The meteoric rise of Punch

Since entering the pub trade in 1997 Punch has had a meteoric rise.

When Ken Oginsky starts talking about what "we" have achieved, you may be forgiven for wondering which company he's talking about.

He was finance director of Allied Domecq Retailing, and its 3,500 pubs, until four months ago when he was announced as the new integration director for Whitbread. His task was to co-ordinate the merging of Allied's estate with Whitbread, which was convinced its £2.4bn bid would be successful.

Two months later, the Office of Fair Trading (OFT) called time on the deal and Oginsky was back at Allied's retail arm.

This month he began the task of integration again, after joining the Punch Group as finance director. And this time he expects to complete the task.

"We appreciate there's been a certain amount of uncertainty about our business since the Whitbread deal and that's not good for business," he said.

"We plan to move as quickly as possible to remove that uncertainty so staff can be sure about their future and get on with their plans."

Completion of the £2.7bn deal is due by October 11 but the new management is already on board and the structures in place.

The OFT is once again examining the bid under competition rules, although Punch is prepared to do whatever it can to guard against another Department of Trade and Industry referral.

If the deal goes through, Punch will be a very different business from the one that emerged two years ago when a team, led by Hugh Osmond and Roger Myers, bought 1,460 pubs from Bass to create a leased estate.

It started off uneasily when new pricing policies and beer supply arrangements shocked some of the former Bass lessees, but the initial turbulence has now died down.

Punch Taverns remains unchanged as one of the separate business units of the new Punch Group, along with managing director Peter Thomas.

With Alan Smith remaining as chief executive, the Taverns business operates alongside the 688-strong Inn Business Group, which is still run under its old trading name two months after Punch bought it for £69m.

Instead of merging Allied's 1,500 leased pubs with Punch Taverns it has decided to keep it as a separate business unit under the Vanguard name. Philip Davies remains as managing director — along with the rest of his management team.

Davies said: "Continuity is terribly important. I'm sure we will have some disagreements but we will smooth the path in time. Lessees must not see any glitch."

He will be in charge of a bigger estate, with up to 400 of Allied's managed houses transferring to Vanguard leases.

It is keeping its business support package and the Frontline helpline for lessees, who include award-winning pub retailers such as Taipan Taverns and The Sozzled Sausage.

Davies said the business was also considering launching a new lease linked to AWP income.

It is increasing its annual spend on the estate this year to £14m which is boosted by up to £4m more from lessees.

But it's the launch of the managed business which appears to be the most significant change in direction for Punch.

Although the City speculated that Osmond would quickly dispose of the managed houses, he had planned for some time to diversify away from leases.

He first approached Allied Domecq nearly two years ago but was rebuffed repeatedly until Whitbread's bid collapsed.

He and Myers also have a background in managed outlets, one with PizzaExpress, the other with Café Rouge and Dôme.

In March this year they brought in Karen Jones, who co-founded Café Rouge, to develop a new managed business. She began by rolling out the "bar room bar" brand, which specialises in wood-fired pizzas, and has other concepts under development.

She has now moved into the role of chief executive of Punch's managed pub company, which last week was still waiting to be named.

After the transfer of outlets to Vanguard and the sale of 550 managed houses to Bass, including the London pub chain Nicholson's, she will be left with about 1,000 sites.

"There has been under-investment, which gives us a big opportunity," Jones said. "We cut our teeth on investments in Punch Taverns' pubs and that has given us a good process to follow."

Allied split its estate into regions but Punch's new structure cuts it up according to the brands created by its previous owner.

Jeremy Greville-Williams and Peter Boddy, both from Allied Domecq Inns, have become managing directors in charge of 200 Mr Q's outlets and 200 Big Steak Pubs respectively.

Jones praised Mr Q's as a brand that had evolved into "a good community local with a sports and entertainment package added on".

"It's something that gives us a great foundation to build on," she said.

But the Big Steak family pub concept, with its Wacky Warehouse play areas, is set for a revamp, partly because food sales have been underperforming.

"It's in a crowded market-place and we have to be better and different and very clear what our market is," she said.

Brian Bagnall, who headed Allied's nightclub division, is managing director in charge of 600 unbranded pubs.

Jones believes it is "where our biggest opportunity lies" and where Punch will test new concepts. It has already unveiled a modern version of a student pub at the Three Horseshoes in Leeds, which could be rolled out to up to 60 sites if successful.

She will be working closely with Myers who, as investment director, will look at how cash can be spent to develop the group's whole pub estate.

But the days are numbered for other Allied brands, such as the 24-strong Irish chain Scruffy Murphy's which, according to Jones, "has reached the end of its life".

She will be left with about 60 Firkin pubs after selling the other 110 to Bass, which plans to convert them to its own concepts.

"Firkin is a good example of a concept that hasn't evolved," Jones said. "Work has been done on it but it's stuck in its roots and can't find its way. It's trying to be all things to all people."

If Punch preserves the brand, it is to be revamped and repositioned. The five remaining on-site microbreweries are threatened with closure by the Beer Orders which give Punch the choice of staying out of brewing — however small — or limiting its tied pub estate to 2,000 or so.

Both the managed pub company and the new-look group have a flatter management structure in contrast with Allied, which evolved from a regional brewer into a group mixing together pubs with an off licence group and a global drinks business.

Oginsky said: "We want to devolve responsibility and accountability as far down as we can to ensure speedier decision-making and ensure the decisions are taken by people closest to the consumer."

But Punch, which is now owned by Dallas-based private equity group Texas Pacific, is not planning to sit still. Oginsky said: "The business will grow by organic development and expansion by acquisition."

It is expected to follow the example of Japanese bank Nomura, which pioneered securitisation of pub assets, raising cash by turning future incomes, such as rent, into investment bonds.

Jones said: "As happens with any large organisation that has grown up over the years, Allied had structures that no longer seemed appropriate to the way it operated.

"We believe in having accountability and no bureaucracy. We are talking about revolution, not evolution."