A defensive Punch

Over the last few months, pub operator Punch has faced criticism from some of its lessees over claims that its high rents and beer prices leave them struggling.

Punch has argued that the costs reflect the fact that lessees are given a comparatively inexpensive route into the pub trade and claims the majority of its lessees are happy with their lot.

Here we give both sides a chance to put their story with a case study of one particular licensee and his own experiences in recent years, and an overview from Punch's management outlining its strategy and its hopes for the future.

Letter to thePublican.com from Francis Patton​

Recently, our chairman, Giles Thorley gave an interview to The Publican about Punch, its plans for the future and our desire to improve our relationship with our retailers (licensees).

In response to this article, The Publican and ourselves have received a number of letters and emails from retailers about their relationship with the company, both positive and negative.

We are, therefore, keen to provide a little more detail to our policies so that we can all move forward with a more open relationship with our retailers.

Our policy is not to comment on individual cases, so this is a general overview of our policies, not a definitive statement on any of our pubs. We do not regard it as positive to handle specific debates in the media and look forward to progressing the dialogue with our retailers directly from now on.

Punch, like all of our competitors, generates its income from a number of sources, the principal ones being rent and the margin made on beer sales.

Our rents are always based on a fair maintainable business for the pub at the moment in time the rent is assessed. The rent is derived from a business plan specific to that pub, taking into account the agreement terms, ie the price at which beer will be purchased, the location and whether the retailer is responsible for repairs. All overheads are included based on our experience and analysis for similar pubs in similar locations.

We always suggest retailers get independent professional advice and all commercial leases offer the provision for an independent expert or arbitrator to set the rent if the parties cannot agree.

So far this year we have agreed 203 rent reviews with only 10 in arbitration (these tend to be in London with larger increases involved) and we have agreed 246 lease renewals with six in arbitration.

In terms of the price at which we sell beer, it is worth noting that the reference point for all of Punch's pricing schemes is the brewers' National Wholesale Price which is set by each brewer. Our agreement with the retailer, in the main, prohibits us from using alternative benchmarks. Although we don't have details of all the other pubcos' pricing structure, we are not aware of any major competitor who does not use a brewers wholesale price as a reference point albeit that some brewers have regional price lists which may be adopted.

All of the discount schemes inherited by Punch from the former brewery owners were based upon barrelage, which come from the previous year's actual trade in the pub. All of these schemes were discretionary. Some retailers have commented on the end of New Deal. New Deal was a discount scheme offered to a limited number of retailers for a limited time and was one of five major discount-related incentive schemes offered by the company. When deciding on an alternative we were committed to extending more freedom to the retailer in relation to the pricing structure, through the Punch Growth Lease. However, signing up for the Growth Lease is not compulsory and there is an alternative available for retailers who choose not to.

The Punch Growth Lease offers a discount structure amounting to about £40 per barrel. Unlike the historic incentive schemes, this is a contractual part of the lease and is fixed for the term of the agreement with an annual review based upon the increase in price of a basket of key beer brands. This compares with the New Deal discount, which was just £12 per barrel. However, some of the difference is made up in increased rent and a 50 per cent share of AWP income.

We do use Brulines in approximately 50 per cent of our pubs. However, the data from the machines is available to all licensees who have Brulines via a dedicated website. More than 10 per cent of our retailers use this service to improve their knowledge of trading patterns in their outlets. This provides invaluable data for the retailer and reflects our desire to help provide our retailers with the tools and data to help them in their businesses.

If Punch is to continue to grow, the company has to be seen as the pub company of choice for the professional pub retailer. To achieve this goal we have a focused business support resource provided by our business development managers (BDMs) and our customer support team.

Punch has been through an immense period of growth since its creation. We are constantly improving the calibre of staff, with a particular emphasis on the professionalism of BDMs. This has resulted in changes to the staff but as we build our skill base we expect this will result in a more stable future.

We are equipping our staff with new tools, including desktop planning and training, which are designed to assist retailers to better understand their businesses and help them to identify potential investment opportunities.

We spent in excess of £24m on our estate last year and have invested in 1,100 pubs since the creation of the company.

This figure is likely to increase by about 25 per cent next year. All investments are carried out in conjunction with the potential or existing retailer, and are coupled with specific support through training, marketing and a budget specifically for the launch of the newly developed pub.

The business planning tool also gives licensees an opportunity to do a cash flow analysis. This allows us to find the best terms for each of our retailers, the vast number of whom pay by Direct Debit on a regular payment cycle. A small number of retailers pay cash with order through choice or necessity. The number of retailers that pay on cash with order is somewhat lower than many of our competitors.

We have a talent bank of over 1,000 applicants for pubs in our estate. In addition, there is a constant stream of retailers wishing to move pubs, or whose lease agreement has come to an end. This will result in a steady turnover of operators and we have sought to help retailers who wish to sell their pub, to generate the maximum possible for their leasehold asset. Where we know of the value of the deal, assigned premises generate on average £50,000 for the retailers selling them.

Our policy is to help build a better business for our retailers. We can only do this if the pubs that we have to lease and the goods and services which we offer are competitive and offer the opportunity for the retailer to make a healthy profit. We are moving quickly to ensure that all of the initiatives and innovations that we are bringing to the industry help us to better achieve this goal.

We accept that no business is perfect, and we accept that we may have put insufficient emphasis on retailer relations in the past. However, we would now urge any licensee who has an issue to contact the company directly and we will work to resolve their query.

We are grateful to the The Publican for giving us an opportunity to make our position clear. If any retailers have contacted The Publican with a specific issue we would be happy to contact the retailer directly subject to their permission having be