New pub model agreements with the ‘big six’

By Phil Dixon, trade adviser

- Last updated on GMT

Trade expert: Phil Dixon looks at the pros and cons of pub models
Trade expert: Phil Dixon looks at the pros and cons of pub models

Related tags Property Multi-site pub operators Pubco + head office

The National Trust’s Quarry Bank Textile Mill in Cheshire is a wonder to visit.

The walls abound with contracts signed by ‘workers’ agreeing to work for many years at 12 hours a day, six days a week, for just board and lodging.

“It’s shocking what they did 200 years ago,” commented the lady next to me.

“In my industry those terms are still evident,” I replied. “It is called a percentage-of-take agreement but you have to work seven not six days.”

OK, so I exaggerate to make the point but in a minority of cases people are basically working for free food/alcohol and a warm bed.

However, when I was discussing these various agreements at the start of the year, all the companies used the same six words: “We pay all the energy costs.”

Well, thanks to Mr Putin these terms are now as attractive as they have ever been.

There have been some innovations and changes in the model so I decided to investigate the ‘Big Six’.

Marston’s was one of the early pioneers of the model and now has 637 sites up and running.

The company, similar to all the others, have a very supportive paternalistic relationship involving opening hours, product ranges, menus, pricing and all you have to do is run the pub as a self-employed person. You pay your staff, council tax and some liability insurance. Marston’s rates today start at 22% of net turnover, often more. Deposit is £5,000, you can leave after six months or sooner if you have not complied with the terms and conditions.

Freedom with food

However, its new Pillar agreement with, currently, 64 sites is definitely different. The key is freedom to formulate and develop your own food menu. I met with Dal and Corrine who had given up their well-paid assistant headteacher roles (well it was close to Wolverhampton) to take on the Cricketts, near Burton. Corrine had discovered the hospitality bug during lockdown getting involved in a takeaway business.

The details: Deposit £5,000, term 5 years, notice period 3 months from Marston’s or 6 months from the publican.

It has a very generous 35% of wet sales paid by Marston’s but that is tempered by the fact the publican pays the business rates and buildings and other insurance, which will typically be around 5% to 6% of turnover. Still, it compares well. All wages are paid by Dal and Corrine but Marston’s pays all the energy costs including the kitchen.

The menu was bespoke reflecting Corrine’s passion. A flexible menu needs a flexible EPoS system and that was an initial challenge now overcome. 

Greene King is “buzzing” about its new Hive brand (now with 27 sites). I visited two pubs: the Peacock, Chester, and the Liver, Liverpool. Large sites with major investments. The pubs were really impressive. I liked the attention to the outdoor space. So what is different about this model?

There is a fee and it is not a deposit of £5,000 that covers training, legals and fees. NB. this is non-refundable. You receive 20% minimum of the wet and 35% of the dry take but, in addition, you have a guaranteed annual income of £20,000 plus quarterly and annual bonuses. If it’s not to your liking, it’s just 12 weeks to exit and Greene King can only terminate the 5-year agreement on specific grounds. I met two multiples, Peter and Paul both ‘Evertonians’ from birth, so naturally realistic but they certainly liked the arrangement. The guaranteed £20,000 coupled with high-quality turnover sites certainly appears to be a very innovative mould-breaker resulting in an eye-catching proposition. The structure of the deal really appeals to multiple limited companies as well as individuals.

Credit to the company

Just Add Talent (JAT) is the Heineken (Star Pubs & Bars) version with 145 sites and, rather timely, they have just opened one in a local pub: the Hare & Hounds, Kidderminster. It is a pub I know well having advised a family brewery to sell it in the 1990s. Since then, it has been a JD Wetherspoon, Greene King, Laurel site – all with very limited success. The pub does not enjoy the best reputation because a nearby estate is known for a number of undesirable residents. I would not have spent £290,000 as Heineken has but it’s a credit to the company that it has chosen to invest not divest and, frankly, it’s a very remarkable capex project.

The driving force is the BDM Thomas and all his managed house experience, especially in catering has come to the fore. The flexibility of the food offer with daily specials was impressive. The pub is on budget and the ‘manager’ Jane receives a generous 27.5% of the turnover, plus bonuses. Star’s forecast for her earnings are, in my opinion, both fair and reasonable. As with other models, she is responsible for all staffing costs. The deposit is £3,000, security is only three months and Jane must alternatively give six months’ notice if she wants to leave. Star, as with other companies, is keen to emphasise Jane is not an employee and she must run the JAT as a limited company, albeit in close co-operation with Star.

With a high turnover, there are smiles all round. My only gripe is that, in leased and tenanted, Heineken is the only major company that does not appear to encourage its sports pubs to show Heineken-sponsored sport (BT Champions League/rugby). However, when it invests in a ‘live sports’ pub, it shows BT Sport is a bit “hypocriet” as they would say in Amsterdam.

Punch has currently 274 ‘Managed Partnership’ sites, similar to other companies. From interviews, it appears to pay anything from 22% to 30% of turnover, plus sales incentives. One partner I spoke to was on 24% with bonuses and more than happy with his £14,000-plus a week site. It’s just £3,000 deposit and notice can be as low as four weeks. My only observation is sometimes, it can over-hype the offer. It was advertising a pub last year on the beach in Devon and with only a £3,000 deposit but you could expect to earn £75,099. Now if something sounds too good to be true? Indeed if £75,099 was a probability, it makes you wonder why whoever at Punch had undertaken the calculation was not investing in some Piz Buin sun cream and handing in his/her notice to run it.

Admiral has about 170 ‘Proper Pubs’ with rates starting at 18.5% to 20%, plus incentives. The deposit can be as low as £500 with no food provided other than basic bar snacks. Notice to leave either way is less than a month. Social media indicates a happy relationship in what I sense are pretty easy-to-run pubs. However, they will need to be bearing in mind the recent rises in the national living wage (NLW).

Craft Union (EI now Stonegate) is a major player in this area with 483 pubs. I really like the fact it is marketed as a completely separate pub company. What I never understood is that you take a pub, spend £100,000-plus on it, fill it with the latest screens, show BT Sport, Sky et al and then charge less than the local Wetherspoon. Somebody at EI must have done the Molson Coors deal of the century? Stonegate, to its credit, appears to have moved the prices to reflect the value on offer. What is confusing is the partners’ share has remained at 18% (plus incentives) for years now. Even pubs in London are advertised at just 18% to pay you and all your staff. The British Beer & Pub Association (BBPA) albeit slightly outdated benchmarking statistics indicate that on a £10,000 a week, wet-led pub your staff wages will be 23.7% of turnover (p13 BBPA 2022). Labour shortages are forcing bar wages well above the NLW, especially in the capital. While Stonegate is keen to point out, with incentives, the income is usually well over 18% and company surveys indicate satisfaction, it does appear a discussion on raising the level is somewhat overdue.

However, with the energy price situation, rampant food inflation, wage rises in double digits and the cost-of-living squeeze, these agreements will never be as popular as they are today.

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