Pubco CEO questions the need for change

“So Roland, it’s been a tumultuous few weeks. What do you make of it all?”

“I still can’t believe it. I’m stunned. I really don’t know what to say.”

“What was your initial reaction when news of the government defeat filtered through?”

“To be honest it’s all a bit of a blur. My wife says I muttered one or two expletives before fainting. Whacked my head on the dining table and spent the next 6 days in intensive care. My head was the size of a bloody medicine ball! Mulholland has got a lot to answer for.”

“Presumably your wife was at your bedside?”

“Yes. When I eventually came round she confirmed my worst fears. It hadn’t all been a bad dream. MRO had indeed become a reality. None of us can believe it. We shelled out a lot of money to ensure things went our way. I’m still not sure what happened. I’m seeing Griffiths later today. Needless to say I’ll be looking for answers.”

“Well you have to admit the reformists played a blinder. Is it fair to say the industry is in shock over this?”

“Shock? Too bloody right!! Have you seen our share price?”

“Err… I can’t say I have no.”

“It’s down to four pence. Four bloody pence!!”

“Oh, I’m very sorry to hear that.”

“The whole thing is a bloody disaster.”

“Roland, isn’t it fair to say that pubs are about tenants and communities, not shareholders?”

“They’ve demanded a meeting next week. What am I going to say? How the hell am I going to placate them?”

“Why not be honest and up front with them? Explain your company is finally emerging from the Dark Ages, embracing the needs of the modern world. Perhaps you could go on to point out that the fat profits they became accustomed to during those golden years are quite simply no longer sustainable? The world has moved on, just as they need to do.”

“If I go in and tell them that they’ll lynch me. People keep going on about the need for us to change. We can’t afford to bloody change. Have you seen our latest accounts? We owe 2.25 billion for f***s sake!! How in God’s name are we going to pay that off?”

“How about through the implementation of a sustainable business geared toward the long-term? Let’s be honest, the acquisition of a quick buck is no sound basis on which to build a company, is it? Many would suggest it’s that mind-set which got you into this mess in the first place.”

“I don’t think you understand the fundamentals underpinning our business model. The support, the investment, the err….support, the err…..investment….”

“You mean beer mats and so called ‘refurbishment opportunities’? Are these the supposed benefits tenants are compelled to pay inflated beer prices for? Do these rather dubious benefits reassure tenants frustrated by the pitiful product choice they’re obliged to work with?”

“I think you underestimate the extent of support on offer.”

“Roland, by your own admission you’re skint. You can’t afford to offer any meaningful support. Your focus is exclusively on servicing debt. I think we’ve all long since realised that poor decision making in the board room put the kibosh on any meaningful support a long time ago.”

“That is patently not the case. We continue to invest in our pubs.”

“It’s funny you should say that because looking at your estate it’s clear many of the pubs have never seen any form of investment. Presumably you haven’t been able to find tenants gullible enough to take up one of your ‘refurbishment opportunities’.”

“What do you base that rather cynical view on?”

“The fact that it’s tenants who pay for pub refurbishments not pubcos.”

“I think that’s a gross over simplification.”

“Would it be fair to say that given the latest pronouncements from the BBPA, the industry continues to remain in denial over the need for any sort of reform?”

“They’re concerned about more pub closures and the loss of additional jobs. You see Bob, MRO will inevitably result in pubcos getting quite a lot less of the pie.”

“Surely that’s no bad thing? At the moment they’re walking off with all the pies. It wouldn’t harm them to leave one or two behind, would it?”

“I admit that on occasion rewards for tenants are perhaps not as great as they should be. Then again, not everyone can be a reasonably efficient operator.”

“Not everyone can climb Everest; it doesn’t mean they’re not good climbers.”

“I fail to understand the analogy.”

“Given the amount of work involved, would you consider running a pub for around £12,000 a year?”

“Err…no. But we have to remember this is essentially a lifestyle choice. On top of that we need to acknowledge these figures reflect the impact a protracted recession has had upon discretionary spending.”

“Don’t they also reflect the whopping great salaries and bonuses you and your colleagues continue to take out of the company?”

“Err….I think that’s a little cynical. We’re passionate about our pubs.”

“Yes, I’m sure Tesco would readily testify to that fact. Roland isn’t it time to come clean and acknowledge your business model is the product of a bygone era, one fundamentally flawed in every conceivable way?”

“No, that’s certainly not the case. The tied model continues to provide tenants with a low cost entry option into the pub trade.”

“But that’s just the bait Roland. Would you not accept that once in the landing net, the next port of call for many is the deep fat fryer?”

“No, we’re in the business of offering opportunities. It isn’t in our interests to churn tenants. We need to offer a sustainable model.”

“Well if the tied model is still viable why are the likes of Marston’s moving away from tenancies and into managed houses? Surely this indicates the tied model is in its death throes?”

“Most certainly not. A number of tenants are reliant upon the sort of support we can offer. Without it many of them would struggle.”

“What about those who aren’t?”

“I don’t follow.”

“Many tenants require nothing from you apart from the pub. What’s the problem with them paying you a market rent and buying their beer on the open market?”

“But the tied model has been around for a very long time.”

“So was slavery, but it was eventually abolished.”

“We’re not forcing anyone to take on one of our pubs.”

“But once they do you don’t waste any time attaching the ball and chain, do you?”

“You mean the tie? We provide sufficient choice for our tenants to compete in the market place.”

“The fact remains Roland that there has been an explosion of microbrewers on the scene in recent years, a fact that would escape those who frequent your pubs. Isn’t it fair to say that tied houses no longer represent the real world because major brewers are intent on maintaining a protected market to the detriment of both tenants and consumers?”

“That’s not the case at all.” 

“What do you say to those that maintain pubcos had years to make changes to their business model but merely stalled and fudged at every opportunity?”

“The model continues to evolve.”

“Really? Name one major concession you’ve given to tenants in recent years?”

“Err…the landscape has changed completely. There are a whole host of agreements out there now Bob, all offering differing err….opportunities and prices.”

“Let me repeat the question Roland because I don’t think you understood. Name one major concession you’ve given to tenants in recent years?” 

“I think you’re attempting to oversimplify a complex issue. It’s not as simplistic as it you make out.”

“Well it sounds pretty simple to me Roland. A concession – giving a bit more and taking rather less. What’s so complicated about that?”

“We’re continuing to work with our partners and looking at increasing our levels of err…support.” 

“I thought we’d already established that you don’t actually offer any support Roland? Surely the issue is about empowering tenants with more choice? How do you respond to those who suggest your head in the sand approach merely hinders tenants desperate to ensure their businesses evolve to reflect changing consumer demands?”

“We know what’s best for our partners. That way we all benefit.”

“Who knows an individual pub best Roland? Tenants in-situ or a directors of a board located several hundred miles away? Wouldn’t you concede that each pub is unique and should be allowed to evolve accordingly, reflecting the needs of local clientele rather than having a generic model imposed upon it?”

“Of course, that’s why we have business managers.”

“And we all know what their primary function is, don’t we.”

“Err…do we?”

“Yes, maximise profit for you and minimise profit for your ‘partners’. With bonuses linked to performance there’s a bit of a conflict of interest there, don’t you think?”

“In a recent in-house survey, 99.9% of our tenants said they found their BDM ‘useful’.”

“Useful? Hardly a glowing endorsement, is it? I find my doormat useful but I’m sure I could learn to live without it.”

“I don’t think you appreciate just how much support they provide.”

“Finally Roland, I get the impression that you’re still resistant to any sort of change. Why are you so reluctant to embrace the realities of the New World?”

“Self-regulation is working well. We don’t need more government interference.”

“You might not Roland but I’d suggest many of your tenants most certainly do. It would appear MPs have reached the same conclusion.”