Future is small for pub business

Increasing numbers of small multiple operators are set to change the face of the pub business, according to an industry expert.

Yaser Martini, director of agent Fleurets (pictured)​, believes the future of the pub trade will see increasing numbers of small pub companies lease groups of pubs from larger companies such as Enterprise Inns, Punch Pub Company and Unique Pub Company, then run them as managed houses.

The lack of quality freehold properties on the market and the high premiums demanded for those that are up for sale are forcing many operators to look at alternative types of property.

This could mean the current tradition of one man running his pub as a tenant could become a shrinking market as the small multiples take over.

Mr Martini believes that red tape and the higher minimum wage has meant it is becoming harder for managed house operations to remain profitable. But the increasing number of new companies set up by redundant executives of managed-house chains have seen a new type of pub operator develop who can make profits.

This kind of operator wants to run a chain of pubs but will take on a lease from a major pub company rather than buy a freehold property.

"Leasehold managed houses run by smaller companies with lean head office costs can be profitable.

"The new leases make sense. The average start-up required is £33,000 - the average profit is £40,000 per annum," he said.

He also predicted that the market is getting stronger for those who already own freehold properties and want to expand.

"At a time when the City is all doom and gloom and there is uncertainty in the financial markets, things couldn't look better for the ambitious freehouse owner," he said. "He can sell his freehold property today while the market is still strong and take on several new leases, at nil premium, making a great return."

Leases offer an easy entry to the trade for small managed operators and are a cheaper option for those wanting to enter the expensive high street.

The failure of high street chains such as Old Monk Company and the current financial problems faced by the SFI Group, which runs the Litten Tree and Slug & Lettuce chains, have shown that big investment on the high street can be a risky proposition.

Mr Martini believes that a major influence on the market is the increasing willingness for the major banks to fund leasehold deals.

He said: "Funding for leases is better understood. The bigger banks recognise that pubs aren't simply the local round the corner that is run by "one-off" licensees.

"Increasingly they are professionally run by small to medium groups that are often headed by established individuals who themselves have come from larger managed house companies."

Other predictions​

• increasing number of managed company deals over the next decade such as Massive's purchase of Tup Inns and Thomas & Carter
• with average rents at just under £40,000-a-year leaseholds are far less risky and if failures do occur these pubs will be easier to sell on
• more food-led operations likely to be more "gastro" in nature than the traditional family food pubs
• increasing number of "new breed" operators often from unrelated businesses
• future managed operators will be better business people with more consumer awareness as they have come to the pub industry from other sectors.