Pub company CEO defends business model: Part 3

Meeting up with him over the weekend at his flagship pub The Mary Celeste, I began by asking him what prompted a return to the hot seat.

“So Roland you’re back. Can I ask why?”

“These are turbulent times. We need a firm hand on the tiller.”

“Do you really think you can turn things around?”

“Well the stock market seems to think so. Our share price surged 10% on news of my return.”

“So I see. Up from 5 to 5½ pence. Your shareholders must be feeling pretty pleased with themselves right now?”

“They most certainly are. And this is just the beginning. I’ve got plans; big plans.”

“I’m sure our readers would be very interested in hearing what you intend to do.”

“Well for a start, I intend to broaden the initiative begun by my predecessor.”

“You mean Project B******s?”

“I don’t think he called it that.”

“He didn’t, but many of his tenants most certainly did.”

“Anyway, I intend to extend those levels of support.”

“So this is Project B******s plus a little bit more?”

“We need to bring our expertise to the table; take greater control of the offering.”

“Well four select committees concluded that you should be taking rather less control. Are you saying they were all wrong?”

“They’re politicians; they don’t understand the fundamentals underpinning our business model.”

“I must say I got the impression they understood it perfectly well. Anyway, let’s have a look at the fundamentals, shall we? Tenants are saying that footfall is increasingly being driven by flexibility and choice and the constraints of your agreements ensure they can’t deliver on either front. How do you respond to this?”

“Tenants pay a premium for the fantastic support we offer by way of countervailing benefits.”

“Well, let’s start by taking a look at the issue of price. Now your company brews beer. Is it not the case that you’re working with depleted margin due to the buying power of the big pubcos and supermarkets?”

“Err....not exactly.”

“In addition, you have to price your exports competitively in order to maintain market share?”

“Well of course.”

“Consequently, the only people forced to pay inflated prices for their beer are those that can least afford to, namely your tenants. Is this not the real issue here Roland? Tenants are being asked to subsidise lost margin to the point that the price has simply become unsustainable?”

“Our latest survey indicates that 94% of our tenants think we’re the best thing since sliced bread.”

“Presumably your survey also shows that 98% of your tenants whistle ‘zip-a-dee-doo-dah, zip-a-dee-ay’ as they walk down the stairs in the morning to open up?”

“It wouldn’t surprise me if they did Bob. They love working with us.”

“Yes, I’m sure they do. Now then let’s look at product range shall we? You impose major constraints upon tenants, yet when their customers pop along to the supermarket, they’re offered a fantastic range of beers, sourced from all parts of the globe.”

“Supermarkets can’t replicate the pub experience.”

“But isn’t it the case that customers have become accustomed to a far greater range of products and such high levels of expectation can never be met by a visit to one of your pubs?”

“Our customers appear very happy with the beers on offer.”

“Roland if your company can’t deliver on either choice or price, how can you possibly hope to compete going forward? Wouldn’t it be fair to say you’re living on borrowed time?”

“That’s not the case at all Bob. Our model continues to evolve.”

“Don’t you accept the market has changed beyond recognition? That companies such as yours need to stop clinging to the past and start legislating for the future? On-trade volumes are going through the floor! What are you doing about it?”

“We’ve launched a new initiative. We’re moving into food.”

“Do you mind explaining your thinking behind this?”

“These are difficult times Bob. We need to take firmer control of the offering.”

“You mean take even more, under the guise of providing additional support?”

“Not at all; we’re merely helping our tenants reposition their outlets to meet customer needs.”

“Is it not the case that in a meeting of pubco CEO’s some time back, it was concluded that the only viable way forward for the industry, given the spectacular decline of on-trade volumes, was a gradual movement into food?”

“Err... I can’t say I recall such a meeting.”

“Well it makes sense doesn’t it? Given that beer sales have been in freefall since 1979, companies such as yours desperately need to create new income streams. Food appears to be the one area you’ve yet to exploit.”

“This isn’t about making more money. It’s about supporting our tenants.”

“My understanding is that initial trials with this new food agreement have already led to problems.”

“Err.. I’m not aware of any issues.”

“Well it seems accusations of buying out have been levelled against one tenant. He stands accused of sourcing his pork sausages from a local butcher.”

“This matter is still under investigation. I can confirm that one of our BDMs recently visited an outlet for lunch and concluded the sausages in his toad-in the-hole looked a little suspicious. They’ve been sent to the lab for analysis. We’re waiting for the results.”

“Presumably a high meat reading will confirm his guilt?”

“There’s nothing wrong with our sausages. In fact a recent survey found that 91% of tenants loved our sausages.”

“OK. Well let’s put the sausages to one side for a minute, shall we? How do you respond to the suggestion that tenants should have a say in any future pay rises awarded to board members.”

“Bob, shareholders are investors, they don’t understand the market. They don’t really comprehend where we are or where we’re going. Trust me, we know best.”

“Are you sure about that Roland? William Weasel’s time at the helm witnessed a 27% fall in your share price; profits were also down 18% for the same period.”

“That’s why he was asked to step down.”

“Only after being promised a massive golden handshake. Don’t you think this culture of rewarding failure needs to be addressed?”
“That’s exactly what we’re doing.”

“So it would appear. After four days in the job you’ve already given yourself a whopping great pay rise. What sort of message do you think this sends to your tenants, many of whom are living from hand to mouth?”

“Our survey shows that the average tenant makes around £45,000 pounds a year. Hardly hand to mouth.”

“Finally Roland, do you have a message for those of us out there sitting on the sidelines, waiting for an opportunity to re-enter the trade?”

“I would say this is a great time to take on a pub.”

“What leads you to that conclusion?”

“It’s 2012.”

“I’m sorry, I don’t understand.”

“Well according to the Mayan calendar, December 31st will see the end of the world. Can you imagine how many pints will be drunk in the lead up to this cataclysmic event?”

“Err...no but I’m sure it won’t be long before the BBPA come out with some figures.”

“They already have. 2½ billion pints! Think of all that profit. Trust me; there really has never been a better time to take on a pub.”