The Ei Group (formerly Enterprise Inns) is moving from purely tenanted pubs to a mix that includes a growing managed house group. Chief executive Simon Townsend tells James Stagg how working with established operators is bringing additional flair and innovation to the business
How is the business model for the Ei estate changing?
We are changing tack. We used to rely entirely on a tied, leased and tenanted business model, which does require us to find great publicans to run our pubs. And the majority of our pubs are still run on that basis, but we're now looking at different business models.
Many hospitality employees dream of their own business. What do you look for in a potential publican?
What kind of support is offered to prospective landlords?
One of the great challenges we have is to make sure people understand how complex a small business can be. It's not just about being a great chef or customer host, but also they must be a great manager of people and be able to find the right staff to deliver a consistent offer.
The hurdles we put in the way of someone applying to us for a pub are very significant. They must create a business plan and we make sure they understand what we can offer them in terms of training, accounting skills and business management skills.
Most of your pubs are leased and tenanted, but recently you've partnered with experienced operators such as Rupert Clevely and Hippo Inns through a managed contract. How does that work?
We have a 75-strong managed house group called Craft Union, which is focused on community pubs in urban locations - up until now they have been wet-led, but we will be evolving the offer both into neighbourhood locations and with a simple food offer over the course of the next year.
We also have the Bermondsey Group of pubs, operating around 30 sites which are a mix of food- and wet-led.
Then we have what I would describe as the more complex businesses that we're developing with the likes of Rupert Clevely in Hippo Inns and Karen Jones and her team at Food and Fuel. And we have partnered with the Laines Pub Company on Mash Inns and with Peter Borg-Neal in Hunky Dory, and with Marylebone Leisure Group to create the Marmalade Pub Company.
What do these operators bring to the business?
Through these agreements we can benefit from their retailing flair and skill to run businesses that are much more complex than those we would be able to run ourselves. We have the sites and the capital; they have the flair and innovation. And we're building managed house businesses together.
So what is the agreement with these operators. Are they employees or shareholders?
They are managing the operation and we have set up a business partnership. It's accounted for as a subsidiary of Ei Group, but we are building the business together. They are shareholders and have a vested interest in growing it profitably and sustainably. It's a win-win situation where each of us brings different attributes to the partnership.
Some of these businesses are already well established with their own infrastructure, but others we have worked with to build the infrastructure. It's a model that can be constructed in a way that suits the attributes of the business partner.
Has this change in focus been driven by the introduction of the market rent-only option?
It was driven by our desire to have a much greater use of consumer insight and be able to execute a much more defined and more reliable outcome. The leased and tenanted model still works brilliantly with the right people in the right pub with the right offer.
It was our desire to have closer understanding of the consumer market in which each of our pubs is operating and to use that insight to define a retail offer that has the greatest chance of success and then put it into an operating model that gives it the greatest certainty of execution.
The new legislation didn't drive our strategy; it was driven by consumer insight and a desire to have a wider array of operating models that were fit for purpose. But undoubtedly we've had to make sure our strategy can also accommodate the implications of the new legislation, which may involve pubs choosing to be free of tie.
Have any tenants requested the market rent-only option yet?
As of our last results in November, we had 294 pubs that could have requested the option - or should I say the offer. And 94 asked for it, and at the moment none of those conversations have yet concluded as to whether anyone will take up the offer or remain tied.
Some high-profile chefs you've worked with - such as Tom Kerridge and Dominic Chapman - have been very complimentary about the support they have received from Ei Group. Is this something you've had to work hard on?
We've worked hard on developing relationships with all of our publicans but there are certain sites in certain locations that have the right characteristics and amenities to be able to provide a more complex and comprehensive food offer. I'm delighted that we've been able to work so effectively with them. It's about understanding where one's competencies are and pitching it in such a way as to create an effective business partnership.
I know our regional managers on the ground have created some tremendous relationships with a wide variety of operators, from extraordinarily talented Michelin-starred chefs to first timers running a pub.There has been a lot of consolidation in the pub sector. Are you in the market for more properties? I think we've got plenty. Our investment programme is very much directed at the sites we've already got and rolling out our new business models as well as continuing to invest in our leased and tenanted business. I see the transaction that Heineken and Patron Capital announced in relation to Punch as being a tremendous vote of confidence in the current status and future confidence in UK pubs. I think that level of interest and commitment has to be good and I welcome it.