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The consensus among analysts is that the small earthquake in licensing law has not caused any seismic waves in the City. Martyn Cornell reports For...

The consensus among analysts is that the small earthquake in licensing law has not caused any seismic waves in the City. Martyn Cornell reports

For drinkers in Moorgate bars in the City, or among the towers of Canary Wharf, life post-licensing reform is not different, most nights, to how it was before. They might get hassled by bar staff to drink up at 11.20pm instead of 10.50pm, but that is about the only change they've noticed.

And for the analysts among them, the story is the same when they are back at their desks: small earthquake in licensing law, impact on the investment landscape pretty minimal. The consensus in the City is universal: if you want to talk about what is making the pub trade more or less attractive to investors, there are much more interesting, relevant matters than licensing reform.

At the City broker Panmure Gordon, leisure analyst Douglas Jack says: "To be honest,

licensing reform hasn't had much of an impact. In terms of profitability it's been almost immaterial to most companies, so that hasn't changed the picture at all for investors.

"Wetherspoon's has done quite well going into breakfasts, but outside that there hasn't been massive changes because what has been gained in extra volume - which has been

minimal - has been offset by extra costs. It's been a bit of a damp squib."

Greater barrier to entry

The more important elements of licensing reform have not been about changes in

profitability, but about the greater barrier to entry into the sector that has been created by making it more difficult to acquire brand new licences. This has made the sector more attractive to investors by reducing competition, Jack says, and by making acquisition the only real route to expansion.

"We're going to see more consolidation - there's pressure on people to offset

higher costs, and if you're going to do that

you have to expand. If you can't expand by

organic means, you've got to do it through


Who's going to be next to be acquirer and acquired, and when: "I can't say, but the same people who have already been active in the consolidation process, the regional brewers I think, will be the most active going forward," says Jack.

And according to Jack, even in the nightclub sector, which some had suggested would be hit by extended pub hours as people stayed in their local for a late-night drink rather than go out to what used to be one of the few places with extended hours, "licence reform hasn't turned out to be as big a deal as people feared.

"Current trading appears to be much

better, and door income as a proportion of

turnover has gone up not down, as people were projecting."

The main problem licence reform has brought for pubs, Jack believes, is that the furore

surrounding the introduction of longer hours brought a concentration by the press and the authorities on the twin problems of binge and underage drinking. The result is that pubs are under pressures and they do not appear to be coping well, he says.

While nightclubs, or at least the quoted

operators, received a clean bill, with zero

examples of serving underage drinkers, he says, "It is not good that 29% of pubs failed their underage test purchasing cases - to say it's embarrassing is an understatement".

Target for increased regulation

The concern, Jack says, is that the clampdown on underage drinking will make pubs a target for increased regulation next year, which will have an impact on investors' attitudes: "The pub sector has to get its act together rapidly on this underage drinking situation," says Jack.

At Altium Securities, analyst Wayne Brown agrees that consolidation to take out

competition and reduce costs is going to be an increasing theme post-reform. "You have a market that is mature, a congested high street, and there are more cost pressures coming down the line, especially utility and energy

pressures," he says.

However, like other analysts, Brown

believes the two most important trends in the pub market are nothing to do with licensing reform but the growth in food in pubs and the future smoking ban in England and Wales: "The beer market, especially the ale market, is in terminal decline and with the smoking ban coming in next year, that's where the industry is really focusing.

"You've got a lot more gastropubs these days, and companies such as JD Wetherspoon and Mitchells & Butlers, probably the two prime examples of how they've driven food sales in their estates successfully, are capitalising on this trend."

Peter Brook, the formed chief executive of the pub company InnSpired, who is now working as a consultant to the City firm

Dawnay Day Principal Investments over

potential investments in the pub sector, does not disagree that "licensing reform has made little difference.

"In certain sectors of the market, the extra hours opportunity has had an impact - the high street, city centres and so on - but overall I would say the impact has been minimal."

Extra regulatory issues

However, as a representative of a potential

creator of a new pub firm, he does disagree that reform has raised the barriers to entry.

"Day by day there are extra regulatory issues that we have to contend with and I simply view the licensing revision as one of those issues," he says. "It makes it that tiny bit harder for a new Wetherspoons to come along and take premises that were formerly banks or carpet showrooms and turn them into pubs, but I don't think licensing reform has completely eliminated that.

"At the end of the day the opportunity for creating a chain from brand new premises are limited anyway, unless you come up with a tremendous new concept."

Even the most enthusiastic supporters of the impact of reform are unable to say, like

Nigel Parson, leisure analyst at Evolution Securities, that longer licensing hours have been "a little bit better for investors because the pubcos can make more money - which is what the City is interested in.

"Having more flexible hours allows you to pitch your offer to people and keep it relevant. People want to drink a little later on a Friday and Saturday night and pubs can now meet this need. People don't have to go off to other places."

However, Parson says: "There are more interesting topics such as the growth of food and the smoking ban. The ban accelerates trends, that's the important thing about it.

"One of those trends is eating out in pubs, which we see as a long-term growth driver - look at the US stats for eating out, compared to the UK. The food market is growing and the

successful pub evolves to suit the demands and needs of its customers."

Related topics Professional Services & Utilities

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