Divided by a common business? Franchisor and franchisee relationships in the pub sector

Divided by a common business?Franchisor and franchiseerelationships in the pub sectorConrad Lashley1* and Bill Rowson2

1 Centre for Leisure Retailing, Nottingham Business School, The Nottingham Trent University, UK2 School of Tourism and Hospitality Management, Leeds Metropolitan University, UK

� The relationship between franchisee and franchisor can be described as being based ona number of dynamic tensions that are clearly illustrated in the relationship betweenpub operating companies and their tenants and lessees. The differences in business objectives, control and support together with variations in power are common to allfranchise relationships.

� In the pub sector tensions are further intensified when the operating companies are constrained by legal and economic pressures. Short-term concerns often result in tenantsand lessees being located in pub properties that are not suited to their circumstances,resource and needs.

� Selection and recruitment of tenants and lessees is often driven by the need to secure arent-paying tenant or lessee into a property.A consequence of this approach is that thereis a high turnover of tenants and lessees that can add considerably to operating costs.In addition, many of the companies in this research were not providing their tenantsand lessees with the levels of advice and support that might help the smaller firms over-come their resource disadvantage.

� This paper argues that as the pub companies move increasingly towards high volumeretail orientations they will need to examine some of the more formal franchise arrange-ments. These arrangements would involve much more careful scrutiny of potentialtenants and lessees together with more centrally defined operating systems and closersupport from business advisors.

Copyright © 2003 John Wiley & Sons, Ltd.

Introduction

This paper reports on the indirect forms ofmanagement being applied in the pub sectorin England and Wales.The findings reported onare informed by a research project undertaken

Copyright © 2003 John Wiley & Sons, Ltd. Strategic Change, August 2003

for the British Institute of Innkeeping. The pub sector in England has typically managedmore marginal properties indirectly, perhapsas ‘adhocracies’ (Goffee and Scase, 1995),whereby the more marginal units in the pubestate were run by ‘tenants’. The tenant sup-plied the company with additional resourcesand bore much of the business risk (Lashleyand Rowson, 2001). The company, for its partsupplied a beer brand umbrella and some level

Strat. Change 12: 273–285 (2003)Published online in Wiley InterScience(www.interscience.wiley.com). DOI: 10.1002/jsc.641 Strategic Change

*Correspondence to: Conrad Lashley, Centre for LeisureRetailing, Nottingham Business School, The NottinghamTrent University, Burton Street, Nottingham NG1 4BU.E-mail: [email protected]

274 Conrad Lashley and Bill Rowson

of marketing support to the small businessowners who were their tenants. An earlierpaper argued that these arrangements areessentially a form of franchise, though moreloosely defined and managed than would bethe case in more traditional franchise opera-tions, such as in McDonald’s restaurants(Lashley, 2000a). The key reasons for operat-ing some of the pub estate via these indirectforms are explained by ‘agency theory’(Mathewson and Winter, 1985; Brinckley andDarke, 1987; Eisenhart, 1989) and ‘resourcescarcity theory’ (Oxenfeldt and Kelly, 1969;Norton, 1988; Minkler, 1990), motivescommon to most franchise operators.

A second paper (Lashley and Rowson, 2002)argued that as a consequence of restructuringand market changes amongst pub customers,the pub companies were to some extentmoving from a dominant resource scarcityposition to essentially an agency position.These companies are less likely to retain abrewing interest and are increasingly con-cerned to tap the entrepreneurial motives,skills and drives of the tenants as a way ofrepositioning these businesses as volume-building retailers. For example one seniorexecutive of a major chain explained:

In the 1970s and 1980s we looked forways of increasing our control of whatwent on in the pubs. Now we realise thatwe have reached the limit. Future profitgrowth will only come from tapping thetalents and abilities of those closest to thebusiness and its customers. (Lashley andLincoln, 2000: 210)

The paper chiefly explored the small firmswho operate pubs under tenant or leasearrangements and commented on the motivesand aims of these business owners and sug-gested that there is something of a mismatchbetween the expectations of the pub compa-nies and these small firm ‘entrepreneurs’ them-selves.A more informed view suggests that notall small firm operators have the same motives(Andrews et al., 2000; Beaver, 2002), and that growth orientation compatible with pub

company ambitions is a prime motive for only a small number (Thomas et al., 2000) oftenants and lessees.

This paper explores the relationshipsbetween the two parties in more depth. Thepub companies as franchisor, act as gate-keepers and select those who will operatetheir pub. They are at the same time con-cerned as rentiers to have someone pay renton their property and wanting to recruit entre-preneurs who will build sales and grow thebusiness. The small firm operators as fran-chisees also have mixed motives. To someextent they are risk-minimizing and attempt-ing to overcome resource scarcity by beingable to tap into the experience and expertiseof the larger firm, yet at the same time valueindependence and control.

The relationship between the big andsmall firm

This paper is informed by a research projectthat involved telephone interviews with ex-ecutives in 16 firms selected for representingfour different types of firms — a mixture oftenanted, leased and mixed estates at nationaland regional levels. In addition, more in-depthcase studies were conducted in four firms eachrepresenting one of the types of operatorsidentified — local brewer retailers, nationalretailers with a mostly tenant estate, nationalretailers with a mostly leased estate andnational retailers with mixed estates (Lashleyand Rowson, 2001). In each of these cases,interviews were also conducted with fourtenants of lessees in each of the companies.

The relationship between the pub operatingcompany and the nominally independenttenant or lessee is a complex one. On the onehand the smaller firm is a client of the biggerfirm, renting property, buying in supplies andengaging in a range of other activities. On theother hand, the firm is in an agency position,acting on behalf of the larger company (Morrison, 2000a). Even where the ‘brand’ islargely beer product there are issues aboutconsistency and quality to consider and theoperator companies make more money if the


business grows. As noted above, their motivesand definitions of success are sometimes atodds with each other. This paper exploresdimensions of the relationship covering re-cruitment and selection, training and devel-opment and the ongoing relationship betweenthe two parties.

Fullop (2000: 31) identifies ‘the contract,control and the balance of power’ as aspectsof the franchisor and franchisee relationshipthat can cause conflict between the parties.Specifically, she suggests that there may beproblems because the levels of support pro-vided by the franchise company do not matchthe franchisee’s expectations. Further, thefranchisee may also feel that the businessopportunities have been overstated by thefranchisor. There may be disputes overchanges imposed by the franchise company aswell as disagreements over the developmentsof the product mix, stock control and qualitymanagement. At root branded service busi-nesses are to some extent attempting to createa standards offer to customers across all itsoperating units but at the same time, deliver a flexible system that is sensitive to change and local service variations (Lashley, 2000a).Fullop confirms three dominant issues wherefranchisees had experienced difficulties.Theseshe describes as, ‘not enough training, toomany changes to the system and too manyrestrictions’ (2000: 31).

From the franchisor’s perspective, fran-chisees represent opportunities to develop thebusiness via the expertise, drives and innova-tive qualities of the entrepreneur. That said,they are concerned to maintain service stan-dards and the profile of the brand across allunits. They want innovation and enterprise —but not too much. One executive at UKMcDonald’s summed up these views:

Traditional entrepreneurs wouldn’t giveus a look because our systems do not correspond to the way they work. (Lashley,2000c: 257)

In the pub sector, the limited use of rigid oper-ating systems does restrict the constraints onthe freedom of the individual to operate the

business as the business owner sees fit, butconversely they are operating with much less support from the pub company. WhilstMcDonald’s type operating systems do restrictfreedom of action, their franchisees areworking within a system that can demonstratesuccess (Lashley, 2000c). Pub tenants andlessees usually decide on the product rangeand service offered to customers with limitedadvice and support from the operatingcompany. Freedom of action may be a benefitbut it carries with it a greater risk of failure.The pub companies (Guild, 1996) are chieflyconcerned, in the short term, with ensuringthat the pub is opening and operating in compliance with legal obligations and that atenant/lessee is installed and paying the rentand that he or she is buying product withinthe terms of their agreement. In the long runmost companies have espoused objectives tobuild up their portfolio of successful highvolume pubs. Often however the pressures of the short term overwhelm these longer-term objectives, particularly when propertiesare vacant and the company is paying extrafees for the hire of agency managers.

Tenant and lessee turnover

Apart from the need to recruit tenants andlessees as a normal byproduct of the move tomore indirect forms of pub control, there is aconsiderable amount of tenant turnover as anagreement period ends, the small firm fails, orthey decide to withdraw from the tenancy.Our survey of a sample of firms who had takenpart in the survey suggests that tenant/lesseeturnover rate averages 25%, with some firmsexperiencing turnover in more than one-thirdof their properties. Though some firms doattempt to estimate the costs of recruitingtenants, recent work on staff turnover inlicensed retailing (Lashley and Rowson,2000a) suggests these can be gross underesti-mates of the true costs.

Table 1 lists the response of some of therespondents when asked to estimate the costof tenant and lessee turnover. Without gettinginto too much detail, estimates of costs in all

Divided by a common business 275




cases tended to count only the direct costssuch as advertising, administration, businessmanagement time, open days and printing,etc. A company largely dealing with leasearrangements, Case 007 estimated they spent£196000 recruiting 250 tenants. The inter-viewee said:

This was not counting training costs at£69000 for the last 12 months and thisfigure was based on the training providedfree to new tenants and lessees, plus 10%of the Business Developments Managers’time was costed into this figure for on sitehelp and hands on training.This does notinclude staff disruption, customer disrup-tion and other ‘soft issues’ attached to therecruitment and selection process.

By adding the training figure, the averagemoves up to £1168.00 before any calculationof these ‘softer’ costs such as increased staffturnover or loss of customers.The Institute forPersonnel Development (1999) estimate thatmanager turnover cost £5000 and our earlierresearch suggests that the tangible costs caneasily be doubled by the impact of ‘softer’costs. In the managed house sector Badger andLashley (2000) estimate that it costs £4450 toreplace each manager. In these circumstanceswe are making calculations based on a con-servative estimate of £2500 to replace theaverage tenant and lessee when all the directexpenses including management time aretaken into account.

Interviews with operators suggest that thisis still only part of the story, because there are several other major costs that also need to be added to the costs of replacement. Forexample, if an operator needs to use the services of an agent to run the pub until a new tenant or lessee is found, the agency fees can be considerable. When a new tenantor lessee has been selected, the companymight forego capital payments or might pitch the rent at a low ‘bait price’ in the early years of the new tenancy or lease,thereby losing rent in the short term. In somecases the business suffers and the total saleshave fallen, so there is a loss of revenue thatthe company has to take into account. Usingthe figure provided, the true cost of replacingeach tenant or lessee could be closer to £10000. If the sector is recruiting 5000tenants/lessees per year (20% of indirectlymanaged properties) then it could be costing£50 million to replace tenants and lesseesacross the sector.

Selection and recruitment

When asked about the sources of recruits and advertising for tenants, lessees and fran-chisees, many reported that they advertised inmagazines such as Quest and Pathfinder forex-service personnel as well as trade press.Several firms mentioned property boards onthe pubs as being successful. The mostlyleased firm, Case 007 summed up the com-ments of many:

Table 1. Estimated tenant and lessee recruitment and costs (from companies)

Cases Tenanted and leased No. recruited in Turnover Estimated recruitment pubs in estate last 12 months % cost per tenant (£)

Case 007 1170 200 17.9 1625.00Case 001 2516 460 18.2 700.00Case 006 1000 250 25.0 784.00Case 016 96 20 20.8 1000Case 013 73 25 34.2 —Case 008 2810 430 15.3 776.00Case 017 35 12 34.2 —Case 004 40 12 30.0 —Case 018 89 28 31.4 —

Traditionally we used to target ex-armedforces and ex-police because these peopleoften had the money ready to buy into atenancy or franchise. But 75% of our pubsare local community pubs, and we likethem to be run by local people that’s whythe to let boards have been a success forus.Where we can we try and attract localpeople.

The key concerns of a majority of the respon-dents in the telephone survey were that thepotential recruit had the money and was likelyto get a licence, hence the attractiveness of ex-service and police personnel. Very fewmentioned their ability to be a host or to runa business. Just two respondents in the tele-phone survey mentioned business skills as akey consideration. As indicated above, therewas in some cases concern to recruit someonefrom the community in which the pub waslocated.A national retailer with a mixed estate,Case 009 summed up some of these concerns:

The locals can be funny with ‘outsiders’ insome places and in these cases we try torecruit local tenants.

An interesting observation is that none of theinterviewees mentioned retail or franchiseesas potential sources of recruits. When askedabout the sort of people who would berejected as applicants, respondents reflectedthe same set of issues. People with a criminalrecord or bankrupt would be rejected becausethey would be unable to secure a licence.People who were not serious applicants withinsufficient funds were the key causes forrejection, though the lack of money need not be a problem if they consider the appli-cant is ‘right for the pub in question’ (Lashleyand Rowson, 2000b).

Most will make the decision on the basis of one or two interviews. The interviewee inCase 012 with a mostly tenanted estate,summed up the general approach:

All applicants are interviewed in an infor-mal meeting those who get through either

go straight for selection on a vacant pubof their choice or onto a list of suitabletenants.

In a few cases, the applicants are asked toproduce a business plan. A national retailerwith a mixed estate, Case 009 reflected a moreformal approach:

We interview for specific pubs normally.But if we have other enquiries we conductmore general interviews and then ask thepotential tenants to look at some pubs ifthey see one they’re interested in we askthem to produce a business plan for it and conduct a specific interview for thatproperty.

In most of the larger companies the BusinessDevelopment Manager would be involved inthe final decision allocating the applicant tothe specific property.

The overall impression from these inter-views is that operating companies spend a lotof time and energy trying to recruit tenantsand lessees. However, barriers to entry are lowand consequently they are often recruitingpeople who are not ideal from their point ofview but the economics are such that theyneed people to fill vacancies. The respondentfrom the largely tenanted estate in Case 019said:

We keep all successful people on a list if wecan’t offer them a pub straight away. Inmost cases we tend to be struggling to getgood tenants. We look for experiencedlicensees, because just taking anybody is a‘crystal ball’ thing as to whether they willbe any good or not.

Supporting licensees

Contact between the operating company andthe tenants/lessees occurs on a number oflevels. Clearly there are administrative link-ages through ordering, billing and paymentsystems, but the main personal contact is viathe Business Development Manager (BDM). It




is this role where more detailed knowledge ofthe property and the tenant/lessee is devel-oped. In most companies it is at this level that both monitoring of tenant activity andguidance and support are delivered. Whilst the Operations Consultant in a firm likeMcDonald’s typically works with 8 or 10 fran-chisees, most of the BDMs were typicallyworking with 40 or 50 tenants or lessees.Case 002 was typical of the majority:

The average is about 50 per BusinessDevelopment Manager.

In just one case, the company had reduced thenumber of properties managed by each BDM.Case 019 said:

25 pubs each. I’ve just taken on a newBDM because we want to give more man-agement support. Some companies have50 or more pubs per BDM and that’sridiculous, to give any measure of support25 pubs is ample.

Interviews with the tenants and lessees in thefour companies revealed some mixed experi-ences with the amount of support being pro-vided by the BDMs and the companies ingeneral, once they were in the property. Onsome occasions the support from the BDMs is a difficulty. Tenant 002 in the leased com-pany Case 007 was particularly caustic:

Support what support? I had a BDM herethe day I took over and I’ve seen him onceeven though I’ve increased wet sales andtook the volume sale up. On the secondvisit he was here about half an hour! I’veasked him to call on several occasions; hemakes appointments and then cancels atthe last minute. So the support package isrubbish. I’ve tried to get some more pro-motion kits we seem to be the bottom ofthe pile in the pubs around here.A licenseeup the road will tell you the same tale thesupport is crap.

In fact Case 007 seemed to have problemswith their local support because the other

interviewees were critical of the amount ofchange and turnover of BDMs.Another of theirtenants complained:

In the past two years I’ve seen 5 differentBDMs so its become impossible to build aworking relationship with them.

Where criticism was registered, access to theBDM was the key problem, though the role of the company in providing expertise andsupport is a very important dimension to therelationship from the tenant/lessee’s perspec-tive. In the main however, most of the tenantsand lessees interviewed were generally happywith their BDM. The national retailer with amixed estate Case 001, tenant 001 reflectedthe general rapport with the BDM:

Yes I am, the regional manager is verygood he is always available by telephoneif you need him.

Visits by the BDMs varied in frequency. Thetenants with the local brewer retailer all suggested that they get a visit every couple ofweeks, whereas in most other cases the visitsare every one or two months. The BDM typi-cally sets up the visit though all tenants statedthat they would be able to contact the localBDM if they had a problem. The BDM-initiatedvisits also varied between companies. Thefamily brewer’s BDMs tended to visit for halfan hour or so once every fortnight. The othercompanies seemed to hold less frequent meet-ings, every two to three months in the case ofthe national retailer with a mixed estate.Typically they lasted for 1 to 2 hours andtended to be mostly concerned to check thesolidity of the tie. Several tenants and lesseestalked about the use of unscheduled visits andan inspection of the cellar as an element of theBDM’s call. Tenant 002 in a local brewerretailer talked about the quality check elements of the visits:

They do but they are ‘informal’ the BDM‘walks the job’ as he describes it. Some-times when he calls he wants a look in the


cellar that’s to see if you’re buying off tie.But he is concerned with the presentationand general appearance of the property.

Sometimes the BDM would call in during theevening to witness service and cleanliness.Few of these tenants were aware of qualitystandards and were not given feedback fromany auditing.

When asked what might be done to improvethe meetings, several commented on the needto make the meetings more formally focusedon business and support. Tenant 003 in thelargely tenanted Case 006 expressed somefrustrations that were typical of several interviewees:

I think they could be a little wider thanthey are.Now when he comes he is focusedon barrelage and sales, whether the prop-erty is clean and tidy and so forth but he doesn’t ask about you. It’s as if thecompany is only interested in the propertyand the beer sales they are not concernedabout how you’re coping as long as allbeer bills are paid and the rent is in ontime. They do not seem to be concernedabout you or your wife as people they are just concerned about the businessfunctions.

Others felt that the meetings could beimproved if the BDM was in a position to makedecisions without reference back. Tenant 001in Case 007 expressed a common frustration:

They should be able to make an immedi-ate decision within reason of course wearen’t talking big money here just extrapromotion goods, free beer for a charityday or something like that.

Whilst the general relationship between thetenants and lessees seemed to work on ahuman level in most cases, there were fre-quently adverse comments about the com-panies. Case 006, Tenant 002 reported:

I’m happy with the support I get from the BDM I’m not that happy with the

company support.This company ‘sets a lowstandard’ which it then fails to achieve. Itsays in my tenancy agreement that therent is based on the ‘open market price’and in that case why don’t the companyreduce the tie, they won’t because they arejust being greedy.

Generally the support from the local brewerretailer was well received, though the nationaltenanted company was obviously goingthrough some transition, Tenant 001 said:

I believe it could be a lot better, it could bestronger. I think because of the directionthe company is moving that support willbe better in the future.The recent changesin the company are driving it towardsbeing a full-scale retailer and I think thatpromotions will improve.

Where complaints were aired they tended tobe related to the rigidity of the tie and theprices of beer, and the level of rent.Tenant 002in Case 007 was clearly concerned about thesecharges:

I can buy beer a lot cheaper outside thetie if I could without breaking the agree-ment. To give you an example a 36 ofCarling costs me £320 for the companyplus 2% I could get the same barrel outsidethe tie for £141.

Several tenants mentioned having to competewith other pubs offering beer at lower prices:

The managed pubs nearby sell beer at£1.25 a pint when I’m having to charge£1.60 per pint. Because of the tied prices.(Tenant 002 in the mixed estate nationalretailer)

In general however, the tenants and lesseesinterviewed saw support largely in economicterms. Reductions in the rigidity of tie, bar-relage discounts and rent levels were issuesthat were mostly mentioned though some didtalk about valuing more contact with the BDM.




The provision of training materials and pro-grammes was generally available in most orga-nizations. Most had an induction programmefor new tenants, typically these last three tofive days and included issues relating to cellarmanagement, health and safety, managingfinance and marketing. In addition some of thecompanies provided manuals or booklets thatwere given to the tenants and lessees. Thetake-up and use of these is optional and theirreception was somewhat mixed.Tenant 003 inCase 007 gave an interesting insight into thepsyche of many tenants and lessees. Whenasked about the provision of manuals he said:

Yes they do, but I haven’t had time to readthrough it all yet I’ve been too bust gettingthis business back on it’s feet.

The general tendency to take courses in an adhoc way is typical of many small firm owners.Table 2 highlights the training packages avail-able in the four Case Study organizations.

Whilst these organizations made coursesavailable to tenants and lessees, the take-upwas somewhat patchy. In some cases, theinduction programme was a common elementundertaken by all. In other cases, the compa-nies identified individual development needsand tailored the plan to the needs identified.In other cases, the courses were available butthere was no obligation to undertake the pro-gramme. Tenant 001 in Case 006 expressed a

concern about the approach to training anddevelopment:

Training incentives are needed, tenantsshould be given more incentives to attendongoing training. It needs to be built intothe lease agreement I feel. Because theother tenants who want training sufferbecause of the lack of numbers on thecourses. Twice now I’ve had a course can-celled that I wanted to go on because therewas not enough interest.

Some companies were responding to this bybuilding some incentives into the relationship.Case 002 required that any lessee in receipt ofcapital expenditure on their unit had to attenda training programme. One company levied a£500 charge on all tenants but repaid themoney at the end of the year if the tenant had attended a set number of programmes.Another company gave a reduction in the bar-relage target for each programme undertakenby a tenant.

In conclusion, the relationship between thelarge and small firms in this sector is ambigu-ous. The large company uses the small firm asan income stream through rental charges andadd-ons to the purchase prices of beer andother ‘wet’ products supplied, and throughlevies on other income streams in some cases.In some ways this creates a conflictual rela-tionship — the income for one is a cost to the


Table 2. Support packages offered by the Case Study organizations

Element Case 016 Case 006 Case 007 Case 001

Induction training * * * *Health and hygiene training * * * *Financial courses * * * *Catering courses * * * *Cellar courses * * * *Promotion kits and activity kits * * * *Beer promotions * * * *Marketing information * * * *BII courses * * * *Free press services * * * *Help with business development plans * * * *Barrelage discount * * * *

other. Tenant 002 in Case 001 expressed someof the conflicts:

They could do more towards encouragingthe tenants instead of penalising themwith the rents and such.An example is theyraised my buildings and contents insur-ance to £2000 per year just recently, it’slike the more you make the more theywant. It’s almost as if they try to controlyour income.

As a consequence, the relationship involvessome policing and control of tenants andlessees, as well as a seemingly ongoing roundof cost hikes by the operational companies. Atthe same time, the companies have a vestedinterest in ensuring that the businesses growsales, yet they have limited control of theconduct of the small firm.

The small firm for its part wants the supportof the larger firm, yet feels constrained by thelimits imposed by them. The rent levels, beerprices and other charges made by the compa-nies can seem to be unrealistic burdens tosome tenants and lessees. Whilst the compa-nies do appear to support these nominallyindependent firms through BDMs, the span of control in most of the organizations in thesurvey suggests that assistance frequently fallsshort of the supports needed if these busi-nesses were truly to maximize their potential.As might be accepted these small firms, likeothers in other sectors, tend to have a lowpropensity to undertake training and develop-ment. Other research (Beaver and Lashley,1998) suggests that only ‘growth related’ orsmall firms in crisis will actively pursue train-ing opportunities. Consequently, withoutsome form of incentive, training and develop-ment programmes offered by the larger com-panies are not as well supported as they mightbe.

Discussion

Relationships between the operating compa-nies and tenants in the past were largely basedon brewery-owned properties where the

operation of the more marginal propertiesallowed access for beer product at minimalrisk to the brewer. Support structures fortenants were basic and costs were kept low.Where tenants were able to grow the business,the brewers frequently repositioned the prop-erty within its directly managed estate. Riskreduction, cost minimization and profit maximization were the driving considerationsfor the companies that owned the pubs(Lashley and Lincoln, 2000).

Recent changes in ownership and con-sumption patterns within the market havebrought practitioners to follow strategies thatare more concerned with a retailing orienta-tion. Many of the companies operating pubsare aiming to grow sales and respond quicklyto changes in consumer tastes and fashions.They no longer own brewing facilities and fre-quently control whole estates of pubs that are marginal and where the actions, skills andmotivations of local unit managers are crucialfor the success or failure of the property.The exploration of different forms of indirectcontrol via lease and franchise arrangements isrecognition of the need to provide more entre-preneurial incentives for licensees in theirproperties. Though we are of the opinion thatthe operators have not gone far enough andneed to explore franchising more thoroughly.

We noted that the pub companies were notalways sensitive to the real difficulties faced bytenants and lessees who were new to the busi-ness. A probation period or minimum workexperience required prior to taking on a pubmight help overcome these problems. Thehigher barriers to entry limit potentialnumbers but may have a positive effect onsuccess rates. Certainly there needs to be amore robust recognition that current ap-proaches to recruitment and selection have acost that needs to be recognized and takeninto account.

Most companies continue to treat mosttenants and lessees as though they were ahomogeneous group and continue to refer tothem as tenants. It is our view that there are anumber of different motives that lead a personto take on a pub as a tenancy or lease. At its




most basic there are difference between ‘life-style’ and ‘growth’ orientations. We believe that segmentation, particularly using the con-cepts of ‘occasionality’ would provide a usefulframework for the pub companies to presentmessages and properties more in line with different tenant and lessee priorities and orientations.

These companies spend large amounts oftime and effort seeking out and selecting newtenants. Our conservative estimate is that theindustry needs to recruit approximately 5000tenants, just to cope with turnover. We believeour estimate of a cost of £10000 to replaceeach is reasonable, bearing in mind the fullrange of direct and indirect costs. If this isindeed correct, the industry is spending anadded £50 million on maintenance rather than growth activities.

In most companies the span of control at theBDM and pub level is far too large. When amanager has 50 or more properties to manage,it is unlikely that there will be many opportu-nities to act as a consultant or provide theexpertise that would professionalize the operation.

Given a more ‘retail’ and growth-orientatedagenda, the essentially laisséz faire approachto managing these pubs will, in our view, needto give way to a more focused branded, or atleast ‘blueprinted’ strategy where customersegments, customer occasions and criticalsuccess factors are closely defined and deliv-ered.There may be a place for pub tenants andlessees deploying their initiative in the future,but a serious retail strategy cannot leave thisto the happenstance of individual motives and skills.

The selection and recruitment of tenantsand lessees has to be a more structured andfocused affair. The selection strategy needs tobe anchored on a realistic appraisal of thepotential of the property. For some tenants a no-growth potential property might be suitable. Certainly there is a need to buildsome barriers to entry for people new to thetrade, or at least have some mutual probationperiod that allows a low cost escape for bothparties.

Finally, we believe that the training anddevelopment of tenants, lessees and fran-chisees should not be left to an ‘opt-in’ by the individuals concerned. In these circum-stances, most will not participate. There are anumber of approaches that encourage higherparticipation rates and the sector shouldexplore various of these.

Conclusion

This paper is one of three that has explored theuse of indirect business controls exercisedwithin the licensed retail sector. Though manypractitioners openly declare that they are not involved in a franchise relationship, manygeneral features of franchising apply to the rela-tionship between nominally independent busi-nesses. For their part, the larger companies areaiming to operate on a larger scale than theirlevel of resources would permit if the busi-nesses were directly managed. By controllingthe units in an indirect manner, they are able totake advantage of the resources of the smallerfirm and can thereby benefit from lower opera-tional costs. At the same time they hopefullygain from the immediate skills and incentive ofthe local entrepreneur. The smaller firm isaiming to gain from the expertise and increasedmarket power of the larger organization.

Earlier papers in this and other journals haveshown that whilst these observations reflectthe general aspirations of the two parties, inpractice they are flawed by misunderstandingsthat are present in the realities of the rela-tionship. For the larger firm, the need todevelop the retail aspect of the businessthrough sales growth is somewhat temperedby the need to have properties let to tenants.Hence they operate low barriers to entry andalthough many declare an intent to match thetenant to the property, filters and selectionprocesses are minimal. In some cases, thecompanies were accused of overselling thepotential of a property to some of the morenaïve tenants. In other cases, the companieshave an unrealistic expectation of small firmswith whom they work. There is a general tendency to overestimate the entrepreneurial


drives of tenants and to underestimate thenumber of life-style entrepreneurs amongsttenants and lessees.

Small firms in charge of tenancies and leasesreflect motives for being in business that aresimilar to small firms in general. When askedabout their motives, many identified ‘life-style’and the need for ‘personal control’ in additionto the business opportunity, as being keyfactors in their decision. In these circum-stances, making a lot of money in the classicentrepreneurial manner is not a primary drive.In these circumstances, some firms are ‘satis-ficing’ in that they are operating at sub-optimallevels. Providing they are broadly on targetand are able to meet their financial commit-ments, they are satisfied. Typically, these firmsare less likely to press for training and personaldevelopment. Like their counterparts in otherfields, growth firms and firms in difficulty aremost likely to be motivated for the develop-ment of personal skills and competences(Beaver, 2002).

The relationship between the big compa-nies and their small firm partners is complex.The operating company recruits tenants andlessees, they charge them rents, tie them in toa source of supply and undertake some basicmonitoring of the business — particularly inpolicing the tie. The small firm looks to thelarger firm as both a source of expertise andsupport and as a restraint on their business.Several tenants and lessees complained aboutthe levels of rents, the prices charged for sup-plies and the rigidity of the tie. The larger firm aspires to grow the retail dimension of the business and could provide more directsupport to tenants in the form of training pro-grammes and BDMs who work closely with asmall number of tenants and lessees. However,strategies based on cost minimization meanthat training programmes are mostly optionaland the span of control of most BDMs is toolarge to do anything other than ‘fire-fight’ theproblem properties.

In these circumstances it is fair to say thattenants and lessees and the pub operatingcompanies are locked into a common businessbut one that is found on some fundamental

tensions. It is our view that these tensions cannever be eliminated. They are rooted in thenature of the franchise relationship. They canbe managed at best. To paraphrase OscarWilde’s comments about the English and theUSA, they could be said to be ‘two firmsdivided by a common business’.

Biographical notes

Conrad Lashley is Professor of Leisure Retailing in the Centre for Leisure Retailing inNottingham Business School at the Notting-ham Trent University. Conrad has undertakenresearch and consultancy for several majororganizations within the sector including the Hospitality Training Foundation, J.D.Wetherspoons, Scottish and Newcastle Retail,the Yates Group, The British Institute of Inn-keeping and McDonald’s Restaurants Limited.He edits the Hospitality, Leisure and Tourismseries of books for Butterworth-Heinemann.Conrad has authored or co-authored 15 booksand published reports including Empower-ment: HR Strategies for Service Excellence,Hospitality Retail Management:A Manager’sGuide, as well as over 40 articles in refereedjournals.

Bill Rowson is Research Assistant in theSchool of Tourism and Hospitality Manage-ment at Leeds Metropolitan University. He isthe co-author with Conrad Lashley of severalpublished reports based on commissionedresearch. These include: Wasted Millions: thecosts of staff turnover in licensed retailing(BII, 2000); Is There Breath on the Mirror?Tenant relationships in pub companies (BII,2001); The Benefits of Training for BusinessPerformance: a research report for the Punchpub company (Punch, 2001). Bill’s otherresearch interests include the impact ofminimum wage legislation of small hospi-tality firms.

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Documents

Divided by a common business? Franchisor and franchisee relationships in the pub sector