Mark Derry, a hospitality veteran who has created four large-scale successes, has a firm idea of what makes a pub work. He is the chairman of London-based Heartwood Collection, which has 38 pubs and 13 Brasserie Blanc restaurants.
Derry's background and formula
Derry, 66, was part of the original team that launched TGI Fridays, co-founded Loch Fyne, and joined forces with chef Raymond Blanc for Brasserie Blanc. Heartwood targets freeholds because "the leaseholds markets is depressed and, in this trade, freeholds offer certainty."
He explains that pubs have lower labour costs than restaurants, so they took the Brasserie Blanc menu into pubs to benefit from additional drink sales. More recently, they added bedrooms, which need even fewer people to service than a bar.
Challenges facing the sector
Derry says some business rates have quadrupled in the last three or four years. He comments on Andy Burnham's recent cut in business rates for pubs, which should save a typical pub £1,000 a year: "No pub shut for the sake of £1,000." He adds, "I don't want to discourage the Government from giving anything, it's a step in the right direction."
He argues that the tax system does not work for labour-intensive businesses, pointing to higher employment costs and a "never-ending spiral" of rising prices and inflation. He notes that someone on the living wage in London hospitality may earn an extra £20,000 a year in tips, which is not counted towards the living wage calculation.
Keys to success
Refurbishing a pub usually costs £1 million, and buying somewhere with bedrooms can cost up to £9 million before opening. Derry stresses the importance of continued investment: "The biggest cause of failure of any pub is continued under-investment."
He emphasizes that "revenue is king" and that hospitality businesses "never stand still." Heartwood receives about 70,000 online customer responses a month and acts on feedback. The company claims to have one of the lowest staff turnovers in the industry.
Derry suggests that reducing VAT on food and drink to 15 per cent "at a stroke" would solve energy and business rates issues, allowing everyone to breathe. He concludes: "They have to understand, they can't tax their way to prosperity."
