Stonegate’s McDowall: The estate will continue to evolve

Speaking at the recent MA Leaders Club conference in Glasgow, the pub company boss outlined how disposing of sites had been part of plans since the deal to acquire Ei was first agreed in 2019.

However, he also highlighted how the size of the business in terms of site numbers wasn’t a measure he focused on.

McDowall said: “We’re known to negotiate hard. As soon as the Ei acquisition happened, part of the business plan was to divest some of our pubs on an annual basis, we continue to do that on a site by site basis.

“A big part of the future of the estate evolution and deleveraging is continued disposal. However one thing is really true and that is I have no interest whatsoever in a measure of success being the number of pubs we operate, it’s a complete vanity metric.

“We want to make sure we have a sustainable future, a sustainable balance sheet. Pubs that are thriving in the communities they serve and a team that are making a real difference.

“If that means we have 3,000, 4,000 or 5,000, then so be it, the number is of no interest to me.”

Shortly after McDowall spoke in the Scottish city, Stonegate reported its strongest first half trading performance in the group’s history.

He hinted at the company’s financial success and the reasons behind it in Glasgow: “The phrase I used with the team is ‘we’ve reached a tipping point’ because we have now had three quarters in a row of solid, double digit profit growth in a really difficult environment,” the pubco boss said.

“That is a result of all the hard work, grit, spirit and determination, all that work on culture and the shift in strategy.

“We have a couple of years of hard work left to go. The estate will continue to evolve, that’s an important thing to say, we see more opportunity in that but what we’ve done thus far is working and it’s my job to keep the team focused on the strategy and allow them to develop that at pace.”

Looking back at when he first took on the role as the boss of the UK’s biggest pub company four years ago, McDowall laid out the obstacles in place at the time.

Company challenges

He said: “I learned a lot very quickly. There were challenges we had to deal with that were probably bigger than I originally thought and there were opportunities I didn’t realise until I got into the businesses.

“What was really clear was our biggest challenge post the Ei transaction, which was more than 3,000 leased, tenanted and operator-led pubs that happened two weeks before Covid, then post Covid, the business had balance sheet issues to deal with.

“Over and above that, the external environment was changing really rapidly. We all know the way guests were socialising was changing forever, Stonegate was quite heavily focused on its managed operations on the high street, everything was fighting against us slightly.

“It became clear we needed to find quite a radical, structural solution to that because the existing strategy that we put into place in the business for all the right reasons wasn’t working.”

One of the first things he put in place was an evolution of the company culture, due to the addition of thousands of leased, tenanted and operator-led pubs.

“[Stonegate] was a managed first operation, [then] the lion’s share of the earnings was coming from that partnership model and the business didn’t quite behave in a way that reflected that. We had to really work on the capability of team and culture of the organisation,” McDowall added.

“The biggest shift was trying to get the business to be agnostic to the model we ran pubs. It seemed really simple and straightforward but it took a really long time and that allowed us to say maybe we don’t have to have this heavy emphasis on our directly managed operations.”

The business is now half way through what McDowall described as an “aggressive programme”, which will see the company become far more of a partnership-led pub portfolio.

“That comes from an intrinsic belief I have that people are way more connected to the people who work in our pubs, bars and venues than they are to the brand name above the door,” he said.

“We’ve now converted, over the past 18 months or so, almost 400 of our managed locations, predominantly to leased and tenanted.

“We’ve realised a load of additional benefits to the business and P&L as a result of that. It’s creating a pathway to sustainable deleveraging, the business is in strong profit growth and we’ve reached a tipping point where all of our hard work on team, culture, capability and then strategy is starting to turn into performance.”

Recent months have seen reports Stonegate is looking to dispose of sites, most recently Terra Firma Capital Partners was reportedly among a number of prospective bidders preparing offers for part of the pub group’s Platinum estate.

However, the business said “no decisions have been made” in response to the reports earlier this month (June).

Signs of improvement

When asked about divestment, McDowall said: “We’re known to negotiate hard. As soon as the Ei acquisition happened, part of the business plan was to divest some of our pubs on an annual basis, we continue to do that on a site by site basis. A big part of the future of the estate evolution and deleveraging is continued disposal.”

Meanwhile, the latest results from the pubs code adjudicator’s 2026 Tied Tenant Survey showed Stonegate had the lowest level of satisfaction among the big pub companies at 39%.

McDowall said the polling was an important metric the business looked at closely.

He also pointed to how there had been positive steps in other areas such as relationships with BDMs, which was up four percentage points for Stonegate this year

He said: “If you think about a managed-first business, the team, culture and capabilities shifting towards partnership portfolio, and think about the fact the EI acquisition happened at time when there was no integration or joining forces between the two teams could happen because of Covid, it was difficult.

“In that you can see some signs of light this year actually, signs of improvement in important areas like relationship with BDMs for example.”

“The other metrics we look at that are important and give us signs of light and hope are, we’ve doubled the level of capex investment into our leased and tenanted estate in a 12 month period.

“Our publicans are staying with us longer so the average length of tenure has increased.

“We feel there are some signs that cultural shift towards successfully and sustainably running a partnership business are starting to work and that’s what we continue to focus on.”

At a company level, ensuring a laser focus on the strategy is the challenge that keeps McDowall up at night.

He said: “We were converting five pubs a week from leased and tenanted so this is happening at pace, then making sure we engage and help our teams navigate that strategy over the next year or two is what I think about every hour of the day.”

However, Government legislation and attitude were the biggest challenges to the whole sector on a macro level, McDowall highlighted.

“Externally I think about is the legislative and regulatory environment to try and run successful hospitality venues in the UK is getting to a point where it’s bordering on ridiculous,” he said.

“Our task as leaders is to try raise awareness of the fact that is the case and continue to try and find ways to lobby for the solutions that will help.

“The biggest sector issue we have is we unfortunately have a procession of leadership in [the] Government that just don’t get the importance of this sector.”