Forty one years on from managing Whitbread’s Bull Inn in the village of Barming, near Maidstone, Kent, Ian Payne, the chairman of Stonegate Pub Company, is still as enthusiastic about the pub sector as he ever has been. With speculation growing that the company is gearing up for a c£1bn IPO, he talks to Mark Wingett about the biggest changes he has seen in the trade, a converging market, M&A activity, achieving 40% ROC and becoming like Tina Turner.
Over the past 12 months, a new management team has been put in place at the c620-strong, TDR Capital-backed Stonegate Pub Company, led by chief executive Simon Longbottom, which has led to long-time chairman Ian Payne’s role evolving.
He says: “As I get older I am getting like Tina Turner, where she stands up on stage and all the young dancers are dancing around her making it look like she is dancing, which is what I do now! The key things for me are M&A, trying to grow the company by acquisitions and overseeing the capex spend. We have the best returns on capital in the business by miles. We get 40% ROC. No-one gets anywhere near us. So I spend a lot of my time making sure we spend the right amount of money in the right places.
“Simon has settled in well – pub man through and through. I knew his father (David) when he worked at Allied. If he was a racehorse they’d say he’d come from good stock. He has brought some very talented people into the business. It has changed an awful lot since he arrived and he has brought in people from a cross section of businesses right across the sector – M&B, Greene King, Spirit, Novus and JDW. We are in a good place.”
Change for the better
Payne also believes that the sector is in a good place, helped by what he says are the three biggest changes to have made a significant impact in the sector. “Firstly, the Beer Orders, because pre-1990 you had the big five who controlled the industry, and that was it in terms of the on-trade,” he says. “Since then you have seen a massive change, with the leased companies and all the independent managed groups, that wouldn’t have happened without the Beer Orders. When I worked at Bass, it had 8,500 licensed outlets. Secondly, changes in licensing – with the all-day change in 1988 and then the complete relaxation in 2005. The third one is the smoking ban. Those are the three things that have fundamentally changed our business.”
And what about himself? “You have to keep an eye on what is going on. The minute I get bored when going to look over a new site is the day I will retire. I still get excited about seeing what we are doing and what other people are doing. You have to keep moving with the times. I always joke with our investors that Jesus was born in a pub, so they have been around for over 2,000 years. The fundamental need to eat, drink and socialise will never change. What will change is the way you do it.”
For Payne, the key trend for the sector at the moment is convergence. He says: “You have Starbucks going for a liquor licence, the Pret A Manger on St Martin’s Lane is open until late, everybody is trying to nick everybody else’s lunch. A lot of our competitors are moving more and more to food, a lot of the coffee shops and sandwich bars want liquor licences, the casual dining boys want a bit of both, so the whole area is converging in a way we haven’t seen before. But as always, the fittest will survive. Pubs will always survive. That might be in a slightly different form to the way we know now, but they will always survive because they always have.”
Payne jokes that his biggest challenge is sometimes getting up in the morning, but says that he has never seen working in the sector as being a challenge. He says: “I love what I do, I see it as being fun. The biggest challenge will be the day that it stops being fun. At the moment I haven’t got there and I am 62, so that’s good news.”
Over 41 years, Payne has worked with and for a number of the leading players in the industry, but highlights Charles Darby as the boss he liked working for most. He says: “I loved working for him. He was a trade man through and through. He fundamentally understood the people and at the end of the day that’s what makes pubs.
“We think we are really smart when we spend x amount a year on our sites, but if you get the wrong tenant or manager in there it doesn’t make a difference what you spend; it won’t work. Charles always understood that. He was also the best boss I ever worked for in terms of the fact he couldn’t stand lengthy reports. When I started working with him, I asked him how he wanted me to work, he said you can give me a one-page report each month, you tell me what you want to do and I will tell you yes or no. I thought I can work with him! I worked for him for two and half years and phoned him three times, he said yes twice and no once.”
Payne’s other business hero comes from a little closer to home, the self-made millionaire Barry Hearn, who has become a great friend over the years. He says: “He is 67 and still gets out of bed every morning and says what are we going to do today? To have his amount of enthusiasm at a stage in his career when he clearly doesn’t have to keep working is astonishing. He has turned around snooker and darts and now is looking to do the same with boxing.”
Payne nominates the acquisition by Morgan Grenfell Private Equity of 3,000 Whitbread pubs for c£1.6bn back in 2001 as the best deal he has been involved in. He says: “I had the opportunity to join MGP before the acquisition. The one thing from that period I always remember is that at the end of the interview they asked me if I had any questions, I said yeah what do I have to do to convince you I am the man for this job. I was going to sit there until they gave me the job because it was overseeing 1,700 tenancies, 1,300 managed sites. It was the job I always dreamed about and I knew I could do it. I was bloody determined I was going to get that.”
He admits there is a part of him that misses not overseeing a tenanted estate. “I love the tenanted and leased business,” he says. “At Bass Lease Co we had some of the most fun we ever had. We sold a lease there before we had a lease agreement because someone said they would sign one! Our strapline was ‘making pub leases work’, so every Friday night the numbers of the conversions would come through and we would have a party because we hit our target every week. It was a most unbelievable business.
“There was so much innovation coming through from that side of the business. The tenanted market at the moment is set up for further convergence through the likes of Mark Derry at Brasserie Blanc. I think the leased co’s have got a lot to look forward to. There is no way that the MRO is a panacea for anything, but what it will do is bring people into the sector, which has got to be a good thing.
“Virtually all the innovation in the market has come from the leased sector or the freetrade sector. There is virtually no innovation in the managed side despite what they would like to tell you. We all copy what successful individuals do. I am very lucky because my daughter lives in Shoreditch where there is probably more innovation and new ideas than anywhere in the planet at the moment. As a sector we are as vibrant as we have ever been.” He picks out Anglian Country Inns and Jason Atherton as the two current operators he believes are doing a “terrific job”
For someone who is constantly looking forward, it is no surprise that Payne doesn’t look back and regret any decisions he has made. He says: “There were two years when I was running Gala Bingo, which I say were the two hardest years of my career by a mile, but in those days I was seen as one of Bass’s rising stars and that was part of their career development, so it had to be done. I have since dispatched it from my memory. I never look back, I can’t stand looking at old pictures, all I want to do is look forward. You get on with it.”
Despite his track record, he still says that TDR took a big gamble on him when it backed the formation of Stonegate in 2010, when it acquired 333 wet-led sites from Mitchells & Butlers for £373m. He says: “To raise £400m in 2010 was not easy. I did a hell of a lot of knocking on front doors, more than anyone else. Trying to raise that level of money in that climate was the hardest thing I have ever done. There was hell a lot of people who knew me at the time, who didn’t want to be part of what we were doing, but now want to be my best friend because the business is now a success. I have been unbelievably fortunate with TDR, they have been incredibly supportive investors over the past five years.”
All options open
Payne would not comment on speculation that the company is preparing an IPO which would value it at £1bn, although it is thought that c630-strong company has lined up three banks to oversee the process. Whatever the future direction of the group, he has no plans at present to leave the business. He says: “Firstly we haven’t made any statement whether we are going to do an IPO or not. Secondly, I formed this company and have no intention of leaving it.”
There is still enough M&A activity and new investments to keep him occupied. He says that there hasn’t been a deal that the company hasn’t looked at in the sector over the past five years, including Spirit, Orchid and tenanted packages. He says: “We didn’t do a deal last year. That wasn’t because we weren’t looking – we just couldn’t get our heads around some of the prices being quoted.
“The challenge when we started was that we never want a deal to be done in this sector that we haven’t looked at. That doesn’t mean we will do it, but we must always look at it. And that’s what we have done. There isn’t a deal over the past five years that we haven’t checked out. We have never looked outside the pub sector. We are not interested in the casual-dining sector. “We have never set ourselves targets in terms of absolute numbers.”
He believes that as the industry gets further down the road with MRO then the larger tenanted companies will be more willing to do deals. He says: “We have got Punch and Enterprise leases and I can’t see any difference between me doing a deal with an institutional landlord for 50 sites or doing a deal with Punch and Enterprise for 50 sites. As long as you got the right agreement and its free of tie, it doesn’t matter who the landlord is as long as they behave reasonably.”
The company carries out 100 investments a year and Payne visits everyone after they have been completed. He says: “I have already been in all of the Maclay Inns sites we acquired earlier this year. I give my feedback whether they like it or not. I chair the capital committee. Every spend over £50k I have to approve or don’t approve. We spend £23m a year on expansionary capex, which is a lot of money for a company of this size. So we have to make sure we get the right returns. Our average investment is c£230k to £240k.”
Later this year, Payne will host a dinner for the 19 head office people that started with him in 2010 and are still with Stonegate. He says: “We started all this off in a rented office near the Birmingham NEC and it is amazing how far we have come in the past five years, but there is still plenty to do.”
