As another pub company, Front Room, hit the rocks last week, June's third casualty, it made a backdrop to the analysis offered by Tim Bridge, chief executive of Greene King, of the woes afflicting parts of the licensed retail market.
Bridge is in a strong position to complain about the fickleness of the City, which changes its mind regularly on which model of pub operator it prefers to see. Greene King is a leading member - arguably THE leading member now S&N is selling its pubs, though they might disagree in Wolverhampton - of Britain's remaining vertically-integrated brewers and retailers. Within even the memory of the teenage scribblers on the broadsheet business pages, this was a deeply unfashionable way of trying to make shareholder value. Conventional wisdom, after the Beer Orders came into effect in 1990, was that companies had to decide to be a brewer, or a pub and bar owner, but they could not be both.
While brewers big and small accepted that message and sold or closed down their brewhouses to become retailers of beer brewed by others, some stuck to the way of doing things that had served their companies since Queen Victoria was a lass. This was not the unseeing conservatism that hampered much of the brewing industry in the 1950s, but a belief that the integrated model was not broken, and did not need fixing.
The robustness of this view has been shown in the past couple of years by the way that the integrated brewer/pub owners have stood up to economic turmoil while others have run aground, or at least hit seriously choppy water. Companies such as Belhaven, Hardys & Hansons, Young & Co (to run from north to south) have seen their share prices rise over the past year while many of the much younger pure pubcos have slumped. Last week Greene King unveiled an 11% increase in full-year profits, and had the satisfaction of seeing its share price rise to 814p, more than two and a half times higher than it was in December 1999. Not many companies in any sector can boast that.
Bridge took the opportunity in his chief executive's report to attack the trend towards "ever larger pub groups" and investment in "expensive and undifferentiated" pub concepts. The fundamental challenge facing the pubs industry is the growth in alternative leisure pursuits, he said, and pricey, uniform, me-too bars or larger pub estates did not answer that.
Instead, he said, the answer was not in specialising on either managed pubs or, the new favourite among analysts, vast tenanted holdings, or constantly investing in new and "indifferent" retail brands. The Greene King way is to operate both managed and tenanted pubs, "making sure that we are trading them in the optimum manner, rather than adopting a 'single policy for all' approach." The art of success, he said, is "to have the right site run by the best possible licensee under the most suitable trading arrangement." He added that the current vogue for tenanted estates "should not blind us to the fact that there can be potential pitfalls in the tenanted model," namely setting rents too high and not finding the right tenants.
Looked at closely, however, Bridge's prescriptions come to no more than saying: "Get everything right and you will be successful." Greene King is clearly able to do well with all three legs of its tripod, managed pubs, tenanted pubs and brewing. That shows Greene King is a good operator in all those fields, but it does not prove the Greene King model is superior to any other. There may be synergies in running all three kinds of operation, there is no doubt that if you brew good beers it can be easier to attract certain people to your pubs, and sometimes being able to switch the way a pub is run is cheaper and more profitable than simply selling it off, as a pure managed or tenanted pub company might have to do if an outlet did not fit their business model. But to imply you cannot run a pure managed operation or a pure tenanted operation as well as a mixed operation is clearly nonsense, when companies such as S&N Retail can increase comparable operating profit by 6.5% in the last full year, and Enterprise can push profit per pub in its 3,477-pub core estate up 7%. Here are two big specialists, both no-nos according to the Bridge analysis, whose figures look just as good as Greene King's, because they too both know what they are doing.
The truth is, it's not really the model, it's the way the model is implemented, well or badly, that counts.
Bridge is in a strong position to complain about the fickleness of the City, which changes its mind regularly on which model of pub operator it prefers to see. Greene King is a leading member - arguably THE leading member now S&N is selling its pubs, though they might disagree in Wolverhampton - of Britain's remaining vertically-integrated brewers and retailers. Within even the memory of the teenage scribblers on the broadsheet business pages, this was a deeply unfashionable way of trying to make shareholder value. Conventional wisdom, after the Beer Orders came into effect in 1990, was that companies had to decide to be a brewer, or a pub and bar owner, but they could not be both.
While brewers big and small accepted that message and sold or closed down their brewhouses to become retailers of beer brewed by others, some stuck to the way of doing things that had served their companies since Queen Victoria was a lass. This was not the unseeing conservatism that hampered much of the brewing industry in the 1950s, but a belief that the integrated model was not broken, and did not need fixing.
The robustness of this view has been shown in the past couple of years by the way that the integrated brewer/pub owners have stood up to economic turmoil while others have run aground, or at least hit seriously choppy water. Companies such as Belhaven, Hardys & Hansons, Young & Co (to run from north to south) have seen their share prices rise over the past year while many of the much younger pure pubcos have slumped. Last week Greene King unveiled an 11% increase in full-year profits, and had the satisfaction of seeing its share price rise to 814p, more than two and a half times higher than it was in December 1999. Not many companies in any sector can boast that.
Bridge took the opportunity in his chief executive's report to attack the trend towards "ever larger pub groups" and investment in "expensive and undifferentiated" pub concepts. The fundamental challenge facing the pubs industry is the growth in alternative leisure pursuits, he said, and pricey, uniform, me-too bars or larger pub estates did not answer that.
Instead, he said, the answer was not in specialising on either managed pubs or, the new favourite among analysts, vast tenanted holdings, or constantly investing in new and "indifferent" retail brands. The Greene King way is to operate both managed and tenanted pubs, "making sure that we are trading them in the optimum manner, rather than adopting a 'single policy for all' approach." The art of success, he said, is "to have the right site run by the best possible licensee under the most suitable trading arrangement." He added that the current vogue for tenanted estates "should not blind us to the fact that there can be potential pitfalls in the tenanted model," namely setting rents too high and not finding the right tenants.
Looked at closely, however, Bridge's prescriptions come to no more than saying: "Get everything right and you will be successful." Greene King is clearly able to do well with all three legs of its tripod, managed pubs, tenanted pubs and brewing. That shows Greene King is a good operator in all those fields, but it does not prove the Greene King model is superior to any other. There may be synergies in running all three kinds of operation, there is no doubt that if you brew good beers it can be easier to attract certain people to your pubs, and sometimes being able to switch the way a pub is run is cheaper and more profitable than simply selling it off, as a pure managed or tenanted pub company might have to do if an outlet did not fit their business model. But to imply you cannot run a pure managed operation or a pure tenanted operation as well as a mixed operation is clearly nonsense, when companies such as S&N Retail can increase comparable operating profit by 6.5% in the last full year, and Enterprise can push profit per pub in its 3,477-pub core estate up 7%. Here are two big specialists, both no-nos according to the Bridge analysis, whose figures look just as good as Greene King's, because they too both know what they are doing.
The truth is, it's not really the model, it's the way the model is implemented, well or badly, that counts.
