Big Interview: Spirit Pub Co's Mike Tye

At Spirit’s London office, above the Green Man pub by Great Portland Street Tube, only days away from the completion of one of the biggest pub take-over deals in recent times, you might expect phones ringing and people running about with bits of paper. But all is quiet and still.

And, at its tranquil centre, sits Mike Tye, Spirit’s chief executive and recently crowned Business Leader of the Year at the Publican Awards 2015.

These are, inevitably, nervous times for the 17,000 people who work in, and support, Spirit’s 1,200 pubs, but the calm that Tye exudes comes not from complacency, nor from an ‘I’m outta here’ attitude — but from feeling confident he’s done the best job he can.

The £774m Greene King deal is one measure of his success. Another is the remarkable fact that while all this has been going on, employee engagement scores have risen to the highest ever seen at Spirit.

“Loyalty at Spirit is still incredibly high, markedly up on six months ago — and an acid test of leadership,” Tye says.

“Staff at both businesses are app-rehensive, but the best reaction from people comes when you’re as honest as you can possibly be, and we’ve communicated regularly and fully.”

Staff clearly have a right to express concerns about the takeover, because nobody yet knows how it will all play out. That will be down to Tye’s opposite number at Greene King — Rooney Anand. One thing Tye is sure about, though, is that he’s handing over a company in good shape.

“We’ve realised a lot of the potential at Spirit, and while we had no endgame in mind, we understand the business has a value to someone else, and that the market is going to consolidate. So the Greene King deal was not at all a big surprise,” he says.

“A lot would say it’s a match made in heaven, and in many ways it is. Our philosophies differ, but they’re sufficiently similar.

“Rooney estimates £30m worth of synergies. But that’s not just cash savings, it’s about doing things better as well as cheaper.

“Rooney and I have always talked about taking the best of both businesses. Greene King is a fantastic business and there are great opportunities there for Spirit’s pubs and people,” Tye adds.

Anand awareness

While he hopes neither the Spirit pubs nor the people are “squashed” into the Greene King model, Tye believes his counterpart has enough awareness of the potential of business to not endanger further growth.

And, as a large shareholder himself, Tye has a vested interest in the business.

“The business is becoming massively bigger so it can’t be run in the same way as before,” he says. “But there have been no serious discussions about that yet. If I were Rooney, I’d be going through an intense period of thinking and reflection.”

Decisions on which brands the merged company will keep will obviously attract interest. As Tye says, “there won’t be 14 or 15, you have to keep it simple”. He has his favourites in the Spirit stable, though.

“Chef & Brewer is in fantastic shape. In Taylor Walker we’ve created a brand in which very individual pubs are run in the same way. Fayre & Square has gone from nothing to a huge success, and Flaming Grill is our answer to the idea that neighbourhood pubs would die — we have 150 of them now,” Tye enthuses.

“Golden Oak is a more premium offer, doing more food. We’ve opened 50 in little more than a year and it’s ripping up trees. This year we’ve converted more than 20% of our neighbourhood pubs to either Golden Oak or Flaming Grill.

“But the day you think a brand is done, you’re screwed,” he adds.

Tye is a believer that you have to keep evolving. “People are going to spend more money out of home, the question is on what. Hospitality has to put itself at the front of people’s minds, and give them choices in brands,” he says.

“It’s got to be a better total experience, it’s got to be experiential, people aren’t just ‘going out for something to eat and drink’.”

Leased model

On the leased side of the business, too, Tye believes Spirit is “ahead of the curve” in introducing a model that charges lessees a small fixed rent plus a percentage of their turnover.

In a market of declining beer volumes, the company wanted to get away from the wet-rent model. Tye says the challenge was to share the benefits of the supply chain while letting the licensee drive the offer.

“Previously, the argument was about how you share the profit. That’s a nonsense battle. The question is, how do we make that pub succeed together and grow the total profit? If we align our interests like that, if we focus on sales, it’s a real partnership,” he explains.

“There’s a sweet spot — a high-calibre licensee and the right concept, well-executed. At the moment, 70% of our pubs are in that sweet spot. We have an average EBITDA (earnings before interest, tax, depreciation and amortisation) per pub of £110,000 — way ahead of the industry. So I’m sure Greene King will look at it and say ‘this is really good’.

“The principle of the tied model is not wrong,” Tye adds. “We’re witnessing a big change, but neither am I against the market rent-only option or changes to the tie.

Given the way “a few licensees have been treated”, Tye can understand why the tied model is set to change. However, he expects there will be both good and bad consequences from it.

“Some pubs will be better for it, and there will be some pubs that cannot work. Quite a number of our leased pubs are ex-managed and they could be reverted back, but under our turnover model, free-of-tie pricing is already available, so what’s the problem?”

In taking the best of Spirit, it’s also the culture Tye believes is of value.

“From day one we’ve had a clarity of vision,” he explains. “We wanted to be the best hospitality company and we understood that means employing talented people and giving them a clear picture of success.”

That clear picture is branded as Spirit’s ‘circle of success’, a deceptively simple idea that says that if you make your customers happy it increases sales, which makes investors happy, which means the company invests more in its people and pubs, which makes customers happy... and so on.

“It’s a simple virtuous circle. My job was to bring that vision to life, and to challenge people to be better. And that’s what we’ve done in the past few years. I can’t visit all the pubs regularly, but if my team leads by example, there’s a good chance our vision will ripple through the organisation. It’s not about size, it’s how clear and strong your leadership is”, he says.

Tye’s leadership qualities and enthusiasm for pubs make it unlikely he will walk away from the trade completely. But, as it stands, he is currently in for a period of reflection.

“I’ve not been thinking about it a huge amount. I’ll take a few weeks and work it out. I do get a massive kick out of the hospitality industry so I can’t imagine not being involved. But I can’t see myself in another full-time chief executive role.

“I want to spend more time with my family, more time on charity work. And I want to play some golf.

“But I’m not good at sitting on my backside. I’ll be actively involved in something.”