Pubcos offering retail agreements must consider whether prices need to go up or operator earnings down, in order to make the model viable.
In its latest UK Pubs Maretview, CBRE noted that agreements such as those offered by Amber Taverns and more recently Enterprise Inns through its Craft Union model , were increasingly common.
CBRE noted that on the same day M&C reported details of the agreement underpinning the Craft Union model – where the operators are given 18% of turnover to pay themselves and their staff - Greggs announced that the introduction of the National Living Wage could mean price increases in its stores.
The CBRE report says: “18% has been, we believe, broadly industry standard for some time – and the question therefore that needs to be asked is whether for all pub companies operating this model, prices need to go up, or operators’ earnings could go down?
“Such agreements (occasionally known as ‘manchise’) sit in the hybrid position of being in some ways a tenancy (encouraging an entrepreneurial attitude in the licensee) and in others a managed house – having the support, advice and safety net of ‘brand standards’.
“Often key to this is product pricing, with operator and pubco agreeing pricing for the local market. With this added pressure on labour costs (the only cost that remains with the tenant) – will the pubccos have to increase the percentage, will the operator have to take the pain, or will pricing move up in line with similar businesses?”
