Admiral Taverns, one of the largest pub companies in the country, hit hard times in 2009 as it struggled with more than £1b of debt, but survived after Lloyds Bank took a major stake in the business. Managing director Kevin Georgel tells Neil Gerrard how valuing its licensees will help the company move forward
What's your background and how did you become involved in Admiral?
I had a five-year stint in the military and left when I was about 26, which was when I first came into the pub trade, firstly with Bass Brewers, which subsequently became Molson Coors. I did a number of roles at Bass, mainly in sales and marketing, culminating in looking after the Punch Taverns account for Molson Coors. From working for Molson Coors I was asked to join Punch, where I ended up running all of Punch's operations between 2007 and 2010. And then Jonathan Paveley, who is our chairman at Admiral, asked me in March 2010 to come and join the Admiral team, which I duly did in July 2010.
Admiral itself is quite a young pub company, despite its size. How was it formed?
It was created in 2004 by Gary Landsberg when leveraged debt was all the rage. There was massive expansion through 2005, 2006, and 2007 and the company got to a position where it had 2,600 pubs at its height - mainly through medium- and large-scale acquisitions from the other pub companies. The big deals were mainly with Enterprise and Punch Taverns, although deals were also done with Greene King and the Pyramid pub company. In 2007 we had the smoking ban, which had a significant impact on all of those pubs. As a consequence of that and then the other economic factors that came into play through 2007 and 2009, and a very debt-laden balance sheet, the business got into a position in 2009 when it underwent a refinancing under the guidance of Lloyds Bank.
Where does the business stand now?
The refinancing fundamentally changed the viability and sustainability of the business, so in 2009 under Jonathan's leadership we created a clear strategy to strengthen the balance sheet, which we have made excellent progress on - largely through a considered active disposal programme - but alongside that was a plan to improve the operational performance of the business and to establish a core estate of good-quality, well-invested, sustainable community pubs.
You sold nearly 500 pubs last year. So what is the optimum size for the business?
We have got 800-1,000 businesses that fit the criteria I have just outlined. But we are placed strategically to make selective acquisitions of sites, and I would fully expect us to do that. Don't forget that we made an acquisition in November 2010 when we bought 189 pubs from Piccadilly, which existed under management by SNPC.
What will the estate look like when you get it to that size?
We have got every pub imaginable, but the biggest percentage of our business is great community wet-led pubs. There is still a significant market for these. Capacity has been taken out of the market because everyone is disposing of sites they believe to be unviable. Our challenge is to make sure that our pubs perform best in their local market. There are a number of examples that are achieving just that and I would point in particular to certain parts of the North-west.
Do you plan to make any more acquisitions, and of what size?
I think we need to keep our options open, because it is going to be a very dynamic marketplace over the next 18 months or so in terms of what is going to happen with some of the other major players in the sector.
How does trading look at the moment?
We trade a lot in areas which would be categorised as more socially and economically challenged, and that brings with it obvious difficulties in terms of the availability of customers to go to the pub and spend, so the market remains challenging for our licensees. Our response for that is to make sure that the people we employ to work with the licensees are the best that we can possibly find. We have done a lot of work in the last 18 months to attract, recruit and retain great business development managers (BDMs). There was a fantastic group of BDMs already in the business and all we have done is augment that group by bringing some new people in.
So what else have you been doing to help licensees through tough times?
Recently there has been an increase in beer pricing from the brewers. We have recognised the challenges in terms of price on the bar and we have sought to mitigate the impact with our licensees by having a price freeze on a number of brands in each of the categories. That was a different approach from most of our peer group. One of the reasons we can do that is that we have sorted out our capital structure [Admiral's debt stands at about £180m, down from more than £1b in 2010 before it refinanced with Lloyds].
Would you say you have become more selective about the types of licensees that you recruit?
What we have done is look to understand the criteria and traits of the individuals that make great licensees. The other thing we have done in the last 12-18 months is introduce our own training, which we didn't really have. We have trained over 200 of our licensees in various programmes now and we have five or six modules that we work from. It costs abour £100 per individual. Beyond that, the big opportunity is to engage with talented people who have not yet even thought about the prospect of running a pub. I think that is a big challenge for the industry, and I think the first thing is to break down the negative perceptions that have existed for the last three to five years and get people to start to consider running a pub as a good option.
The licensing hours for the Diamond Jubilee have been extended. Given your experience during the Royal Wedding last year do you think it wil help trading?
The experience of last year is that it did help, but the numbers dipped in May. So I think we have to be cautious, because you have to look at it over a longer period of time. I am hopeful that the Diamond Jubilee, if combined with good weather, will be a boost to trade which will create momentum which then takes us into the European Championships - because, for us, football is a key driver of trade in our pubs.
And what about the Olympics?
It is all down to what sort of feeling it engenders in the country. If it engenders a feel-good factor, then it will help trade. I would like to think that our pubs in the vicinity of the events [in east London and Weymouth] will benefit. It won't come from tourism, because I don't think a lot of tourists would find their way to our pubs, but the people that will find their way to our pubs are the people working in the Olympics - all the volunteers and contractors. I sense there will be a camaraderie between those people and they will want to go and socialise together.
What was your view on the decision to leave beer duty unchanged in the recent Budget?
It's extremely disappointing that the above-inflation duty escalator remains in place, given that it actually serves to reduce the tax take from pubs. The Government says it wants to encourage sensible alcohol consumption by driving people to the pub, which is a controlled environment, yet this policy is a tax on pubs.
Given the tribulations the pub sector has had recently, what do you think the pub industry will look like in a few years' time, and what will people be doing differently?
I don't think it is about doing things differently. I would rather do a few things really well and be focused on what we are about than innovate for the sake of it.
I think you have to be clear about what your offer is, and be clear about who you are trying to attract, and then ensure the experience they have around that clarity and focus is exceptional.
Kevin Georgel's top tips: What to consider before taking on a pub
Advice If you are entering a property deal, whether it's an outright freehold purchase or a lease or a tenancy, take advice from a property expert. Have any legal agreement reviewed by a lawyer. Go and talk to the best operators in your area.
Team Be aware of your strengths and weaknesses and hire people who are different from you. You can't do everything, so make sure you've got the right people in the right roles. For example, if you're in the kitchen, who is going to run front of house?
Staff training You may know what you are doing but do your staff? Recruit, train and incentivise a great team - and avoid practising on your customers.
Cash Don't underestimate your working capital requirements, especially in the first year. Highly profitable businesses can go bust because of cash-flow issues. Whatever cash you think you need, double it.
Purchasing Get your purchasing sorted from day one. You only get one chance to make a first impression - be happy with whatever you're serving on the plate or in the glass.
Suppliers Identify key suppliers and sell them your vision. It's surprising how much support and goodwill - not to mention favourable prices - suppliers will offer if they buy in to what you're trying to achieve.
Be the customer It's easy to get bogged down in the day-to-day functions - running a business is stressful and demanding. So always try to retain an independent perspective and see your business through the eyes of the customer.