Greene King harnesses the power of franchising

The tenanted pubco model is not dead. Especially not if you happen to run a managed division.

This week Greene King (GK)​ joins Marston's in deciding that the time has come to fully leverage the skills and scale of its managed pubs within part of the tenanted division by offering a franchise.

This is a model that is already proven. It was way back in 2002 that Mitchells & Butlers (M&B) launched it franchise division, offering franchisees access to the benefits of managed company EPoS and buying scale.

M&B's franchise division also had the foresight, under former Punch leased boss Peter Thomas, to offer a very sensible lease with no rent increases for five whole years of a 10-year term.

The results were outstanding, attracting very high-quality tenants (although, admittedly, M&B was also offering high-quality pubs). M&B franchisees were a stable bunch — there wasn't much in the way of failure. And they proved that some pubs are better run by tenants — they delivered an average 92% more profit per pub than was being achieved by the same pubs under direct management.

The M&B franchise was a marriage of M&B scale benefit with entrepreneurial spirit. And M&B had the self-discipline and trust to allow its earnings growth to come the honest way.

It shared the higher earnings achieved by high-quality franchisees through a royalty rather than sitting back and enjoying the automatic benefits of rent and wholesale beer increases.

Franchises​

The new GK franchise, called Blueprint — started by former M&B executive Simon Longbottom — and the two-year-old Marston's quasi-franchise Retail Agreement are aimed at different parts of the tenanted market. (The latter is aimed squarely at more marginal pubs that might otherwise end up on the disposal list.)

M&B franchise pubs had a weekly turnover of more than £13,000. GK's franchise is aimed at pubs a notch down from these.

The pubs offered for franchise sit in a particular segment — the tough 'urban community', or 'suburban locals' part of the market. It's taking a more hands-on approach than M&B by supplying much more of the 'retail content' with the aim of lifting weekly takings to between £7,000 and £11,000.

Both the drink and food offer are controlled and supplied by GK, with the company overseeing a 'rhythm of the week' schedule of promotions and activities.

Retail standards​

Furthermore, GK will maintain and check retail standards through a managed-style system of mystery customer visits and audit procedures. GK is also going further than anyone else by giving a very firm indication of the earnings that franchisees can expect — in excess of £45,000 a year.

With a degree of certainty over earnings and the promise of GK retail input, franchisees will need to stump up a £25,000 franchise fee. This intentionally sets the bar higher for entrants in the hope and expectation of attracting a new kind of licensee — someone with capital and flair who will suck up GK retail guidance.

Everybody is having to work harder to earn their corn in these times of austerity. Well done to GK for taking the franchise bull by the horns.