A rebranding exercise at a major corporation is more often than not greeted by a healthy degree of cynicism.
However, even critics of Britain’s largest pubco would have to admit that the Ei Group (EiG) heading into 2018 is a very different company to the Enterprise Inns that signalled a major change of direction in 2015.
Having documented the contrasting views in the pubs code debate for many years now, I can already hear spluttering indignation and the faint cries of “pubco puppet masters” directed at me, but hear me out.
In a matter of just a few short years, EiG has transformed itself from a business solely reliant on leases and tenancies to the country’s fastest-growing managed-house business; a partner to some of the most talented pub operators in the country and a significant commercial property landlord.
The core leased and tenanted estate itself – which still numbers around 4,000 compared to some 250 managed pubs and roughly 330 commercial properties – has also undergone its most significant changes in a decade.
Earlier this year, as first revealed by MCA, the tenanted and leased arm (now called Ei Publican Partnerships) was remodelled. The former three geographic divisions, each headed by a managing director, combining 17 divisions became one estate headed by Nick Light and comprising 10 divisions.
That estate has fed the growth of the managed estate but – as Light is at pains to point out – it has also learned valuable lessons as ideas are tested in the managed estate before being fed back into the core.
Hanging over all of this change, of course, has been the pubs code. How much of the innovation would have occurred naturally without the threat of legislation is impossible to tell, but EiG certainly cannot be accused of underestimating the impact of the market-rent-only (MRO) option.
The true impact of the pubs code’s most famous clause is yet to be conclusively demonstrated (in truth it will probably be many years before it does) but Ei Group has already produced its first post-pubs code leases – specifically designed for the hard-fought waiver of MRO in response to “significant investment” in the affected pub (see A brace of new leases).
Appetite for MRO
Light has been with Ei/Enterprise for 13 years now and is encyclopedic about the breadth of the EiPP estate, knowing immediately which of my Brighton locals is part of his portfolio. Meeting him at the recently invested Milford Arms in Isleworth, we discuss his thoughts on the appetite for MRO.
As of 30 September, EiG has had 790 potential MRO events, resulting in 290 offers. Only 10 have translated into free-of-tie agreements with 102 resulting in new tied agreements, nine leases taken back or pubs sold and the rest referred to the pubs code adjudicator.
Light stresses that it is early days, but that he has been encouraged by the resilience of the tied model.
“I felt in the final analysis when publicans really decide what is the best deal for them, the benefits of the tied model would be clear. There is always a risk to starting any business and the pub sector faces pressures from all sides. The added risk of increasing a key overhead in the level of rent you pay was always going to be an important factor in people coming to that decision.”
He also says that, despite the challenges the code has presented EiG, it has brought benefits.
“It’s fair to say that the code has brought about a change in addressing the perceived balance in the negotiation power of the two parties – which was its ultimate aim. It has added some greater clarity and transparency in a number of areas, not least in the amount of due diligence a new applicant has to apply before taking on a pub.
“The rigour involved in documenting meetings has given an added layer of accountability and means all parties have a clear idea of outcomes and actions that need to be taken. Last year, we conducted more than 21,000 recorded and documented business reviews, plus lots of ad-hoc meetings.
“What has frustrated some publicans, however, is the complexity of the code and the time that clarity is taking.”
The rapid growth of EiG’s managed businesses – Craft Union, Bermondsey Pub Co and its Managed Investments – has come at the expense of the EiPP portfolio. The group’s new diversification has led to the unusual situation where different parts of the business bid for the right to take on sites where the leases are due to expire.
Progress on tenanted side too
But, while the headlines may be dominated by EiG’s managed division and the potential to establish a real estate investment trust (REIT) for its commercial property arm, the 4,000-strong tenanted and leased arm will remain the bulk of the estate for many years to come and Light is keen to highlight that progress is being made here too.
He says: “This business is based on partnerships and that’s what we wanted to reflect with the new name. For us to be successful, our publicans have to be.
“Our managed business has given an added depth to the support we can offer publicans. One of the good things about directly managing sites is the ability to trial things before launching them into the market. That has been especially true in food but also in the performance of gaming machines and maximising the opportunities from live sports.”
This advice to publicans has recently been distilled into Pub Principles guides, available as brochures and on the group’s website. They cover everything from social media, product ranges and rhythms of the week to focuses on key trading dates and ways to maximise them. The group will develop four new guides each quarter, including indications of how publicans can secure related deals through EiG.
The group is also increasing the use of mystery shopper visits to gauge standards across the estate, with results being fed back to publicans.
New initiatives being introduced to the EiPP estate are subject to two filters – the regional manager council and the publican council – the latter comprising 30 licensees representing the range of different trading models across the portfolio.
Light says it is one of his key tasks to highlight the support tools as well as adding in others that have gained the support of the two councils, including video guides and a potential food academy.
However, Light is conscious that some publicans may not want their hands held too much.
“We do have to recognise that one of the attractions of running a tenanted or leased pub is the operational independence.
“There will be many publicans who are rightly confident in the experience they have to run their businesses. If they don’t wish to take part in some of the things we have to offer, then we must respect that. But, the beauty of the tied model remains the ability to combine that sense of entrepreneurship with the support of a larger organisation. That has been a successful business model for many years and I expect it to remain attractive for many years to come.”
Light will be speaking at the Tenanted Pub Company Summit on 1 February.