Making waves

Making waves

When NewRiver purchased over 200 Marston’s pubs back in 2014, it made a big splash in the industry: a property and retail development company getting into the community pub business at a time when wet-led pubs were seen to be struggling. When the company bought 150-odd pubs from Punch in 2015, it brought NewRiver’s pub portfolio past all but the largest players in the game in just over a year.

As a company new to the industry, NewRiver understood the need for experienced heads. It brought in LT Management to create a team of eight operations managers looking after different regions in a nationwide estate – albeit with a skew towards the Midlands and the North. David Shipton was brought in as asset development director in February 2017. Shipton has worked in the industry since 1986 and, together with his operational managers, brings 131 years of experience in the pub trade to NewRiver.

This pub experience is coupled with NewRiver’s fresh approach to its investment in its portfolio, using its expertise in the property market to bring different perspectives and approaches to problems and opportunities.

A different approach

NewRiver’s reputation as a property developer with convenience store connections was troubling for many in an industry that has seen plenty of pubs converted into Tesco Expresses. Some of the purchased pubs were indeed sold, demolished or converted, but Shipton points to the investments made across the majority of the estate, the changing fortunes of those pubs and a more balanced view of the company in recent months. Since 1 April 2017, the company has spent £1m and completed 34 projects. It has a budget of £3.2m for the pubs from Punch alone and perceptions are starting to change.

“Publicans are now looking at NewRiver and seeing that we’re actually spending money and we’re trying to do things slightly differently,” says Shipton. “The bulk of pub closures over the last five years have been in wet-led community pubs, around 15-20 a week. We’ve only lost three in four years, so we’re doing our bit!”

NewRiver has a longstanding relationship with the convenience store chain Co-op and, for many of the sites within the estate, NewRiver’s investment has included the construction of a Co-op next door to the pub. By 1 April 2018, Shipton expects there to be 22 pubs with a Co-op alongside them as part of a £9m spend. A change in approach has seen convenience stores and pubs redeveloped alongside each other, ensuring that both businesses open with a fanfare and function as complementary focal points for their communities. Shipton cites The Royal Oak in King’s Bromley and The Reindeer in Mansfield as success stories.

This approach doesn’t work with every venue, but where there is land adjacent to pubs, NewRiver earmarks it for development, whether for retail or residential purposes. This is expected to create homes for more potential customers, and in addition, any return on investment from the development will provide further funds for the pubs. At present, planning permission has been secured at 170 properties alongside NewRiver pubs.

“I’ve worked in some of the bigger national chains and I can absolutely tell you that the way these guys look at assets is completely different to the way that pub companies do,” Shipton states. “There are lots of under-utilised assets alongside pubs and if one can realise a profit on it, it can then be reinvested in the pub. As long as you can get an acceptable return, it’s a win-win.”

Shipton also points to another unusual approach to investment. NewRiver is happy to pay for the structural and cosmetic changes within a business – indeed, just before we met at NewRiver’s Mayfair office, management had decided to push through a phased development at a pub and get it all done in one fell swoop – whether it is the company or the publican arranging things. Indeed, operators are encouraged to use local services, but NewRiver will then give them the money to pay for it.

“Our kind of pubs normally have a builder, an electrician, etc. drinking there, and if you can get them to do the work for you then that buys you a lot of loyalty,” Shipton points out. “And if you then have a problem with the work they’ve carried out, you can get it resolved quickly. We’ll do it all or we’ll do none of it and just provide the cash, anywhere along the spectrum. We do things slightly differently and that seems to be working.”

Community pubs

The majority of NewRiver’s estate – around 270 pubs – is made up of wet-led community pubs, with the remaining 80 split evenly between traditional town centre pubs and destination food-led outlets. This is no coincidence. One of the company’s aims is to challenge the stereotype that wet-led pubs are failing and Shipton points to NewRiver’s exploits in the retail sector to explain their positivity going forward.

“If you look at the sort of shopping centres that NewRiver owns, they’re not London-centric or in big towns; they’re second tier, value for money, community businesses, so it’s a logical extension that if we buy pubs, we buy community pubs. The most important thing for us is to segment the business into meaningful groups and develop the right promotions and pricing.”

Shipton highlights two key areas where he is focusing his investment and support this year – food and cask ale. Cellar management training plays a huge part in the publican induction process and on a tour of four Essex pubs within the portfolio – two of which are actively seeking to increase their number of handpulls and food output – Jonathan Seaton-Reid, operations manager for the south east, makes a point to visit each cellar and check standards. Six pubs in the estate are currently free-of-tie, with one more to follow, and Shipton is keen for NewRiver to enjoy one of the broadest product ranges of any pub company.

MRO doesn’t hold any fears for us,” says Shipton. “It’s what’s right for each pub. You can’t take a carte blanche approach across an estate of 350 pubs. You look at each individually and ask what’s right for that site.”

However, while local ales and licks of paint can help to change a building and its offer, it is the operators themselves who bring the best out of a community pub. At some pubs, that tenant is already in place and NewRiver is working to turn temporary agreements into substantive ones, and to invest and improve their properties and offers. But the company is also looking to fill vacancies in pubs where the tenants have left. The key is not necessarily to find people with experience, but with the spark and the drive to conceive ideas and run with them, as well as the local knowledge and community connections to establish the venue as a critical civic hub.

“The one thing I know above all else is it doesn’t matter how much money you throw at these businesses,” says Shipton. “Without the right people to run it, you’re almost wasting your time. It’s a people business and we invest in people. One of the first things we did was to bring in all the market insight and make sure we were targeting the right sorts of properties and that the operations team have got the right people in place to run the business.”

New tenants are provided with training and due diligence along with the keys, and operations managers assist as little or as much as the publican requires. In addition, NewRiver is looking to use its size to help its publicans. The company was able to use its scale to push down insurance premiums for the entire Punch estate, while fruit machine suppliers across the portfolio have been reduced from 117 to five, providing savings which can be passed onto tenants.

“We’re working continually with NewRiver’s scale to minimise our publicans’ costs, because if we make their costs lower, then their rent is more sustainable,” says Shipton. “We’re currently working on utilities as well, trialling a cooperative approach.”

A NewRiver pub may be focused on singularly concentrated communities, but the company as a whole is looking ever further afield. While Marston’s still manages 100 of the 200 pubs sold to NewRiver on a retail franchise basis, around 60% of those are in the process of being converted to tenanted and leased pubs under NewRiver and LT Management. Shipton aims to transfer them all across to his estate swiftly and get everyone under the NewRiver umbrella. Once that has been achieved, or perhaps before, the intention is to continue the company’s growth. A few months ago, the company announced that £225m had been raised from investors and institutions, meaning that the pub fund has grown from £1.3bn to £1.5bn. So where will NewRiver look next?

“There are a few geographies that are a little bit inefficient at present,” concludes Shipton, citing the south west and the north east. “We’d like to make that geography more efficient by acquiring more sites. We have designs to grow the portfolio substantially over the next two or three years.”