Sharing the load
McMullen's, the Hertfordshire-based brewer and retailer, hopes its new type of letting agreement will help attract entrepreneurial individuals to the company.
Called 'The Pub Operators Agreement', as well as offering a low cost of entry, the new deal will empower an operator to use their own entrepreneurial skills to develop and grow their own business, says Peter Furness-Smith, the brewer's managing director.
"They will be able to do so with the full help and support of McMullens as a partner, without the higher entry costs or longer term commitment of a tenancy or lease agreement. The only capital required will be a 'good faith' deposit, and limited working capital mainly for the food operation."
Trial period
The new agreement will be trialled in four McMullen pubs, possibly for up to six months before being offered to new tenants as part of the business. "If it proves successful earlier we'll open it up sooner," says Furness-Smith.
The new arrangement won't be offered to existing tenants, since in Furness-Smith's words they already have capital invested in the pub. "And they are content with the support we give them," he adds.
In simple terms the tenant will set up a company which is contracted to operate the pub within what McMullen's calls "agreed guidelines".
In return the company is paid an 'agreed percentage' of liquor sales as a fee, which McMullen says will be in the region of 20 per cent. This percentage will be agreed and will vary depending on the trading style and size of the pub.
The fee is paid directly to the company, which in turn will pay any staff employed to help run the pub. Consequently, the more the pub sells the greater the fee, and the more the operator will earn. The cost of any entertainment put on in the pub is also the responsibility of the operator.
Furness-Smith says McMullen's will own and pay for the liquor stock, but the operator will be responsible for the food operation (menus, food costs, crockery and sales) and therefore he or she will also benefit from the profit from food and the growth in food sales. The operator will pay a fee for the use of the kitchen and catering equipment.
McMullen's will retain ownership of the till system, fixtures and fittings, the liquor stock along with most of the other running costs of the pub, such as rates, electricity, gas, water and repairs. The brewer will also assist the operator with ensuring that health and safety, food safety, and licensing administration is completed correctly. The operator will also benefit from having quality live in accommodation with no utilities or council tax costs, the brewer says.
Maximising potential
Furness-Smith says: "Although this type of pub operating format has been around for some time we believe market conditions are now right to offer an agreement that genuinely shares the risk and demands teamwork between the operator and McMullen's to maximise the potential and therefore earnings of both the operator and the pub."
Gavin Mansfield, McMullen's' tenanted development manager, adds that the agreement aims at freeing up the operator to do the things they are good at, such as driving sales, developing the pub's team and building stronger and better relationships with customers.
"We will take some of the business pressure, risk and responsibility by ensuring the property is maintained in good condition, the equipment works and paying for most of the non labour operating costs," he says.
"Working together in this way we will be able to make their pub and business as successful as possible for mutual advantage."
