Smoking ban is food for thought

Whether they like it or not, more licensees than ever will travel down the "serious" pub-food road over the next 12 months as the projected impact of a total ban on smoking gathers force.

Hosts who, until recently, offered a sole concession to food with the ubiquitous pub sandwich or plate of scampi, may now have to break out the cookery books and virtually re-invent themselves as licensed trade operators.

The smoking ban means the term "licensed victualler" looks set to shake off its traditional beer and skittles image and portray publicans in a whole new light, as providers of across-the-board hospitality.

Never have more licensees found themselves at the trade crossroads where they must decide in which direction their business needs to travel if they are to mitigate the worst effects of the smoking ban on beer and wet sales.

Hosts keen to avoid a beer-sales meltdown should be assessing the floor space in their pubs to see if there is scope for a dining room or more formal restaurant concentrating on a level of food service never envisaged in the past.

The real crunch time - summer 2007 if the start date of the ban in England holds good - will represent one of the biggest changes the industry has ever witnessed.

The big "stub out" means the pub food sector, already growing at a relentless pace, is set to witness a veritable boom as pubs up and down the land get their culinary act together to compensate for the drop in wet sales.

With the eating-out market set to grow by more than 20% over the next five years, there will be plenty of potential business on which licensees can capitalise. And the impact of the smoking ban will open up opportunities far beyond this scale of expansion.

The value of a freehold pub business, or assignment value of a lease, will increasingly reflect the pub's track record on higher-margin food sales.

Historically it has been beer barrelage that reflected the value of a pub operation, but today it is more likely to be food and dry trade that flags up the main figure on which a buyer will be most interested.

Food offer a key selling point

A well-run pub-food operation with a separate restaurant area or conservatory will be one of the key selling points which determines the value of a business changing hands.

Neil Morgan, director of licensed property agents Christie+Co, says better margins on a good food-trade business will make a lease or freehold sale more attractive. He said: "You are generally talking about an average GP of about 47% on beer as opposed to a GP in the region of 50%-60% or even higher on food. Better margins on a sector of the business that is a core element of trade makes a balance sheet that much more attractive."

Morgan said village and surburban pubs had a great deal in their favour when it came to offering customers a quality but informal dining experience. "People increasingly want to dine out in an informal setting, but demand the quality traditionally brought by a restaurant. Unlike city and town-centre outlets, these pubs generally have a car park and, in terms of staff and overheads, are likely to be able to ride a recession more easily than a restaurant business."

Morgan added: "A successful food business always depends on the chef, but they tend to demand high wages and, together with other staff, costs can eat into profits. A husband-and-wife team, one of whom is the chef, is often the ideal ticket to operate a successful small pub food business."

Morgan cited a well-located pub with a restaurant extension or conservatory as an attractive proposition for anyone looking to take on a food venture. He said: "The caveat is to get the whole package right, but licensees without a food service really need to think hard about the impact the smoking ban might have."

Restaurants add value to pubs

Gavin Wright, from the company's Birmingham office, said stand-alone restaurant areas made pubs more saleable and often helped realise extra value. "Pubs that are predominantly food-led obviously need a good chef to maintain the business and a room devoted to a restaurant would need to turn over at least 25 covers per day to make it profitable and justify the space used," said Wright.

"Rural village pubs that have been traditionally wet-led have seen a decrease in trade due to the drink-driving laws. However, more of them are becoming increasingly food-driven, making them destination venues. But it's also important to keep the pub atmosphere and not forget the local drinkers."

Yaser Martini, director of licensed property specialists Fleurets, said established food pubs - or those with the potential to develop a food business - will be in a position to consolidate their business after the ban comes into effect.

"These days the line between the food available in a typical restaurant and that available in a good food pub would appear to be getting thinner," Martini said.

"Who would have predicted a few years ago that some pubs would now have areas with white table cloths, expansive menus and waiting staff? These would appear to be robust ventures capable of blurring the lines between a pub and a restaurant to such a degree that they are often difficult to tell apart, particularly in cities."

Martini added that food pub ventures had both validity and sustainability. He said: "We know from intelligence received from our restaurant department that two out of three traditional restaurants will go under within the first year of trading. But pubs with restaurants, or restaurant-led pubs, would appear to have avoided this problem.

"In my opinion the model of a pub restaurant is a robust one capable of servicing the local drinking market while offering local businesses and residents a place to dine. Spreading the business in this fashion would appear to be offering greater stability to the venture."

How to add a restaurant

l Think about making use of redundant space such as adjacent bottle stores and outbuildings to develop a restaurant or dining room. Consider a build-on, such as a conservatory.

l Do not over-capitalise. Budget your start-up costs, initial expenditure and running overheads carefully to ensure your bottom line means you can realise a return on your investment, even at an early stage.

l Consider spreadng the same menu from the restaurant into the lounge bar to give the air of informality and flexibility that customers demand today.

l Decide whether your restaurant/dining room is going to be silver-service-style with linen tablecloths and napkins or more informal with place mats on bare tables and paper napkins.

l Invest in good quality crockery and tableware.

l Retain a prominent drinking bar for your regulars to ensure that the venue keeps the essential local-pub atmosphere that sets it apart from a formal restaurant business.