Steady-as-you-go is no longer adequate

I was lucky enough to spend five days at America's National Restaurant Association's annual Chicago jamboree last month.

One thing that struck me forcibly is the size and sophistication of American food-service franchising.

I counted 70-plus different restaurant (and pub) franchisors offering to sell their retail content. By comparison, the UK market has been undeveloped, with five or six American companies (McDonald's, Subway and Domino's etc) the only real presence in the marketplace.

Franchising is a development long overdue in the tenanted pub world. Here's a universe of 20,000-plus pubs hugely reliant on a fairly narrow type of retail content: selling beer.

Until the smoking ban of 2007, though, the tenanted world was an easy place to do business.

Wet-led pubs were, more or less, ticking along in a buoyant economy and there was still a steady stream of folk looking to take on a pub. The four years since 2007 have shaken the tenanted pub companies to their foundations. Old, traditional, steady-as-you-go ways of doing business have not been adequate.

There's been a need for new answers, a proper entrepreneurial approach, the taking on of more risk by the pubco. Marston's has led the way, by applying a franchise offer, the Retail Agreement, to its most marginal pubs (otherwise unsaleable in bulk in a bombed-out mergers and acquisitions market).

This week, the company won British Franchise Association accreditation for the scheme. The deal here is simple — new licensees are able to tap in to all of Marston's managed scale and expertise.

Early feedback indicates very high levels of licensee satisfaction. I spent a few hours last week hearing more about Greene King's first nine franchised pubs.

One of them, Halley's Comet in Milton Keynes, has been open for seven weeks. The pub is now taking around £11,000 a week compared to £1,500 in its "pre-franchise days".

There's been a modest refurbishment, costing less than £100,000, with the sales surge down to the plugging-in of managed division price points, marketing expertise and retail disciplines.

To give an example, it's offering hand-battered fish & chips at a similar price to JD Wetherspoon, less than £4, as part of an overall offer that makes the pub a very affordable, comfortable neighbourhood diner.

If there was one near where I live, I'd use it.

Franchising isn't the only tactical weapon available to a tenanted pub company.

But, it seems to me, it's one of the most potent ones. It also needs a parallel managed division to work at its best to allow the transfer of expertise and scale.

(It's one irony of the Punch de-merger that the leased division in being shut off from the potential of managed division download.)

It's not a total bed of roses, though. In the US the relationship can resemble aspects of the UK's tenanted model. Good and growing sales mean harmonious relations between franchisor and franchisee, while the opposite results in tension.

The long-term strength of franchising at Marston's and Greene King will depend on the quality of their managed division retailing. Both companies' managed divisions have been in growth for many years, which bodes well.