Venerable family brewer McMullen was ahead of much of the sector in recognising the need to diversify from a tied tenanted estate. James Wallin talks to the latest McMullen to sit on the board and current managing director Peter Furness-Smith to share two centuries of wisdom on the pub sector
The grand tradition of the family brewer has encountered significant challenges over time. These have seen many famous names fall by the wayside, others diversify beyond recognition and some, like McMullen, stay resolutely committed to the eccentric ethos conjured up by their forefathers.
“The family has had its share of oddballs,” Tom McMullen, the latest family member to take his place on the board, tells me. “Our founder Peter McMullen was a poacher who was sacked from pretty much every job he did. His wife suggested he go into brewing, probably because they had nine children and she wanted to distract him!”
While Tom is undoubtedly an upstanding member of society, he admits the family has tried to maintain the character of its forebearers through everything it does, and that he intends to do exactly the same should he take over the running of the company.
The man currently filling that role – and the first non-McMullen at the helm – Peter Furness-Smith, says: “It is a family business in the purest and simplest sense because the family is at the heart of everything. The benefit of being a family firm is that we can move quickly because the owners are there on the board. We don’t have to put together a case to ‘woo’ our shareholders.”
While the company may still uphold the values of 1827, it has moved faster than many more recent entrants to the sector in responding to modern obstacles. Its tenanted estate has shrunk steadily during the years to c30 of its former 124-strong estate.
The bulk of the business is now made up of managed houses, chiefly run under its Chicken & Grill and Destination divisions, with six of its Baroosh bars aimed at a more urban environment.
The company has also trialled its first operator agreements during the past few years, which Furness-Smith praises as a genuine partnership.
Under McMullen’s model, the operator receives a percentage of wet sales to run the pub and pays McMullen a rent equivalent to 15% of dry sales.
Furness-Smith says: “It’s a model that works for both sides. There are a lot of models across the sector that seem similar but this is one of the few that I would regard as a genuine partnership. We don’t make a huge amount of money from it, and it wouldn’t work in every pub, but it makes for very incentivised operators. They’re not tied in for a long period of time so if it’s not working out, both sides can move on. It’s an area of interest for us and where it suits the site, it’s something we will consider.”
The model, which is currently used in 10 pubs, was already in operation when the Government agreed to include a mandatory market rent-only option (MRO) in the pubs code, but Furness-Smith admits legislation was a driver.
He says: “It wasn’t a surprise that the Government made that move. I would never underestimate politicians’ zeal for interfering in business affairs. We were always going to be way under the threshold anyway so we weren’t in the same position as someone like Enterprise, who have no option but to find a new business model. But managed houses and the operator model made sense.
“The MRO was the final nail in the coffin of the tied model. It is a great pity because the people who suffer the most are the entrepreneurial tenants who have thrived under that model and will now find a long lease and investment in a pub pretty much impossible to come by. I think the politicians and the campaigners who fought for this have been very naive in thinking this will suddenly solve all problems for tenants.”
The pubs code is one of many bones Furness-Smith has to pick with governments of all creed. The man who hit the headlines when he told ex-pubs minister Bob Neill that “Robert Mugabe would be proud of you” is no fan of overbearing authorities.
He says: “Every year, more of our turn-over goes to the government than to our employees and investors combined. That defies all sense.
“The VAT situation is just the latest outrage to be inflicted upon us. Tim Martin is very eloquent on the subject and I hope the Government takes some notice. Some help on that front would be a positive step instead of further barriers to our ability to grow our business and reward our staff.”
The future for McMullen could be summed up in the phrase “slow but steady”. The firm is keen to grow its managed estate and, after a successful experience with its first new build in 25 years, in Milton Keynes last year, this is now an area of focus. It is currently waiting on planning permission for a new build on a retail estate in Colchester, Essex,which will be operated under its Chicken & Grill format.
Furness-Smith says: “It has been delayed because the planning committee couldn’t meet in the run up to the election. With the time it will take to go through, and the build time, we are probably looking at 18 months before it opens.
“We would look at further new builds if the site was right. We have learnt a lot in converting existing pubs so a new build would give us the opportunity to design certain features in. For example, we want to have a clear divide between the dining and bar area so both sets of customers can feel comfortable in the evening.”
In February, the group acquired the freehold of JD Wetherspoon’s Lord Moon on the Mall, in Whitehall. Furness-Smith says McMullen would take the rent for the remaining five years of the lease before taking on the site under management.
“We want to get more pubs within the M25. The Whitehall site was one where we were in competition with commercial property developers rather than other operators, but for existing pub sites, the competition is quite intense.”
While McMullen clearly has the financial muscle to flex when needed, the impression remains that this grand old firm is unlikely to be drawn into a property bidding scramble. After almost 200 years of trading, the McMullens recognise the value of the long game. Who would bet against us raising a glass of AK to their success in 2215?
