Running Britain’s best pub company. Yes, that’s the ambition of Lawson Mountstevens and the rest of the Star Pubs & Bars team. Not the biggest, but the best. Of course, scale is a substantial factor for Star, and having invested a cool £1.3bn in the Punch acquisition – a move that took the estate to just under 3,000 sites – the focus is now firmly on managing the merger, recruitment and, if you can believe it, further investment.
It’s a fitting time to talk to Mountstevens, as it has now been one year since the cutover of the pubs, a move that effectively saw the arrival of a whole new organisation for the MD and his team to oversee. The new set-up consists of approximately a third of Star people, a third from Punch and a third of new recruits or those who have been promoted internally. This meant building and delivering an entirely new business – new ways of working, new processes, a new culture and a new set-up of 10 regional teams that are all fully virtual. The key for Mountstevens was to have all of this in place by 5 March 2018, which was achieved… just. The Beast from the East did its best to put a freeze on the proceedings, but apart from the weather forcing workers from the Star contact centre into their homes and onto their laptops, the cutover went rather well.
“We look back and chuckle on that now, but it goes to show you can have all the best laid plans with all the data ready to go, but then we had to close our contact centre. We had people with laptops at home to keep the wheels on!”
Second the best?
In August 2017, the Competition & Markets Authority (CMA) accepted proposals from Heineken that addressed concerns that this gigantic merger would undermine competition in certain areas. While the sale of 30 pubs in those highlighted areas did enough to satisfy the CMA and ultimately allow the deal’s completion, there are some in the sector that still raise a sceptical brow at the idea of another national brewer having control of so many pub sites. Many have been hurt previously under such structures. Does this concern Mountstevens? I put it to him that while Star Pubs & Bars isn’t regularly on the receiving end of negative press when it comes to licensee and tenant relationships, inheriting 1,900 sites with previous history and on-going negotiations may well hinder a positive integration. How does he handle the negative attention based on years of cynical perceptions of the model?
“We didn’t buy all those pubs for the route to market,” he says. “We bought them because we believe in a great pub business. Naturally, we want to sell what we’re doing, but we have to work through legacy issues about how this model works and the opportunities that are within it. We want to be collaborative and open – we think that’s the best way to get good operators to come and work with us. We’ve got a few legacy issues, which is natural, but I would say we’re seeing a normal drum beat coming through. Our job over the next two or three years is to prove our culture and how we’re working with people on a pub-by-pub basis. That will be down to the quality of our execution right across the country and the quality of the relationships that we create.”
Mountstevens says my perception of Star’s position in the market is accurate, in that public accounts of discrepancies aren’t as frequent as some of their pubco peers. He also bases this on the KAM Media Licensee Index, an industry survey that a large number of Star licensees participate in. Out of the national pubcos – the ‘big six’ as it were – Star Pubs & Bars currently ranks at number two. The ambition is to take that number one spot. Should Star achieve this, in the eyes of Mountstevens, does that officially make it Britain’s best?
“You can define it by hard metrics and financial performance,” he says, “but how licensees view us across the piece is key. It’s no good delivering financial numbers if we’re not rated number one in those metrics. You need to help people develop vibrant, fantastic pubs. If you do that, they want to work with you for longer and you attract the best talent to work with.
“We’re second in that index, but we’ve got a lot of work to do. Our licensee communication and that consistency has to improve; we have a lot of fantastic initiatives that we know will add value, but getting those to cut through at scale is our big challenge for the next couple of years. For example, we have a really good energy-saving scheme, but our sign-up for that was limited to 150 pubs. If you’re Britain’s best, 400-500 should sign up. We need to get our virtual teams working well and offer support packages of growing the top line and taking cost out of the business. We’re Heineken and we’ve got big buying power – how do we find more ways of using that buying power and translating that to pubs up and down the country? Their biggest concern is rising costs and we have to help with that.”
A big communication strategy topic within Star Pubs & Bars is to promote the level of investment that is being put into the estate. Rarely a week goes by that the team doesn’t receive a press release detailing the latest sum of money used to rejuvenate a worn-out pub. We’re not talking small figures, either – £300,000 here, £200,000 there. The latest investment-related release outlined how nearly £1m had recently been spent across four Edinburgh pubs. Brian Davidson, Star Pubs & Bars’ regional operations director, summed it up nicely: “Investment attracts new licensees, which then creates new jobs, boosts local businesses and helps bring people of all ages together throughout the day and evening.” Carry this on throughout thousands of other sites and chances are the Star estate will thrive. But Mountstevens has to be realistic, as I’m sure every Star operator would happily welcome a six-figure investment in the coming months. How much is he planning to spend over, say, the next five years? He can’t tell me. Well, he does tell me, but he shouldn’t have.
“What I can confirm is that last year we made our largest ever annual investment in Star Pubs & Bars – investing a record £44m during 2018,” he says. “That investment was more than double the figure invested in 2017 (£20m) and brings our total expenditure on pubs to almost £140m over the last five years. We expect to invest at the same kind of rate going forward. The pipeline of development is colossal.”
Another part of recent Heineken investment is the purchase of other beer brands, of course – you may have read a bit about this last June when it all got a little bit noisy. The on- and off-trade made no secret of how they felt about Beavertown selling a minority stake to the global brewer before the summer of 2018. The reaction was mixed, but it’s not hard to guess how craft enthusiasts perceived the deal. The same went for Heineken’s investment in Brixton Brewery at the end of 2017. How does Mountstevens see it?
“Beavertown is exciting,” he says. “The rate of sale and retail selling price of Neck Oil is phenomenal. If we were talking two years ago, we would have had some gaps in craft. One of our operators might have said that they were missing an opportunity to sell something at £6 a pint. With Beavertown and Brixton, it’s really exciting in that space.”
With his former roles within sales and as managing director of on-trade at Heineken, did Mountstevens ever predict that his company would be investing such substantial amounts in craft beer? I spoke with him a couple of times while he was in those positions and rarely did ‘the c word’ crop up. Back then, ‘premiumisation’ was the main motto for Heineken. In fact, so associated were they with that term that I’m hard pressed to recall whether or not they in fact invented the word themselves.
“A lot of people are gurus in hindsight, aren’t they?” he says. “Premium trends were there to see and they’ve accelerated quicker than what we projected. Wherever we put Moretti, people trade up to that brand. Craft? Blimey. Five years ago, it looked like an interesting hobby that people in Shoreditch spent a lot of time talking about. All big brewers were in an element of denial, thinking it was small. Our Lagunitas deal in 2015 was a big step in the right direction.”
And what about the Fuller’s and Asahi deal? What does he make of that? Funnily enough, the response was off the record.
The future of managed, tenanted and leased
With an estate (which tripled in size this time last year) so substantially dominated by tenanted and leased units, the trade is rightly curious as to the plans for Star’s managed segment. With the Punch acquisition came around 100 Falcon sites (Punch’s managed concept), which Mountstevens has had to utilise. Before the deal, Star’s managed Just Add Talent (JAT) model was “being played with”, with about four or five sites running under that set-up. How quickly that can change.
“Having the Falcon sites forced us to invest properly in the back-of-house infrastructure,” he explains. “We started again with tech, tills, cash controls… it has been a massive transition. We did new EPOS, drinks range, food range and we transferred all sites onto new agreements, which was hard work, but we got there. We plan to do another 40 this year, and probably the same for 2020. JAT opens up the recruitment pool for different people to come and run a pub.”
When chatting managed concepts and big beer brand buyouts, I draw our conversation to a close by asking Mountstevens if he’s been paying attention to brand-led taprooms and brewpubs? AB InBev opened up a Goose Island brewpub in (you guessed it) Shoreditch late last year, seemingly paving the way for further contention in the ‘this is craft vs no it’s not’ stomping ground. Cynics already have a lot to say about the route to market of a brewer that owns close to 3,000 sites, but as MROs continue, more leases are negotiated and managed sites appear in greater numbers, are big-brand brewpubs set to further stir up the sector? As more craft breweries are either bought or invested in by the big boys, it wouldn’t surprise me to see more taprooms/brewpubs under Beavertown, Fourpure et al appear on the high street. Has the Punch acquisition prompted Mountstevens to consider this site utilisation?
“We’ve got pub development capability,” he says. “Could we develop something in the future that is a halo to a brand? It’s something we’d look at – it won’t happen this year, but there are a lot of opportunities around that.
“The core of our business is leased and tenanted, and we think there is a fantastic future there,” Mountstevens concludes. “You can create fantastic niches through those set-ups. A well-invested pub at the heart of its community being run by local operators – consumers are interested in that and they buy into it. We can provide the investment and support that can make those pubs fantastic. If you look at what we’ve done over the past few years – the investment into cider in Hereford, the big investment into the Manchester brewery, the Punch deal, Brixton, Beavertown… There’s an awful lot of stuff there that, as an organisation, we need to make work. You mustn’t keep chasing the next thing.”