Why the JAT model is a Star for Heineken’s pubco

The Heineken-owned pub company recently reached the milestone of opening 150 pubs under the managed operator model and now has ambitions to boost that number to 250 by 2026​, which will mean the model will make up about 12% of the company’s 2,400 pub estate with the business’s core number of pubs remaining in the leased and tenanted division.

Howard, who began his career in hospitality by working part time behind the bar for Bass Taverns while at university, is responsible for the Just Add Talent (JAT) pubs across the whole of the UK.

He explains: “We’ve currently got just over 150 of the JAT model. The way it works is someone pays a deposit and we pay all the bills other than the staff wages. So we would cover utilities, we supply the stock, we pay the business rates, we pay a percentage of the turnover to the operator to pay themselves and their staff.

“We think we’re one of the highest payers of the model, but we also pay a percentage of the profit share - 20% - and that’s uncapped. So the operators’ earnings potential can be quite high.”

Howard made his way up the hospitality ladder by covering managers’ days off and acting as holiday relief back in his Bass Taverns days and was soon offered a job. After finishing his degree, he worked for eight years as a pub manager.

Then followed various area manager business development manager (BDM) roles, progressing to a regional director role with Punch Taverns before a move to Star about 12 years ago, as an operations director. He is one of two ops directors and he looks after pubs in the north of the UK, which cover about 1,000 to 1,100 sites from the Midlands and to the top of Scotland​.

On the JAT model, he says: “The benefit of the model for us and Heineken is we can trial products in JAT pubs.

“For example, we’ve just launched Cruzcampo, now we’re looking at the best pricing for it in the market in relation to other products. So we’re going to try different price levels within the JAT estate.

“But the bigger benefit is where we can find savings and where we can give advice such as doing a lot of work on energy consumption and energy savings, which we are taking out to our leased and tenanted pubs. We can also negotiate good prices such as Biffa waste and Brakes suppliers.”

L&T remain main business

There are several concepts including a community pub, a premium pub and a high street pub within JAT and these target different demographic groups so Star can set different prices for each.

“Our core business will very much remain leased and tenanted (L&T) so that’s where an individual operator takes a site and they operate their own entrepreneurial model within that,” he explains. “However, what we recognise is we have pubs in our estate where using the managed operator model allows us to invest in a site that we might not be able to find a leased and tenanted operator for the moment or, where it’s a simple offer, it allows us to trade a site in the JAT model. We have some set criteria to look at before it can go into the JAT model.”

He says the company feels 250 is “about our optimum level” when it comes to number of JAT model sites before Star would “have to start structurally changing as a company”.

He continues: “The JAT model offers us some great opportunities to learn as a business, and for Heineken to learn about certain products, and we can take those learnings to the leased and tenanted estate as well.

“The JAT model has proven popular in the market as well. It’s only 6% of our pubs but over 28% of the applicants we get is for the JAT model.”

There’s a smaller ingoing cost as a manged operator, which is about £4,000 – that’s a £3,000 deposit plus some legal fees and other admin whereas a L&T site would cost a licensee £10,000 or more and then there’s working capital to go on top.

“There’s certainly lower ingoing costs and much less risk because we pay all the bills and provide all the stock. The operator has to pay the staff out of their share,” Howard says. “Therefore, if you’re earlier on in your career it offers an easy access into running a pub business.

“Also, if you think about the current climate as well where we’ve got the cost of living crisis, inflation, utility bills and very uncertain times, you’re quite safeguarded because we pay the utility bills regardless of whether they’ve gone up or down.”

Star Pubs & Bars creates the food menus for the JAT model and puts the drinks ranges together plus all the promotional activity. Howard says L&T operators want to do a lot of this by themselves.

“[It’s not common but] some JAT operators come into the business and see it as a as a stepping stone to build up their savings and to take their own business on as an L&T operator, he says.

“Often a supervisor, assistant manager or GM in a managed house may want to take on a JAT site because they know how the pub is run – they get an uncapped profit share and there are some elements they can control themselves.

“We’re actively encouraging that now in our JAT Academy where we’re training our assistant managers and supervisors, etc. and we’ve got 12 on a course at the moment where we’re helping them upskill so they can take on their own JAT model at some point.”

Good first half to year​

As economic headwinds continue to batter the industry, how is trade at Star Pubs & Bars?

“Reasonably good,” Howard starts. “It’s been a good first half of the year.

“The challenges are predominantly around the cost side of the business at the moment. It’s great to see utility costs on the way down and although we’ve got business rates support from the Government at the moment, it falls away next year. Inflation is on the way down as well.

“In our JAT estate, we’re finding our like-for-likes are up at the moment and have been for the first half of the year so the top line turnovers are there and it’s the costs that are impacting the business at the moment are where the concerns are.

“Again, this is where the JAT model can really help. We can learn through cost savings or utility consumption or we can enter into contracts that we can then share with the wider Star Pubs estate that will drive benefits that maybe people running a pub can’t get as a single operator.”

At the suggestion of increased top lines across the sector, Howard explains there’s a lot of work involved in making revenues rise.

“You can’t just put your prices up and expect the same amount of people come in and just spend more money,” he argues. “More since the pandemic, people are looking for a reason to visit – and that’s across the whole of hospitality. They’re looking for value.

“And they’re looking for that hook – for a reason to leave the house and to spend the money. That could be because they want quality-pub surroundings, Sky Sports on the TV, some entertainment at the weekends, some good-value food, the chance to socialise with the community. We work very hard.

“With JAT, we heavily lead with sports so Sky and TNT are in the vast majority of our sites. We run offers around that so, recently, for the Champions League final, which is sponsored by Heineken, we did an offer before, during and after the match around Heineken beer and that increased dwell time and brought more customers out.”

The managed model has midweek value offers on food as too. It is currently offering kids eat free in JAT pubs during the summer holidays where Howard says a family can benefit hugely: “We do two main courses for set prices, which range from £12 to £16 but with ‘kids eat free’ on top of that a family of four can visit one of the pubs for really good value.

“We do fish and chips Friday where we have a set price for fish chips and a drink. We do buy one, get one half price on sort of a core of draught drinks on a Monday.

“The consumer is seeing value in quality surroundings and there’s sport on the TV.”

The JAT model certainly offers value, whether it sits in the community or premium divisions, according to Howard, but with L&T, it’s very much about giving the consumer a reason to visit.

He says that might be different reasons to visit versus the value in a JAT site. It could be the entertainment you’ve got on, it could be a premium drinks range or any one of a number of things but for any sort of hospitality retail business at moment, the important thing is to understand the consumers you’re looking to attract.

And then it’s to think about what it is they want, what is it that’s going to encourage them to leave the sofa and spend their leisure pound with you?

He adds, visiting the pub and meeting friends still constantly comes out at the top of things people want to do socially and you’ve just got to give them that reason to go.

Mainstream still strong​

Its beers are proving an attractive proposition too.

“Birra Moretti is a fantastic beer and has been a great success story for us,” says Howard. “It’s overtaken Carling in the UK market.

“It’s a premium product in a premium glass and is a great serve. There’s still a place in the market for core mainstream lagers such as Foster’s, which does really well with a really good loyal customer base. The classic Foster’s adverts are back on TV as well.

“There’s a place for both in the market as well as other products of course.

“For your midweek customer, a customer may fancy some value for a pint or two and is happy with a mainstream beer like Foster’s while, at the weekend, people may be looking for that extra bit of a treat or want to feel a bit special or are enjoying a night out with a partner, they may want a great premium beer like Moretti – and we have just launched Cruzcampo. Beavertown Neck Oil is another one that does fantastically well for us.

“It is really important and we certainly don’t lose sight of it that there’s core consumers who have used pubs for years who do like mainstream products.”

Star has recently changed its promotional offers and does so twice a year. It looks at its menus and review its drinks range in the JAT model and discovered the offer it had for Mondays was “doing particularly well and was driving good margin for the operators” while those on Tuesdays and Wednesdays weren’t doing so well.

Howard explains: “We removed the Tuesday and Wednesday promotions and extended the Monday promotion through to Wednesday and that’s been in place for a couple of months now and it has improved sales and margin for both Star and the JAT operators.

“We’re constantly reviewing these things but obviously have less control of the T&L offers but even though they set their own menus and promotional activities, we always offer help, advice, coaching guidance, when our BDMs (business development managers) visit.

“Our BDMs look after both the JAT licensees and the L&T estate and I think we’re the only pubco that does that.”

VAT help call​

So what can the Government do to help the on-trade?

Howard says: “We lose the business rates support because that falls away next April so we need something in place before that happens.

“[We need] something around utilities and how the utility companies work with pubs and some kind of cap or some way of working that means we can’t get into the same situation we’ve just been in over the past year or two.

“It would be a massive ask but something to help with VAT for hospitality would be hugely useful.

“I think the part of Brexit that the pub industry sees – well hospitality in general – is the issue of staffing. Almost immediately, probably just before Brexit when people started realising what was going to happen and [people started leaving the sector], we’ve never quite recovered from that.

“I think we’re in a slightly better place than maybe we were a few years ago but without the workers that we’re coming over from some of the European countries, it’s left gaps in hospitality and that’s been accentuated during the pandemic when hospitality workers have maybe found other jobs with more ‘normal’ working hours and haven’t come back.

“It’s a bit of a combination of Brexit and some of the changes pandemic have brought but staffing is the big area for me.”

On the subject of Prime Minister Rishi Sunak visiting the Great British Beer Festival after some duty cuts to lower strength beers, Howard says: “With the duty, it sort of felt like he gave with one hand and took back with the other. I’m not sure we’ve ended up in a better place really.

“There’s more to be done there I think for Rishi.

“Although his Eat Out to Help Out​ scheme was a great initiative post-pandemic. It helped the food pubs but didn’t really do much for the wet-led pubs. However, it was a great boost for the industry and a great example of what changing VAT levels can do.”

Everything is looking Rose-y at Just Add Talent pub

The Rose Villa Tavern is an iconic building in the middle of the Jewellery quarter in Birmingham. Before conversion, it had yet to reach its potential.

Star invested £285,000 converting the site it into a premium Just Add Talent pub. An external redecoration included signage, lights and a new seating area to the front of the building. The pub company says the interior was improved with many original features retained. A new kitchen was installed enabling the pub to broaden its food offer. The upstairs function/meeting room was upgraded as well as the back-of-house facilities and operations.

The pub now offers a ‘premium lite’ menu and premium range of drinks. Star says the site is receiving “fabulous feedback” on social media from consumers new and old while its performance both commercially and operationally has “exceeded all expectations”.

The Rose Villa Tavern has a new operator, Katie Barnett. It is her first pub. Prior to taking it on she was assistant manager at another JAT site, the Raven in Stechford, east Birmingham.

She says: “I have had a great first seven months running the pub. The JAT model is fantastic for people like me as you know there is support should you need it. I have felt really looked after by Star and the local community have also made me feel welcome.”