Alistair Darby: as many as 10,000 pubs to close

The number of pubs in the UK could drop by around 8,000 to 10,000 over the next five years, Marston's tenanted division boss Alistair Darby stated at yesterday's Numis Securities conference.

Darby said that the company now examined closely whether individual tenanted pubs had a "sustainable turnover opportunity" of a minimum of £3,500 to £4,000 a week.

He described 2009 as "a year of searching questions" where the tenanted market performance had been weak with the range of performance between -7 to -11%.

Darby said the tenanted model was not dead but that a new approach involving innovation was required and the approach needed to have longevity.

Marston's tenanted division had "adapted its behaviours" accordingly. There had been a permanent reduction in wine, spirit and mineral prices, which had been benchmarked against Booker wholesale prices.

Wholesale price rises could no longer be assumed to be the lever of growth to pubcos, he said.

Rental growth was being achieved from Marston's average rent per pub of £25,500 per annum but at a lower rate. There was a fresh emphasis on choosing the right operator with a rigorous selection process, he said.

The company has also improved "relevant" business-building assistance. Group buying leverage was passed on to tenants, with on-line marketing support, a wide-ranging training programme and a strict call-cycle from well-qualified Business Development Managers.

The main challenges were to maintain the 80% of pubs in the core estate while making the most of opportunities in the remainder.

Darby said he believed there was "a big role to play for a hybrid model" mid-way between managed and leased pubs.

Its new Retail Agreement, operated at 40 pubs with a target of 90 by the year-end, saw licensees earning 20% of turnover to pay themselves and staff with Marston's buying everytthing centrally and paying all other bills.

The model allowed licensees to focus on maximising sale and motivating staff without administration and purchasing price distractions. Pubs on the scheme were producing incremental Ebitda of £3,600 per month.