Business Opinion with Hamish Stoddart

Casting off the concrete overcoat

The PMA Team's opinion piece, published in the MA on 24 May, has been sitting on my desk at home for a couple of weeks. It's the one that begins "Punch Taverns is reviewing the way it deals with its multiple lessees" and goes on to discuss how pubcos could deal differently with groups such as ourselves.

Every time I catch sight of it, I feel inspired to respond - I love the phrase "concrete overcoat". That's exactly what a lease can feel like, but shouldn't. So, here goes.

At the risk of offending fellow licensees, I have to say that it's not surprising pubcos task their legal hot-shots with putting together a lease that squeezes every last drop out of the deal and is signed in blood.

This industry is rife with brown envelopes, pubs that run two sets of accounts and other dodgy dealing. Some licensees' personal mission in life is to screw the pubco.

But as Paul so eloquently puts it, that just isn't the case with the likes of Peach Pub Co.

It's a bona fide business, with audited, published accounts and a clear understanding that everyone needs to make a profit - the pubco, ourselves and our suppliers.

At every point in the chain, there has to be a margin, and all we ask is that the margin should be a fair one.

Rent reviews

We don't have an issue with the rent we're charged when we go into a property. We negotiate with the pubco and if we can agree a rate with which both of us are comfortable, the deal goes ahead. In the case of all our six leasehold pubs, we and our joint venture partners have taken on an under-performing business and turned it into a flagship operation.

Our gripe is what happens when it comes to the next rent review, if the pubco tries to double the rent on the basis that this is a very successful business. Er, sorry - but that's patently a result of our being good operators, rather than the intrinsic merits of the building. If we win the UK Pub of the Year award, who deserves the credit?

Two years ago one of our pubcos offered, in all seriousness, an 80% increase in rent on our first pub and expected us to be grateful. (You know who you are - and you should feel ashamed.) The value of a pub estate is dependent on the quality of its operators.

If you decide to sell a pub that can show several years' accounts and is trading at above what you might expect for that kind of property, it's going to be worth a lot more than if it trades below expectations.

It's in the pubcos' interests to help us achieve great results, rather than spiking our guns by increasing the rent out of all proportion to the original agreement.

So Paul's suggestion that a lease could be structured to incentivise, rather than penalise, success makes absolute sense for both parties.

Not like other pubs

The other aspect of the lease that needs scrutiny is the degree of control exerted by the pubco over the lessee. Peach pubs aren't like other pubs - we have a very distinctive style. We look, feel and taste different.

Punch and Greene King, our pubcos, have been convinced by our success in the course of the past five years and now give us a pretty free rein to design our own interiors.

Maybe some other operators aren't as lucky and perhaps this is an area for more flexibility. What we really appreciate is an open-book negotiation, where we agree to spend more on a quality finish funded by the pubco, but paid for by us over time through a premium on the rent. For small pub groups, it helps to smoothe the finances and speed up expansion - and the pubco would benefit from a higher return.

My current gripe is the speed of the pubcos to react to the change in beer fashion. Peach Pub Co is a highly product-led company, serving the best of the best - except in the beer range!

The pubcos want us to take on sites competing with the best of the managed houses on both food and beer. I actually don't mind a turnover rent on beer volumes - the dreaded tie. What I can't abide is that my competition are literally one year ahead on new products on the bar. No wonder we can't keep up with a fashion-led customer moving increasingly fast.

Stock-line numbers

The buying directors in pubcos think they are winning by reducing their stock-line numbers in the lager sector - I am sure they are winning on the pennies, but I think our bars would be 20% busier - 1,000 barrels busier - if they would allow us to have new products from InBev, for example, when they are launched into the market.

I'd pay the tied rate per barrel, plus a slow-moving line fee if necessary, just to get control of my product strategy.

Or let's just call it quits, and agree a fair higher rent and no tie, still using the pubco's buying power and its net prices while we are in each pub.

Afterwards, they can revert to a tie, but while we're in situ, they can use our talent for product-picking to drive a pub's turnover 'way beyond their own expectations.

Robust systems

If pubcos want to turn a significant number of their properties into £1m-plus operations, they need groups such as Peach Pub Co.

We can bring proven concepts, robust systems and economies of scale that individual landlords just can't match - that's why experienced food and beverage professionals join us as joint venture partners under the Peach Pubs umbrella.

We have a pipeline of JV-ers waiting to take on their first site and make it Peachy, but one of the frustrations we face is the constant hunting around for suitable properties. It would be great if the pubcos could focus on providing multiple lessees with a pipeline of quality sites, to meet the pipeline of demand we're creating.

The relationship between pubcos and lessees seems to be better now than in the past. We're keen to help make that happen - and that's why I wanted to enter the debate. Lessees whingeing in corners about the issue is no good - we need to get round a table, do some straight talking and sort it out.

So, Ted, Giles and David: you will receive this letter direct. Which of you actually wants multiples such as Peach to prosper in the long term? Go on - I dare you. Listen to your best customers, and react.

Hamish Stoddart is co-founder of multiple lessee Peach Pub Company