Help for both ends of the market

Marston's tenanted division is trialing two new radical agreements. Division boss Alistair Darby explains the thinking.

Success four flights Thursday morning." These were the opening words of Orville Wright's telegram to his father in December 1903 announcing that he and his brother had achieved the first powered flight in the history of mankind.

Judging by their understated tone they could hardly be accused of being hotheads. However, I wonder whether they were because, let's face it, it's pretty tough being pioneers. There is no shortage of folk quick to tell you that what you are trying to do cannot be done. It is easier to resist change or to damn innovators than to take the risk oneself.

Reading the reaction to the news of our Advance and Phoenix agreements I think that I now know a little how they might have felt at the time. At Marston's Pub Company we have constantly brought new ideas to the fore. Our Tracker agreement, launched last year, offers a rent which varies according to the ups and downs of our tenant's volumes and which rewards growth, being capped at a pre-agreed level.

Ideal for smaller businesses, we are approaching our 100th taker. And as a result of re-organisation, these pubs will be receiving additional support through BDMs who are looking after only 30 pubs each.

Good as this is, we recognised that we needed to develop additional ways to make taking on and staying in one of our pubs really attractive. This is where Phoenix and Advance come in. Having opened 10 Phoenix pubs in a successful trial we intend to open another 80 next year.

We are investing in pubs that are sound, but need a bit of TLC. In these we put in place an attractive offer, including simple food, and we pick up the bills. Our retailer takes 20% of the ex-VAT drink and food take. From this he pays himself, his staff and an insurance package.

He only needs a licence, basic retailing skills and a deposit of £3,125 to get started. We take on the main risk and allow the retailer to concentrate on wowing his customers. The more popular the pub becomes, the more reward he gets. There's no rent negotiation, no repair liability and no need to pay for the weekly order. It's an ideal way to start your own business in this industry.

All of these initiatives are directed at our smaller pubs and so it was equally important to help our entrepreneurial lessees who want to run their businesses to the best of their ability with light touch assistance from us. We recognised that pricing was one of their single biggest challenges. Having reduced wines, spirits and minerals earlier this year, provided price offers in some pubs and held back a lager price increase until after Easter, we concluded that more still had to be done.

Discounts​

That's why we have launched Advance. Lessees will be offered discounts of £130-£135 on ales, £170-£180 on lagers and ciders and competitive pricing on packaged products. These lower prices will apply from the first barrel in order to calculate the amount of incremental discounts that will be earned. Then we will transfer only part of these incremental discounts into a new payment to reflect three years of expected beer market decline.

Our objective is to inject around £5,000 per year into a 250 barrel pub. The agreement does not give with one hand and take with the other, as has been suggested by some. What it does do is give the lessee a broader range of business options.

This is ground breaking for several reasons: it is anchored to the lessee's actual, not estimated, volumes; it shares gaming machine income in a more motivating way; it gives a margin benefit to the lessee from day one; it is not dependent on dispense monitoring systems; and (subject to the success of our 60-pub trial) it will be offered to all of our lessees regardless of whether their agreements are due for review or not.

All we ask is that the lessees have no outstanding trading debt and transact their business with us on-line. We don't think that's too much to ask for a £5,000 cash injection!

It has been fascinating to read the reactions to our new agreements on the internet. In some people's eyes we cannot do anything right. Encouragingly, however, there is a growing swell of contributors who are more supportive and who understand what we are trying to do.

We are already investing £3m to assist our lessees who are adapting to a vicious recession and these new initiatives are further proof of our absolute commitment to them. Just like the Wright brothers, no matter how strong the headwind, we'll not give up pioneering!