Ralph Findlay: Marston’s sold pubs to 'minimise regulatory risk'

In a letter to the Publican's Morning Advertiser​, Ralph Findlay wrote: “I suspect that the sector will see more deals of this type in the coming months.”

Findlay was responding to recent comments from former pubs minister Bob Neill MP, who accused pubcos of behaving “more like property companies than providers of consumer services” and defended government plans to regulate the pub sector.

He said: “It is disingenuous of Mr Neill to accuse us of ‘behaving like property companies’ when his proposals aim to weaken the relationship between brewer and publican: capital has been put ‘at risk’ in investing in the tenanted and leased model, and we are obliged to protect it.

'Trading success'​

“The existence of the tie means that, as brewer-pub owners, Marston’s has a vested interest in the trading success of tenanted and leased pubs: put simply, the more beer our licensees sell, the better it is for them and for Marston’s. If the tie is weakened, that interest will diminish: it is curious that one consequence of the proposals Mr Neill advocates may be to reduce our interest in the core business of these types of pubs – selling beer – and to an increased focus on property yields.

“This could lead to more, not fewer, pubs being owned by pure property investors,” added Findlay.

Full text of the letter​

Dear Editor,​

Bob Neill is ‘struggling to understand’ why Peter Furness-Smith [MD of McMullen’s] is “getting so worked up” about government intervention in the tenanted and leased sector. I suspect the reason that Peter opposes intervention is that he understands and cares deeply for the industry he is so experienced in, and is aware of the threats posed by the reforms Mr Neill appears to support. Mr Neill points to the idea that there will be some arbitrary line in the sand – a set number of pubs – that will exclude businesses such as McMullen’s and indicate which of us needs to be governed by the proposals and those who do not: it is as if size alone causes some mysterious defect that requires government action, or that bad laws can be excused by the fact that they only apply to big businesses.

Oddly, he targets ‘the likes of Punch and Greene King’ as examples of businesses not to be identified with: Punch are widely regarded as having been pretty fleet of foot in adapting their business model in recent years despite their financial pressures,  and Greene King – having been founded in 1799 – should, I would argue, be held up as testament to the longevity and success of the very model he wishes to change.

It is the substance of his argument however that requires scrutiny. Mr Neill opposes the tie – suggesting that weakening it will be to the benefit of brewers; he disapproves of ‘viable pubs sold off for development simply to improve the pubcos balance sheet’; and he accuses pub companies of behaving like ‘property companies rather than providers of community service’. These are significant claims, and it is worth examining what his proposed reforms might mean in the real world away from Westminster.

Most brewers do not agree that his reforms will be to their benefit. The majority of pubs in the UK are not owned by brewers, but by managed, tenanted and leased pub owners, or are independently owned (‘the ‘free trade’): in other words, there is already an open, competitive market for brewers that is unlikely to get bigger as a consequence of his proposals. That there are now over 1,000 brewery companies in the UK – the highest for over 70 years, according to CAMRA – is evidence that this competition is vigorous.

The Independent Family Brewers of Britain – whose membership includes brewers of some of the best known cask-conditioned beers in Britain – states unequivocal support for the preservation of the tie amongst its membership criteria. At Marston’s, about 30% of the beers we brew – including Marston’s Pedigree, Jennings Cumberland Ale, Ringwood Bitter, Brakspear, Banks’s and Hobgoblin – are sold in our own pubs. If the tie is weakened, that may have an impact on volumes of our own beers which would cause us to review the sustainability of breweries in Burton, Wolverhampton, Cockermouth, Witney and Ringwood.

The existence of the tie means that, as brewer-pub owners, Marston’s has a vested interest in the trading success of tenanted and leased pubs: put simply, the more beer our licensees sell, the better it is for them and for Marston’s. If the tie is weakened, that interest will diminish: it is curious that one consequence of the proposals Mr Neill advocates may be to reduce our interest in the core business of these types of pubs – selling beer -  and to an increased focus on property yields. This could lead to more, not fewer, pubs being owned by pure property investors.

This is not idle speculation. Property investors are showing more interest in the pub sector, attracted by rising property prices, attractive yields and valuations which are low in relation to historical prices. In December 2013, Marston’s sold just over 200 pubs to New River Capital in a deal which demonstrated that there is good appetite for pub transactions at attractive multiples – we achieved 7.6 times earnings – and I expect that the sector will see more deals of this type in the coming months.

From Marston’s point of view, the disposal anticipated market trends in smaller wet-led pubs and reduced our exposure to the potential effects of government intervention. It is disingenuous of Mr Neill to accuse us of ‘behaving like property companies’ when his proposals aim to weaken the relationship between brewer and publican: capital has been put ‘at risk’ in investing in the tenanted and leased model, and we are obliged to protect it.

At the heart of all of this lies a very real issue: each business failure, each boarded up pub, has been a personal tragedy for someone. Trying to pretend however that pubs are cocooned from commercial reality does not wash – the effects of a changed retail landscape, legislation, high taxation and recession are seen across Britain’s high streets, not just in pubs.

At Marston’s, we have recognised that the world has changed: we are building new pub-restaurants; we have introduced a franchise model which has been very successful in smaller community pubs; and we work with tenants and lessees who  have adapted their businesses to suit today’s market. As a result, we are creating over 1,000 new jobs each year, and the question we should be asking is ‘how can more of this be encouraged by government’?

It is not more intervention that is needed, but less taxation.

Kind regards,​

Ralph Findlay ​

Chief Executive Officer,
Marston’s Plc