It’s a gloriously sunny day when I meet a very relaxed-looking Lawson Mountstevens in Kilburn, north London.
Lawson Mountstevens joined Grand Met Brewing as a graduate trainee in 1990, and has held commercial roles with Scottish Courage, Scottish & Newcastle and now Heineken. His roles have included sales managing director Courage East, sales managing director national sales and most recently (from 2008) managing director, on-trade, Heineken UK.
In 2016, following a decision to appoint a dedicated management team member to lead Heineken’s pubs arm, Mountstevens became managing director, Star Pubs & Bars.
The managing director of Star Pubs & Bars, the pub arm of Heineken, has good reason to look content. Aside from just returning from a well-earned break in Guatamala and Belize, the pubco he leads has recently completed a long and complex multimillion-pound acquisition that has trebled the number of pubs in its estate and strengthened Heineken’s presence in the UK.
When we meet at the Kilburn Arms pub, part of the pre-Punch-deal Star estate, it is mere weeks since the transition period ended, marking the final part of the transfer of 1,885 pubs from Punch to Star. It brings Star’s total estate to around 2,900 pubs and makes the pubco the third largest in the UK after Ei Group and Greene King.
Mountstevens says it’s “a brilliant thing for pubs, a massive statement from Heineken and a massive investment in the UK”.
“The interesting thing is that this acquisition was made during the course of the whole Brexit thing,” he adds. “So it is a real vote of confidence in the UK, the UK economy, UK pubs. If there was an ounce of doubt in that, then a company like Heineken wouldn’t have made the investment.”
Fundamentally, it’s a pub deal. And it’s because we see the opportunity to develop the pubs, the chance for our [drinks] brands comes secondary to that.
Maximise the opportunities
However, not everyone was convinced it was a good move. Sector bodies raised concerns about the creation of a “monster tie” and warned of the deal’s potential to negatively impact on the choice of drinks available to licensees and consumers. The plans also came under scrutiny from the Competition & Markets Authority (CMA) (see box ‘How the purchase from punch was made and cleared’).
Reflecting on the motivation for the deal, Mountstevens says: “Fundamentally, it’s a pub deal. And it’s because we see the opportunity to develop the pubs, the chance for our [drinks] brands comes secondary to that. That’s the key sequence to me.”
He says that if the plan had been to use the pubs to indiscriminately push out more Heineken brands at the expense of other brands, it would have been the “worst investment in history”.
“It is about pubs and investing in pubs and that is where we see the opportunity, by investing and working with licensees, to enable them to maximise the opportunities and for the pubs to be sustainable.
“For that to work, we have to be able to offer the right range and the right depth of range to meet those different consumer occasions that allow pubs to maximise those opportunities.”
He admits that the pubco will have an agreement where the lead products in tied premises will be Heineken brands but, he adds, the company has spent time putting contracts in place with a whole raft of different suppliers from big to small and Star has extended its range, particularly around cask, as well as now working with the Society of Independent Brewers (SIBA).
He adds: “We’re not going to be marching round telling people they’ve got to remove x,y or z. Any changes will be done by agreement.”
Agreements to be harmonised
But that doesn’t mean that harmonisation of wider contractual terms and conditions with the existing Star estate is off the table in the long term.
“What we’ve got now is a very complex business with a whole myriad of agreements across the piece and that makes operating complicated. It’s difficult for the business development manager if they have 30 odd pubs and they’re all on slightly different agreements.”
The plan, over time, is to harmonise those to a core set of agreements, which have got more commonality. “It just makes us more efficient and if you get that right it frees up more of the conversation to be talking about business building as opposed to different nuances and different leases,” he says.
Change is inevitable in a deal of this size. As Mountstevens says: “[This acquisition] changes our UK business dramatically. We [Heineken UK] used to talk about ourselves as a cider, beer and pub business. We now talk about ourselves as a pub, cider and beer business.”
That is significant because the order of those words drives the allocation of resources and where the focus is for the Heineken UK business, he says. “The estate of pubs we’ve bought isn’t exactly the same as the 1,000 pubs we had, clearly. But what we see in those sites are, broadly good pubs in pretty good locations where we see the opportunity for us to invest, in a considered way, over a long term. That helps those businesses grow their profit pool and be long-term sustainable pubs.”
But tripling in size presents certain logistical challenges. Especially when you have just six months to transfer all the sites and systems across.
Mountstevens says the actual physical separation of the pubs was quite easy because they were in two defined securitisations, Punch A and Punch B. “It wasn’t like we were discussing who had the Royal Oak or the Red Lion.” But he says: “It is as complicated as you get to transfer over all the infrastructure, all the systems, all the knowledge, all the lease agreements and pricing agreements.”
Once Star got into the transition phase it had “brilliant co-operation from everyone at Punch”, he says.
“There was a real focus and there was a real drumbeat to it to get there. I think our great learning as a business is that having a defined deadline is really very helpful. We made stuff happen quicker in our business than ever before because there wasn’t the option of another couple of weeks.”
During the transition period, Star loaded about 550 new products into the supply chain, which equated to millions of lines of data. And as part of upscaling, employee numbers grew by almost two thirds from 90 employees, when they had around 1,000 pubs to 230 employees looking after 2,900 pubs. Half the new employees transferred over from Punch and the other half were either internal promotions from Heineken or external hires.
Star brought in some expertise in buying and retailing where the pubco recognised a need to get better because “our scale means we need to operate in a fundamentally different way”, he says.
Before the deal, Star had three regional teams, now it has 10. “This puts all our people resources closer to pubs, makes them tight to the geography,” he says. In addition to the 10 regional teams, Star now has 10 ‘virtual teams’, which look after operations, such as property, which are aligned to each region.
Business development managers (BDMs) at the pubco have also seen dramatic change. Before the deal, there were around 28 BDMs with roughly 40 pubs each. Now there are 80 BDMs who have around 32 pubs each. This means BDMs now have more time to be in their pubs. “We talk about wanting to add value, wanting to help, wanting to invest. You can’t do that on the phone,” he says.
Emails and letters have kept the new Star licensees in the loop with what was going on before the deal completed and during the transition, he says.
“I think and I feel from talking to people that we’ve communicated well. When we run the systems tests on ‘are we invoicing correctly?’, ‘are we sending out all the stuff you’d expect to run the business?’, then we are,” he says.
A roadshow for the 10 regional directors to meet all the licensees is in the pipeline for September and October.
But even the best laid plans can be disrupted. “We could have done without the snow on the weekend of the cutover [when the systems switched from Punch to Star at the end of the transition period],” he sighs. On the Friday after the cutover they had to close the contact centre because the Beast from the East had landed. “We had office-based people sitting at home on their laptops releasing stuff off our ordering system to make it all happen.”
And he admits there have been a few “teething problems” in the initial stages of the integration with getting people logged into the e-commerce site and a few batch issues sending out rent invoices in a timely manner.
“We have got it 98% right,” he says. “The challenge for us now is to now earn the respect and the regard of licensees across the country by what we do.”
Asked if the pubco and its parent company Heineken has its sights on expanding its estate further, Mountstevens smiles. “Now we’ve got the operations teams in place, we’ve got to really understand the pubs. I think you only really understand that by the local teams really knowing the pubs, the opportunities, the different licensees, the agreements that they’re on. But fundamentally our plan is to invest in those businesses, and invest appropriately, to ensure we create vibrant sustainable pubs for the future.”
He won’t reveal the amount earmarked for pub development, but Heineken UK regularly invests large sums in its Star estate, spending £20m on upgrades last year alone, and Mountstevens says there will be more information this summer.
For the present it seems he is concentrating on the job in hand. “We’ve got a massive job to integrate these pubs, to turn all the rhetoric into action, get the virtual team structure really working and to deliver the overall plan, that’s the real focus at the moment.”
How the purchase from punch was made and cleared
When Dutch brewer Heineken and investment firm Patron Capital announced they had struck a deal to buy 3,200 pubs from Punch for £402m in December 2016, the scale of the acquisition prompted strong reactions.
Under the deal, Patron Capital would acquire all 3,200 Punch pubs for the said £402m through a special purpose vehicle, Vine Acquisitions. The pubs were split into two groups, Punch A and Punch B, with the 1,900 Punch A pubs then being sold in a back-to-back deal to Heineken for £305m, while Patron Capital kept the remaining Punch B sites.
In early 2017, Scottish Licensed Trade Association (SLTA) chief executive Paul Waterson warned it would create a “monster tie” that would “destabilise an already fragile industry” as well as restricting market access for brewers as the “market will almost certainly be controlled by Heineken”.
At the time, Lawson Mountstevens responded: “Of the 4,900 pubs in Scotland, we currently own just over 100. That’s 2%. If our offer is successful, this would increase to just 6%, far from making us the monster that the SLTA says we would become.”
But the criticisms kept coming. Colin Valentine, national chairman at the Campaign for Real Ale, warned that the tripling in size of the Star pub estate could lead to reduced competition in the on-trade beer market and result in limited choice for licensees and customers.
However, the Competition & Markets Authority (CMA) found that concerns the deal could block market access for breweries were unfounded. Echoing Mountstevens’ earlier response to SLTA concerns, the CMA said: The [Punch] pubs being acquired are only a very small part (4%) of the British market and are, therefore, not a major route to market for brewers.”
The CMA also found it “unlikely” the deal would lead to reduced choice for customers because “any potential reduction would be limited, taking into account the drinks that Punch currently stocks and the range of drinks available in Heineken-owned pubs.”
However, some concerns about competition were upheld by the CMA. It found the acquisition “could reduce competition in 33 areas cross Britain”. In these areas, the CMA said the pubs in the deal “would not face sufficient competition after the merger, which could lead to price increases or a deterioration in the quality of the service on offer”.
Heineken agreed to sell 15 Punch A pubs, which satisfied the CMA.
Star Pubs & Bars MD explains ‘massive’ investment to attract new talent to pubs
Heineken’s pubco business Star Pubs & Bars has invested “massively” in the systems and processes of its Just Add Talent (JAT) retail turnkey scheme to attract and support new people and talent into the pub sector.
The pubco, which has almost tripled in size since Heineken completed its deal to buy 1,900 Punch pubs, already offered JAT agreements to people who wanted to run a pub without the need for a huge capital investment.
But in an exclusive interview with The Morning Advertiser, Lawson Mountstevens, the pubco’s managing director, explained that JAT agreements had previously only been in place at five sites. “We were enthusiastic amateurs. We were experimenting with it and working with it,” he said.
Visit https://bit.ly/2r7SmrY to read more about the scheme.