Facing up to lessee-tenant profitability

By Phil Dixon

- Last updated on GMT

Related tags Richard branson

Ted Tuppen: The pub industry's Richard Branson?
Ted Tuppen: The pub industry's Richard Branson?
Who's the nearest person in our industry to Richard Branson? I sense that there would be only be two candidates, argues Phil Dixon.

Who's the nearest person in our industry to Richard Branson? I sense that there would be only be two candidates: Tim Martin or Ted Tuppen. In terms of entrepreneurship and charisma, it's a close call. But ladies at the BII gave Ted the nod, just, in the good looks department.

However if you compare Messrs Branson and Tuppen in the field of public relations, it's quite clear which one is the 'Virgin'. Ted makes statements that leave some even in his own company shaking their heads. For example, the recent claim that the estimated average earnings of an Enterprise lessee was £45,000 per annum. In 2008 Ted also claimed that £45,000 was the amount, so he appears to be indicating that his tenants and lessees are no worse off, despite the recession?

As always, the devil is in the detail, or in this case, the magic. The key word is 'estimated.' Ted's logic will be simple. "We base our rents in the main on 50% of the estimated profit so what's that figure? Round it up and then add £10,000 for living accommodation and (simulate a drum roll) abracadabra, £45,000!

In the past he would have had to rely on estimates as the old Enterprise philosophy was almost totally 'hands off': we give you a pub, you run it anyway you want and we do not interfere in any shape or form in your business (except for Flow-meters).

Along with many others, including myself, the company were gradually converted to 'Open Book Accounting' by the then Greene King commercial director Paul Lloyd circa 2005, who demonstrated that by ensuring competent financial management procedures were in place, the failure rate of new licensees could be halved. For those now asking 'Whatever happened to Paul?' He is enjoying a South Australia lifestyle with wife Mia and son Rhodri in the Adelaide Hills among the Koala Bears and was in great form when I caught up with him for a few (okay several) beers during the recent Ashes test.

So while Ted may have needed to estimate in the past, he now knows exactly what many of his licensees are actually making. Last October he would have seen a detailed analysis of 700 pubs by a major accounting firm. The statistics were frankly frightening; the average income was £15,106.12 per annum (plus living accommodation). The 135 pubs taking less than £3,000 net per week were losing £2,132 per annum. For pubs taking net £3,000-£6,000 a week (328) the av-erage annual profit was only £8,476 per year. True, once you are over the £6,000 net a week threshold then earnings were over £30,000 (238 pubs were making £34,060 pa).

The stark reality is that pubs taking less than £3,000 a week are clearly unviable, with average overheads, not including rent, at a staggering 58% of turnover. Perhaps readers will now realise why I welcomed the Marstons Retail Agreement especially for any running low-volume sites.

So should Ted be stating that the average earnings are nearer £25,000 than £45,000? In fairness to Ted (and I realise those very words will no doubt provoke opinions on my parentage) long-serving top performers will not be subject to open-book accounting so the average earnings figure will probably be higher — but nowhere near, I would suggest, the £45,000 mark.

All companies, including family brewers, face the issue of tenant-lessee profitability. The price they pay for their goods needs to be drastically reduced to generate sufficient margin to meet ever-increasing costs. "We can't afford to do it," the companies will argue. "You can't afford not to," would be my riposte.

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