Robert Sayles: A tale of two pubcos

During the course of the last few weeks a number of Publican readers have got in touch. More and more of you it seems are keen to share your experiences with a wider audience.

I love listening to other people talking about pubs; the exchange of such information can be so informative and often provides a barometer as to the health of our industry.

Anne and her husband have two pubs; one leased from a corporate pubco, the other a tenancy agreement with a small family brewer/pubco. This is her story:

The lease

We (my husband and I) bought into our first pub business six years ago by taking on an assignment; an old brewery lease that had been acquired by a major pubco.

The pub is located in an affluent Lancashire village, has a restaurant and five en-suite guest bedrooms.

The tie is minimal - beer products only with the exception of a guest ale. We are responsible for all repairing and insurance liabilities.

We made a conscious decision to buy a 'business' - not necessarily a pub. We had previous catering experience; my husband had formerly been a chef. I'd worked for a number of years in IT.

We'd been reasonably successful at a small catering franchise a couple of years earlier and wanted to "work for ourselves". Little did we realise what a naïve idea that was!

The refurbishment

Within a few months of taking over, we started to consider some improvements - identifying the accommodation as a way to grow the business. We felt that it was already trading to maximum capacity (wet) and we'd already improved food trade since arriving.

We had a couple of conversations with our BDM regarding a refurbishment. He indicated that the pubco were more than happy to 'pay' for it; a quick look at the figures showed why.

A hefty hike in the rent would be required to pay for the work although it was clear to us from the outset that the long term rental implications just didn't add up.

It was also obvious that there was no prospect of the rent being reduced once the improvements had been 'paid' for.

We obtained our own quotes and found that we could do the work for a fraction of the cost given to us by our BDM! Consequently, we financed ourselves and upgraded the letting accommodation. This in turn allowed us to increase our fees - the work was effectively paid for within 18 months of trade.

Opting for the pubco option would have meant we'd still be paying for it today!

The landlord

We've always treated our pubco as nothing more than a landlord - with the exception of the weekly beer order. Becoming accustomed to expecting little we have rarely been disappointed.

That said, it wasn't long before they tried to squeeze extra money out of us by offering to extend our lease - an additional ten years, provided of course we gave up our guest ale!

Their story was that we'd lose our discounts if we waited for lease renewal. We smelled a rat! We knew that our guest ale was a valuable commodity and that our lease was fully renewable.

We checked our figures and concluded that our guest ale provision was worth far more than the paltry discounts given by the pubco - we politely turned them down.

Nevertheless, this little episode drove a wedge into our 'relationship', leading us to conclude that our 'partner' does nothing unless there is something in it for them. From that point on we became very wary of any 'offers' they came up with.

Jugs for a tenner

Things deteriorated further when we got a call from our BDM. He said he'd be popping in later as he had some great ideas we could use to boost volumes. To say we were gob smacked by his 'ideas' is putting it mildly. They included:

Employing scantily clad female staff behind the bar - apparently this would deter customers from going to pubs that offered lower prices.

Displaying flyers showing a woman's chest in a bikini entitled 'Jugs for a tenner'.

It was clear that the sole concern of our BDM was volume. He seemed blind to the fact that we were trying to focus on a specific market and there were certain types of clientele that we really didn't want in our pub.

Our mindset was geared toward building a business that would be sustainable in the long term. Our BDM appeared to have an unhealthy obsession with boosting existing sales by any means necessary.

The fact that some of his suggestions would more than likely alienate some of our existing customer base didn't appear to register with him.

The Rent Review

After 18 months of trade, it was time for Rent Review! What a charade that was - details on the back of a beer mat! We didn't really know how to go about it. When the pubco presented us with a figure of inflation rise, we felt ill-equipped to challenge it and so signed on the dotted line.

We'd increased our turnover (due to our own financial investment and hard work) but suspected they'd want a slice of it, which of course they did. We vowed that when the next review came around three years later, we'd gather far more information on the process and challenge any increase.

We duly attended a Rent Review Roadshow, asked questions on forums and recently succeeded in reducing our rent by a whopping 21% - but that's another story!

The Entrepreneur

Three years into our trade and we were a bit more savvy but a bit bored with no challenges - our pub was trading as far as the market and other competition would allow it. Then we received a flyer from our pubco about a pub in another town close by that was receiving a "makeover". They were seeking a new tenant.

We were hooked by the blurb and went for a look. It was clear from the outset that the pub needed to be food-led - something we were reasonably good at. We looked forward to negotiating with them - relishing the fact we had the necessary experience and expertise.

We believed our skills and proven track-record ensured we'd be taken seriously. Unfortunately it was clear from the outset that this particular pubco had no interest in negotiating with us.

The concept of the 'skilled operator' appeared of little interest to them. Their mindset was one of 'take it or leave it'. As soon as we said "we won't trade on a full tie at that rent" that was that!

Rather than negotiate with us, they appeared content with what they eventually got; a succession of "churns" that followed us through the viewing door.

That pub remains on it's knees to this day. I suspect that the refurbishment has been paid for several times over by each new entrant trying their luck on a business that was doomed to fail with a premium rent and full drinks tie in place.

We hear a lot in the trade press about pubcos blaming 'poor tenants' for the demise of many pubs. They maintain they want to attract better quality tenants (entrepreneurs) into the trade.

However, if our experience is anything to go by, then all some of them appear to want are people who nod dumbly as the exorbitant demands are read out! And they wonder why the entrepreneurs aren't queuing up to take on their pubs!

The tenancy

The following year I was working at my desk during a VAT month when a nice chap asked my staff if he could speak to the business owner. I was ready to be polite to another salesman when he announced he was from a local brewery.

It turned out that they had a 'failing' outlet in the market town just down the road and were looking for a good operator to take it on. The pub caught my interest as it's in a prime spot on the town circuit.

He mentioned that he and some of his colleagues often spent time in our pub as they liked the feel of it and were impressed by the quality of the offering. I remember being at great pains to point out that although the building was owned by a major pubco; we were actually responsible for the quality a