Posted by: The Prince of Whales | March 4, 2010

The Elephant in the Room


Following on from my earlier blog about the troubles in the pub industry, here’s a further piece on the key issue for British Pubs … the role of Pubcos. Licensees of leased pubs like me believe the beer tie is operated unfairly and we are pushing for change. So …

I spent yesterday afternoon at a forum for Punch Licensees.  Here, in front of about 15 or so leaseholders, their senior management outlined a new approach and explained how they want to begin their journey towards “most trusted partner” status.

It was my second meeting with Roger Whiteside, the MD of their leased division.  I want him to succeed. I want to believe that Punch can change. That Roger is the man who changes everything, transforming them from greedy capitalists gorging on the life savings of failed tenants, to a trusted partner and your best bet for survival in a decling pub market.

The session was lively, honest and constructive. Many good points where made and its obvious Roger is making progress.

Yet the elephant in the room was there; all the time. No not the beer tie itself, but the fact that each and every licensee needed to make more money. More money not to buy a new car or add another exotic holiday, but to simply enjoy an average wage for double the average working week.

To many of us in the room, it doesn’t matter if the BRM visits more often or whether in return for higher rents we can get bigger beer discounts, we simply don’t earn enough.  As I tried to explain … we either need a bigger slice of the pie or we need the pie to be bigger.

Some pubcos have decided its time to think long term and give tenants a bigger share of the pie. Hall and Woodhouse operate 180 tenanted pubs in and around Dorset. Matt Kearsey, one their Directors is quoted in the trade press this week:

“Its not about the tie, its about the share of the pie.”  And later in the same piece: “we were taking too much of the profit”.

Clearly for Punch as a plc, volunteering leaseholders a bigger slice of the pie will be difficult to sell to shareholders, although the politicians may eventually changed the law to force this upon the larger pubcos.  For now we left pondering how Punch are going to add enough value to make the pie bigger.  In short how are Punch pubs going to gain market share in a declining market?

If one examines the current players and how they are performing, one forms an opinion on just how tough this is going to be.

Given that about 80% of Punch pubs are classic wet led boozers, the competition is clearly tough. Wetherspoons and managed house operators are much better placed than Punch leaseholds to stake out the value end of the market. Punch leaseholders simply pay too much for rent and beer to compete. Its clear that Wetherspoons have really grown their share of this end of the market, moving on from price, using cask beer strategically, widening their range and pulling more customers. The recession has helped them. As more and more customers feel the pinch, more of our customers start off in Wetherspoons. Once their mates are there, the rougher Wetherspoons customers are not so obvious and off course, folks want to drink with their mates. The recession has made Wetherspoons more acceptable to a wider group of drinkers.

The only strategy for Punch leaseholders is differentiation.

Unfortunately, Punch are not the best partners to drive a differentiation strategy:

  • With 80% of the estate typical wet led boozers, many are rather tired and in poor repair.
  • Cashflow is tight so investment must be selective
  • Punch do not have excellence in marketing, retail format/concept design, customer experience skills to pass on to their retailers
  • Their product range is too mainstream (cask ale for example)

All these factors combine to make it an up hill struggle.

So whilst I must admire Roger Whiteside’s optimism and acknowledge he clearly can motivate his team,  having slept overnight and thought about the discussions we had, I am not optimistic.

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