MA300: MRO 'could create pubco giants'

By Ellie Bothwell

- Last updated on GMT

Simon French: 'We’ll see one or two very, very big pub-owning property companies, maybe 10,000-plus pubs each'
Simon French: 'We’ll see one or two very, very big pub-owning property companies, maybe 10,000-plus pubs each'

Related tags Conservatism

Leading leisure analyst Simon French of Cenkos has predicted that the pubs code will result in the formation of one or two large property companies with 10,000-plus pubs each.

Speaking at the MA300 Business Club in Manchester, French said: “One of the consequences of the market rent-only (MRO) option is we might start to see some real scale coming back into the sector. I think one of the things we’ll see is one or two very, very big pub-owning property companies, maybe 10,000-plus pubs each. It will be a pure property business, and it will be about putting more assets into that business to sweat the business model a bit harder.”

Threats

He thinks MRO will also lead to “a number of smaller tenanted and leased companies with fewer than 100 pubs”.

He said the biggest threats facing the pub sector at the moment are “the 3 Ss — supermarkets, sofas and social media”.

However, he said the UK consumer “is in very good shape” and the two main trends going forward are trading up and micropubs.

“After four and a half years of relentless pressure on household cash flow now, with an extra bit of money in people’s pockets, they’re looking to move up the average spend per head chain,” he said.

“I think one of the issues for the sector is a lot of capital has gone into food-led and value pubs and that capital now appears to be in the wrong place as customers trade up.”

Pubco deals

Regarding the Greene King/Spirit deal he said he expects to see “a competitive response from others in the market”.

“I wouldn’t be surprised if you saw other companies looking to merge in the next 12 to 18 months. I think Marston’s, for example, finds itself in an interesting position. Stonegate will come back to the market and may want to do more deals.”

He said the high rents and premiums on sites in London is “limiting innovation” for the pubs sector in the capital, and we will continue to see more companies growing their sites in the regions. However, he warned that it is even more difficult to get the correct site in regional areas.

“You’ve got to be in the right part of the street, and the right end of the street, in the right part of town,” he said.

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