Darby told analysts on a field trip that good pubs were adapting to the pressures of the past 12 months, while average pubs had been under pressure. Some pubs had been forced into a "spiral of decline" with dropping sales and rising costs leading to a drain in cash. This could lead to a "standards decline", customers losing confidence in a pub and business failure.
Darby said the company had embarked on developing new business models in its leased division to address the problems of "no quality, no value and no consistency" at some bottom-end pubs.
Marston's considered two key factors when deciding whether to sell or retain a tenanted pub: minimum turnover of £3,500 to £4,000 per week has to be achievable and return on investment must be 10%.
The company has two operating solutions: control and incentivisation. The latter involves new leases such as Advance, offering discounted free-of-tie prices and rewarding out-performance.
Its Retail Agreement is the control route: a quasi-franchise that pays licensees 20% to 28% of net takings, with Marston's in charge of EPoS, stock-taking, retail offer and costs, except staff. The agreement creates a "significantly large recruitment pool".
Marston's has 78 pubs on this agreement, with a target of 100 by October — and 600 within three years.
The analyst's view
Analyst Douglas Jack of Numis Securities said: "Management believes the Retail Agreement is on track to generate £6m of profit uplift from 600 pubs by 2014, whilst minimising the number of non-substantive (non-core) pubs. Retail Agreement upside should be supported by converting another circa 100 pubs that are on (expensive) temporary management agreements."
