MCA talks to Enterprise Inns chief executive, Simon Townsend, about a transformational year. He talks about the latest pipeline for its evolving managing operations, including a greater focus on food, plans for further disposals and development on surplus land over the next year, why prices at the hand pump will have to rise to cope with the impact of business rates and the early indications of the appetite for MRO.
Tenanted and leased estate
Enterprise’s estate is divided into three regions – North, Midlands and South. The former, which constitutes 1,261 pubs saw its first growth in several years with net income up 1.1% to £89m. The 903 pubs in the Midlands saw net income rise 1.7% to £61m while the South’s 2,306-strong estate was up 2.7% to £188m.
Townsend said: “After a long time in decline it’s great to see the north back in growth. That has been helped by beer sales improvement as well as the work we have done with our operations team to support our publicans and grow their sales. It comes down to a long and consistent programme of improvement.”
Craft Union
Enterprise’s 105-strong managed division is currently dominated by the 75 pubs under the wet-led Craft Union model, which is expected to grow to 170 by next September.
Townsend said: “Craft Union certainly started in the north and that’s where the bulk of the estate still sits but we’ve moved that business already down to the Midlands and down through Wales and we will be expanding its geographic reach further during the year as it expands south.
“We will also be introducing a simple food offer into the business this year into the pubs we will be opening.”
Townsend said it was too early to say what form the food offer would take but stressed that great strides had already been made in food offers across the wider managed estate, with learnings brought into the wider portfolio.
He said:” We have Pieminister, Banger Bros and Doughball Pizza in Bermondsey but the two first two are also in leased and tenanted estate. It’s a great example of trialling something in managed and then make that available in the rest of our business.
“Laine Pub Company have been providing some great ideas and support and advice in relation to rolling out things like the food offer in Craft Union.”
Bermondsey
The more food-led southern-based Bermondsey Pubcos currently has 30 sites either trading our under construction. The next three sites to open will be the Henry VI in Windsor, the Hope in Smithfield and the Marquis of Wellington in Bermondsey.
However, Enterprise has moved five sites out of the division over the past year after deciding its Friends & Family format was working, leaving all Bermondsey sites currently operating under the Meeting House model.
Townsend said: “In Friends & Family we weren’t achieving the scale that we felt was necessary to get procurement benefits so we have stopped that but we will be rolling out a second retail concept that will very much complement Meeting House. That second retail concept will be added during the course of this year.
“The Bermondsey division started in London and we now have clusters across the country. We have some in Manchester, we’ve now moved across to Leeds, we’re in Salisbury on the south coast and we’re moving up in that M40 corridor as well.
“We have to be realistic with such a small estate that we don’t over-extend ourselves.”
The expectation is that there will be 50 Bermondsey pubs by the end of the financial year.
Managed investments
There are currently 11 sites operated under joint ventures with established managed operators. While the agreements vary, typically Enterprise owns 75% of the company.
The most established is Rupert Clevely’s Hippo Inns, which is about the launch its seventh site. Frontier Pubs – the collaboration with Food & Fuel – and the Oakman Inns JV, Hunky Dory, are also operating sites. Townsend said sites have been secured for the Mash Inns partnership with Laine Pub Company and Marmalade Pubs (the tie-up with Marylebone Leisure) was close to finalising its first site.
Enterprise expects to have 30 pubs operating with ten partners by September 2017.
Commercial property
Enterprise Commercial Properties now stands at 291 properties – the majority of which are free-of-tie pubs. The group sold a package of 17 pubs (including eight to Shepherd Neame) and five convenience stores in June.
Townsend said the group was actively looking at ways to maximise the value of its estate, adding: “We are certainly looking to utilise surplus land or under-utilised buildings or even under-utilised upper parts of buildings to unlock whatever value there is to be had. We are actively appraising our estate for those kinds of opportunities. The ones we have done to date have typically been whole conversions to other formats such as convenience stores but as and when the opportunity to utilise a piece of surplus land to install a unit alongside a pub we would certainly look at that.”
Disposals
Townsend said he expected he expected the disposals programme for the next year to be “not too dissimilar to this year” with around 200 sites being sold.
Brexit and Business rates
Townsend said the group had so far seen no Brexit impact but said the sector as a whole remained cautious.
He said: “We are conscious that we need to keep ourselves close to the market place in order to assist our publicans where appropriate and our experience in our managed operations has helped us with that.”
On business rates, he said: “The valuation that comes into effect in April next year is causing concern and is going to have a particular impact in London and the south east. We are in a period where we would seek amendments where there have been errors or unjustifiable increases and then in April we would appeal. Our job is to get clarity around those rateable values and make sure pubs are capable of applying for small business rate relief or transitional rate relief.”
Pubs code
In its results, Enterprise revealed that since the pubs code came into force, it has had 94 approaches from publicans for an MRO quote out of 285 potential MRO trigger events.
As at November 2014 Enterprise had 3,035 long-term lease agreements and this has reduced by 634 to 2,401 as at 30 September 2016.
Townsend said: “The 285 occasions is very much a feature of the number of rent reviews or lease renewals that are out there. These are prescribed dates so we have a good view of what is coming ahead.
“We’re not surprised by the number of people who have asked for that information and we are now in discussion with those people.
“We’re all very clear that this is a complex piece of legislation and there are elements that are going to be open to interpretation. As our discussions continue we will be asking the pubs code adjudicator for advice on certain occasions. I would expect further clarification to be needed.
Strategy
On the journey so far, for Enterprise, he said: “When you are embarking on an exercise of transformation, as we undoubtedly have been over the last year, then you have to demonstrate with evidence that you are delivering on every part of the strategy. In our case we have always said that the most important pre-requisite to our new strategy was the continued operational momentum within our leased and tenanted business. It is very encouraging to demonstrate that with a 2.1% increase in like-for-likes this year. I think the rollout of our commercial property portfolio and our managed operations are entirely in line with plan, so hopefully the market will see we’ve done exactly what we said we’d do and that its yet further proof that we are successfully transforming the business.”
