News analysis

Punch's plans for tenants: Co-ops, incentives...and fish

By Oli Gross contact

- Last updated on GMT

Punch's chief executive Duncan Garrood
Punch's chief executive Duncan Garrood

Related tags: Public house, Contract

Punch Taverns has revealed how it intends to change and grow under its recently-appointed chief executive Duncan Garrood - but what it will mean for tenants?

Punch plans to roll out new operating models and premium food offers and to further utilise under-used land — in some cases for building convenience stores.

Convenience stores

This will set alarm bells ringing for some tenants, but Garrood said stores work in “synergy” with pubs and can increase footfall and sales.

“I’m well aware that some people get very anxious when they hear the words convenience store and pub in
the same sentence, for reasons that are perfectly understandable,” he said.

“But where you can the synergy between the two is very good — one builds traffic and the other provides hospitality.”

He explained that The Greyhound in Belper has seen a rise in footfall since a Co-op was built in its car park.

The pubco is also planning to bring into play under-used parts of pubs, such as upstairs areas, for accommodation and function rooms.

Punch, which said it would drop ‘Taverns’ from its name, aims to invest in up to 500 pubs per year, and a total sum of £250m-£300m over the next five years.

Harry Ramsden's

In an aim to target a destination food-led market with a premium fish and chips offer, Punch has secured a deal with restaurant chain Harry Ramsden’s in which both will jointly invest in selected sites across Punch’s estate.

Garrod said: “At the destination and premium end we anticipate working ever more closely with specialist operators and we would expect some of them to bring their brands into play.

“With Harry Ramsden’s we have taken a very powerful brand and formed a partnership with them. We hope our joint expertise in how to
run a pub offering great fish & chips will be a winner.”

Punch said its existing small commercial free-of-tie operation would grow with the introduction of similar offers.

Operating models

The pubco has also shifted its focus to managed houses and turnover-based agreements.

Managed houses are a small project which will help guide a larger portfolio and give “credibility” to its understanding of customer needs, whereas the turnover agreements are a growing focus.

The company’s first managed pub opened last month.

Punch’s new Retail Contracts division has 31 sites, and the pubco plans to grow that number to 100 across the country by August 2016.

The agreement sees Punch retaining 100% of the sales revenue and pub costs, excluding staff costs, and paying publicans a percentage of the retail sales.

It takes responsibility for all back-of-house functions while the licensee focuses on customer experience.

Garrood said: “Arrangements where you both share in the outcome of the effort, and take a percentage of turnover, have always proven to be among the most successful business models I have worked with.

“It’s very encouraging that in the first 31 we’ve got going we have already seen uplifts on 15% to 20%. If you deliver very high retail standards, customers will reward you with their money.”

Incentives

Operators pay a £5,000 fee at the beginning of the five-year agreement and then receive a proportion of total weekly turnover, with six-monthly incentives of 2% of turnover for operators who hit profit targets.

Andy Crump, who heads up the division, said: “What is key here is the focus on profit. By offering those incentives based on profit targets it means we are perfectly aligned on what we are trying to achieve with the business.”

At the end of this financial year retail contracts and managed houses made up 8% of new agreements. After the trial’s success, the company aims to grow that to 25% by the end of the 2016 financial year.

Punch also plans to roll out its Mighty Local concept and Champs sports bars.

Punch’s value is estimated at £2bn, with net debt down £513m in the year to £1.4bn.

Core estate net income was up 0.3% in the year to 22 August, while average profit per pub was up 4%.

Related topics: Punch Pubs & Co

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