Pub Companies Part 3 – Pub Operating Models

As a tenant, you rent the pub premises from a pub company or brewery and acquire the right to occupy the pub for an agreed period — usually two to five years. You will generally be ‘tied’ for beer and other drinks i.e. you can only purchase the stock from the owning company — though some companies offer partial or free of tie deals (but invariably demanding a higher rent for the privilege). You are self-employed and responsible for all the staff. Responsibility for building repairs will usually be confined to internal, non-structural work.

A big attraction of the tenancy is the relatively low cost of entry, though you still need around £15k to properly operate a start up; a downside is that if you build the business up you may well get no reward from the pub company other than an increased rent. Indeed, the ‘reward’ might be a refusal to renew the tenancy because, for instance, the company wants to take the now-successful pub into direct management.

The Pubs Code of 2016 was designed to give tenants and lessees greater protection by requiring fair and lawful dealing by pub companies and ensuring that tied tenants were no worse off than if they were free of tie. We’ll have a close look at how the Code is working out in a future article.

This is the new kid on the block and goes by a variety of names — Manchises (Management Franchises) being an increasingly common term. The model was pioneered by Marstons but most of the bigger companies have now adopted it, each with their own brand name, e.g Stonegate have Craft Union, Star Pubs & Bars have Just Add Talent and Greene King, Hive. Unlike in conventional managed pubs, the licensee is supposedly self-employed. In most cases, their remuneration comes from a percentage (usually 18-20%) of the pub’s net turnover. From this, as licensee, you pay yourself and all your staff plus incidentals like employer’s liability insurance and Council Tax.

So, what freedom do you have to run your own business? In truth, not a lot. The pub company sets the opening hours and the prices, decides what products you sell, prescribes the menu for any food offer and provides all the equipment. You can also be chucked out at pretty short notice (immediately in the case of Just Add Talent). If there’s a stock deficit then you’re charged for it, and these can be mysteriously large. The advantages for the licensee are the low ingoing costs (Hive requires £5000), you get a roof over your head and have a prospect of making money. To do the last, though, you’d probably need to be taking over £10k a week. Urban, sports-oriented pubs seem to do best under this sort of regime. There are, though, many disgruntled ex-licensees who found the scheme a quick way to lose their dosh.