Punch Taverns this morning unveiled a number of new ways in which it is working with licensees including the creation of a Retail Contracts division. M&C speaks exclusively to the head of that division, Andy Crump, to examine details of how Punch has added a new twist to the operator agreement with its profit-based incentives and reveal the location of its first managed pub:
My quest to uncover truth about the covert operation known only by the codename Falcon would ideally have led to a hollowed out volcano or other subterranean lair.
But this story has its roots in Burton not Bond and so my meeting with Punch Taverns to find out more about their strategic direction is in the less exotic – but infinitely more welcoming – setting of the Devonshire Arms in Chesterfield.
The pub is a typical wet-led high street pub with a limited food menu and a strong sports following. Licensee Hannah Bowen welcomes me warmly but there is little outward sign that this a radical departure from thousands of other Punch pubs.
But the Devonshire is one of 31 pubs Punch is currently operating in its Retail Contracts division – the result of operation Falcon.
“It’s quite a relief to be able to finally talk about it”, says Andy Crump, who has been with Punch in various roles for 12 years after moving over from McDonalds, and now heads up the Retail Contracts division. “It has been in the project phase for about 12 months now but we are now in a position to be able to point to tangible successes and have got ourselves to a position where we’re ready to push this forward.”
The division centres around turnover-based operator agreements with Punch taking responsibility for all back of house functions while the licensee focuses on customer experience.
Operators pay a £5,000 fee at the beginning of the five-year agreement and then receive a proportion of total weekly turnover. That percentage is calculated based on the particulars of each pub.
Where Punch has set itself apart is through the addition of six-monthly incentives of 2% of turnover for operators who hit profit targets, ensuring licensees are not just focussed on ringing cash registers but on a sales strategy delivering the maximum reward.
As part of his role Crump is also overseeing Punch’s first managed pub, the Blacksmiths Arms, just around the corner from Punch’s headquarters in Burton.
The name of that pub may seem familiar to anyone who has read any interviews with recently appointed chief executive Duncan Garrood over the past few months. He has repeatedly answered the inevitable question of which was his favourite pub (not, I hasten to add, ever posed by M&C) by pointing to the Blacksmith Arms, in Branston, near Burton, as “the perfect example of what a pub should be”. In fact the pub, which served as Garrood’s training centre in his first weeks at Punch, was one of the first to take on its Retail Contracts and then became its very first managed house. The operator running the pub under the turnover-based agreement was to transfer over to become its very first general manager.
However, Crump insists this is not the start of a managed rollout for Punch, saying: “This is about having the opportunity to learn and deepen our understanding. We are not arrogant enough to think that moving from a leased and tenanted base into the retail contract area is going to be easy and we are conscious that we need to build those skillsets. The managed house allows us to do that.”
The first pub to be operated under the Retail Contract agreement was the Gardeners Arms in the Lofthouse area of, which was converted in April. This was followed by the Old Inn at Littlethorpe, Leicester.
Crump said: “They represent very different models of pubs. The Old Inn is a classic wet-led community pub with a strong rugby following, whereas the Gardeners has a strong roadside presence with a great food offer. That was deliberate - we very much wanted to see that it would work with distinct offers.
“We are still learning every day - it’s a huge step to go from a pure tenanted business to taking on a lot of the responsibilities of a managed operator.”
The geography of the division currently stretches from Leeds in the north to Leighton Buzzard in the south and across from Cheltenham to Leicester. Crump said he expected to have national coverage by the end of the financial year.
Area managers have been recruited with a focus on managed experience and are currently looking after around 10 pubs each.
Crump said: “We are at an early stage yet so the ratio of pubs to area managers will develop as the division does. But roughly speaking you would look at the number under a managed house operation and that of a tenanted operation and we would be pretty much in the middle.”
On the attraction of the agreement , Crump said: “The barriers to entry are very low and what that means is that we can attract entrepreneurs who might have been priced out of the tenanted market. It means we are fishing from a wider pool.
“From our point of view it allows us to have greater involvement in the running of the business and take on responsibilities that we know operators tend to get bogged down in so they can focus on their customers and their staff.
“There’s nothing new about turnover related agreements but what is key here is the focus on profit. By offering those incentives based on profit targets it means we are perfectly aligned on what we are trying to achieve with the business.
“We’ve already seen that working. We have handed out some of those incentives already and we very happy to do so.”
Crump said he sees investments in the estate being broadly in line with the tenanted sector and points out that the pub we are in received its own makeover prior to coming into the new division.
Garrood has talked about his vision of the future for Punch as “segmented pubs giving appropriate offers depending on what the local demographic wants”. I ask Crump what role the Retail Contract division has in this.
He said: “We all know the pub sector is changing and we all have to adapt. There are two strands to that – what you deliver and how you deliver it. The ‘what’ could be Mighty Local, Champs, our Brewed & Baked concept. The ‘how’ is the Retail Contract, so you could have those different formats operating under this agreement. What this is about is creating a new way of working with our partners so we can focus together on giving communities what they want – great pubs.”
