Running a pub

Running A Pub: Trading up

By Glynn Davis

- Last updated on GMT

Finance: Calvin Dow (right) advises finding various routes of funding
Finance: Calvin Dow (right) advises finding various routes of funding

Related tags: Pub, Licensee, License

In the second of our series on the challenges of running a pub, Glynn Davis looks at the practicalities of taking those first steps in expanding your horizons by running a large premises or more than one outlet.

For ambitious licensees successfully running their first pub, there will likely be the pangs of hunger at some point to trade up to a larger venue or a different type of outlet that enables them to test their capabilities and build a bigger business.

But even with proven success in one pub, it still requires taking a very careful path when moving on to another outlet with the inevitable complexity that comes with a larger or different type of operation.

Keris de Villiers, licensee of the Old Sergeant and the Pig & Whistle in Wandsworth, south London, was in this position when running the Nightingale in Balham (as a manager for Young’s), which she says had “gone phenomenally well and so we thought about a bigger managed house or a tenancy to let us try our own thing”.

Despite the Old Sergeant being smaller than the Nightingale, she says the added responsibility was a steep learning curve: “We’d never done a payroll or paid the gas and electricity bills. We had to get to grips with the day-to-day running with all these extra bits that were a lot more involved than we’d been used to as just a
manager. It’s almost like a grown-up job in comparison.”

Profit

The lesser level of profitability was also very noticeable on the beer side because the cost of purchasing it as a manager was significantly less than when a
tenant.

“I knew it would be more expensive but not quite as expensive,” she says, adding that food is the area where profits can be boosted under a tenancy.
Calvin Dow, licensee at the Castle Inn in Skipton — a tenancy with Star Pubs & Bars — also found financing a shock, having gone to a pub three times the size of his previous business: “Wages went from £50 per week to £2,000, and electricity from £200 per month to £1,200.

"Don’t let it scare you, but it is a culture shock.”

Cash-flow

During these early stages of a trade-up, when it is inevitable licensees will need to purchase stock, refurbish premises and buy equipment, cash flow might well be an issue and, in such circumstances, Richard Morley, director of European development at Liquid Finance, says it is important publicans they do not overlook alternative types of funding.

“They need to consider more than one or two funding opportunities — the one-stop-shop is no longer there. Licensees must not be afraid to ask for advice: from their bank, their broker and indeed their peers,” he says.

Liquid Finance is one such alternative that involves a one-off fee being paid for a cash advance that is paid back as an agreed percentage of the card sales that are taken by the pub until the borrowed amount is cleared. “No other fees are charged and licensees only pay as they make sales via their card terminals,”explains Morley.

Advantages

There are clearly significant challenges — financially and operationally — from trading up, but there are, of course, advantages. Dow says that with his new scale of pub in a larger town he now benefits from attracting a more diverse crowd to an array of events and activities he runs that simply could not have been supported in his previous little village pub.

“I can be more adventurous. If 30 of the locals didn’t like a comedy night in the village then it would not have worked, but here we’ll always attract people, especially for an event. But the downside is not now knowing who all your customers are, so there is a greater chance of trouble,” says Dow.

To deal with this he says he now has so many employees it feels like running “an army”. No longer can he put Post-it notes on the fridge. Instead there have to be regular staff meetings and assistants to deal with the likes of rotas.

Systems

De Villiers says she has also had to bring in more order and now recognises the value of the systems and paperwork she had found a pain when a manager.

“All the things felt forced on us — like customer programmes, and staff training — and we viewed it as pointless. But now I use them all and it’s invaluable. We’ve transferred over all our previous [Young’s] systems. They’ve given us things like their health and safety manuals,” she says.

Having just such a healthy partnership with your pub company is clearly a necessity when trading up, according to Suzanne Smith, director of recruitment and people development at Admiral Taverns, who says: “Rightly or wrongly, there’s a lot of scrutiny on pub companies right now — and the way they support licensees. As well as finding the right pub, it’s also about identifying the business partner that is best suited to you.”

Survey

When deciding who to potentially trade up with she says there are some useful barometers that show how licensees rate pub companies, the most obvious being independent market research survey Tenant Track, which captures licensees’ views on a range of factors — including quality of support, training, BDM and product range. It ultimately reveals how likely licensees would be to recommend that pub company to a peer.”Both parties need to recognise the capabilities of the other side.

For Paul Frost, licensee of the Colston Arms in Bristol, a trade-up has been possible because Admiral recognised some valuable ingredients in him, including his focus on plans and goals for the pub in his business plan as well as his clear proactive nature and strategic thinking.

Frost says: “It’s very much a partnership. Trading up has been a really great experience and the transition has been seamless. Right from the beginning Admiral has provided endless training and support, which has reassured me that the decision to switch was the right one.

Price

”As well as finding the right partner, Lee Price, licensee of the Royal Pier in Aberystwyth — who has effectively traded up through growing his operation into a handful of food and beverage businesses on a pier with the ‘Inn on the Pier’ at its heart — says the key is “to have passion in bucket-loads so you can motivate the workforce to believe they are working in something that’s going to get bigger and they can see their career path and clear progression.”

Going up in the world

Tips on trading up from Chris Jowsey, trading director at Star Pubs & Bars

  1. Do your research and create a detailed business plan. Visit the pub at different times of day and week. Look at the competition. Is there a gap in the market for your vision? Social media is vital to effective marketing, particularly of food and events, and should feature prominently in your plan.
  2. Talk to others. Find a mentor running a similar pub to tell you about the pros, cons and pitfalls. Our recruitment team can advise any licensee regardless of the company they are with or the type of pub they operate.
  3. Create a people plan. You will likely be moving from a staff of three or four to a team of about 15. You may be inheriting employees from the previous licensee who aren’t positive about the change. The bigger the business, the more critical the staff and the more you have to delegate. Identify those who need coaching, those you want to keep and those you want to ease out. Recruit the best possible people. Share your vision and expectations from the outset. Invest time in your staff and money in training.
  4. Scrutinise your partners. Ensure any pub company you are partnering with offers the support you need to make the transition to a more complicated business and that they and any other partners share your vision and have the necessary capital to invest to take the pub to its next level and fulfil its potential.
  5. Consider an FRI (Full Repairing and Insuring) lease of 10 years plus. Suited to larger businesses it allows time to build up trade and accrual of the best returns. It also has the benefit of being assignable, allowing you to sell the business on as a going concern and reap the rewards of the customer goodwill you have built up.
  6. Food is a key part of a bigger pub business, embrace it as you trade up. The eating-out market is growing so much that our ambition is to help our lessees build their food to account for 50% of sales by 2020. Make sure your pub has the capacity to benefit.
  7. Invest in IT. It will give you tight control of a more complex operation and finances as you move from one till to possibly five, with handhelds and a kitchen printer.
  8. Keep an eye on the future. You might not want another pub right now, but it’s a well-worn path to expansion. Choosing a leased pub now won’t tie up your capital like a freehold. This leaves your options open to take on a second site in the future.

Related topics: Professional Services & Utilities

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