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Tue 16th Oct 2012 - Breaking News
Spirit Pub Company unveils strategy for leased estate: Managed operator Spirit Pub Company has unveiled the details of a radical new strategy to drive performance in its leased estate by applying franchise and semi-franchise agreements. Chief executive Mike Tye told City analysts that the leased division has great properties that had suffered years of lack of investment and retail expertise. “This will be the first year of putting that right,” he said. Tye added that he wanted to move away from the perpetual tenanted arena “arguments on how to divide the profit cake by growing the profit cake” and that the traditional fixed rent plus beer margin model is “imperfect”. Spirit will apply three new models to its leased division with lower fixed rent and high variable rent as a new approach that incentivises the company and lessees to drive turnover and profit. The first model is a straight-forward franchise of its John Barras brand as a starting point – other brands may follow. The first site, opening this weekend, will be The Heartsease pub in Plumstead Road, Norwich which has had a £200,000 investment and will be run by franchisees Michael Bream and Rebecca Barker. The second new model will be a semi-franchise model where lessees will be given the full benefit of managed division expertise and wherewithal with a percentage of sales passing to Spirit to encourage both sides “to strive for sales growth”. The third model applied by Spirit will involve the company taking product and price control on the pub’s drink and food offer. Tye also said there was premium end to its leased division where very high quality multi-site operators and licensees would continue to work more independently. He added that the three-pronged interventionist strategy is a “natural evolution of good licensee retailing”. Spirit will also initiate retail training for entire leased pub teams and introduce a mystery customer scheme. Analysts were told by Tye that he thinks between 100 and 200 of Spirit’s leased pubs will convert to either the full franchise or semi-franchise model over time. “All of the people we’ve spoken to see the upside,” Tye said. He further told analysts that it would have been wrong to sell the leased division when there is “no market” to sell it. “That would have been destroying value rather than accreting it – and we’re now of the view that there is considerable upside.” The company would take a robust view where it thinks lessees and Spirit could be earning, say, £200,000 per annum each at a pub – and income is far lower. “We’re going to shake the tree - 490 of our 550 leased pubs were managed pubs and we’re hanging in there because there are some fantastic assets.” Spirit has also installed I-draught systems in its leased estate and removed around £1.7m of support costs. Asked whether he thought creating franchised pubs would make Spirit leased harder to sell eventually, Tye said: “I don’t think that’s the case – we just agree a franchise agreement with the new owner.” Spirit still plans to sell around 50 leased pubs in the coming year. The company has converted 11 leased pubs to its managed division so far at a cost of around £400,000 each.   

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