Marston’s first introduced the Retail Agreement to Marston’s 
Pub Company, its tenanted and leased estate, in 2009 to address the challenging market conditions it faced in its tenanted estate. In particular the Agreement was aimed at wet-led community pubs and fair play to Marston’s because they started first with their basket cases.
Under the Agreement Marston’s Pub Company has responsibility for the retail offer, including drinks brands sold, food menus and retail standards. The “franchisee” earns a percentage of revenue and is responsible for staff costs. Marston’s Pub Company is responsible for all other costs.
The agreement features a 5 year term, and is assignable, with consent, and has a low entry cost (a £5,000 security deposit); income based on a share of turnover (typically 20%). Marston’s cover all costs except staffing and offer Managed house levels of support from a Business Development Manager.
Launched under the title, Project Merlin, it is Marston’s intention to convert eventually 600 of their tenanted estate over to the Retail Agreement by the end of 2013. Around 230 pubs have been converted to date and the Group say they remain on track to convert a further 100 additional pubs by the end of this financial year. The average expenditure per conversion is said to be around £50k per pub, with a minimum target return on incremental capital expenditure of 20%; Marston’s having allocated £30M to the project.
Research by Marston’s has found the number of applicants for the Retail Agreement to be three times higher than those for a traditional tenancy, with 30% of applicants coming from outside of the industry. Recent franchise accreditation by the British Franchise Association has helped further to attract people from outside the industry. Marston’s say that in 2010 they had only one licensee change out of 104 pubs, against a normal rate in a decent estate of about 10%, so success then?
I’m not convinced and only further time will tell. In my opinion a small community pub needs a dedicated individual/couple who are fully responsible for their own success and whose own bollocks are well and truly on the line including the control of costs. The Franchise Agreement removes a large element of this as the operator is not controlling/responsible for a good number of the overhead costs.
The Association of Licensed Multiple Retailers (ALMR) recently reported that the average cost of running a pub stands at 46% of turnover with an additional 11.4% for rent across the leased sector. The former figure includes staff.
In virtually all other franchise agreements the franchisee simply pays a royalty for use of the brand name and for management support. This is not the case here.
Why do I mention this now? Personal interest, that’s why. All Gates Inns our associated pub owning partnership has in the past six months or so had no less than three of its pubs affected by four reopening Project Merlin pubs. These latter four pubs were borderline pubs having opened and closed more times in the past three years than Jo Brand’s ‘fridge door. To be fair though one of these pubs should not be borderline, it has just had the misfortune of having a succession of crap tenants.
A good few years ago they were all cracking community boozers and in the right tenant’s hands and with non-large corporate owners they could be again. They have affected our trade in the short term for sure, after all there is only a limited amount to go around; but are we worried longer term, no. Simply because we know the franchisees will not be in control of overhead costs and over time Marston’s bean-counters will flag this up to the powers that be.
Why bother turning the heating down, much better to go down to a nice and toasty pub in the morning; oh that leaking tap; yes I’ll sort it when I get a minute and oh shit; forgot to turn the glass washer off; oh bollocks I’ll leave it ‘til morning.
Last Saturday morning on my way into the office I went passed two of the aforementioned pubs operated under the Retail Agreement. It was 9.00a.m. and a reasonably bright day and neither pub was open, but guess what, all the external lights on both pubs were blazing away and I assume had been all night. Bothered; no.
