Challenges for 2007

In the last of our three-part series on trade issues, Mark Charman shares his experience as a Midlands-based multiple lessee who has run more than 150 leases and tenancies in 12 years

It is a real irony that I am writing an article on the challenges facing our industry in the very month that sees me exiting the business. The challenges and difficulties facing the trade are so numerous that it feels as if we are constantly under attack.

Here are my top 10:

1 Skills shortages

It is becoming increasingly difficult to find qualified, competent staff. The industry as a whole must do more to attract and keep staff. On the Continent and especially across the Pond, a job in the hospitality trade is seen more as a career and less as something to do!

2 Confidence tricks

The licensed trade is the old lady of the business community. Every week we read about a scam or confidence trick which has ripped off a licensee. Newcomers to the trade are most vulnerable, as they often lack business experience and are desperate for cash. My advice is that if it seems too good to be true, it probably is. Never ever pay for anything up front and only pay on results. This is particularly true of agents selling leases. Watch out for the get-out clauses - good agents may look expensive but they will only ask for their fees once the sale goes through.

3 Continued energy cost rises

The best contract prices I can find for gas at present are three times that of 2003 and electricity has almost doubled. To make matters worse, energy brokers recommended by certain pubcos are taking up to half a pence per unit in commission from every unit used. If you use a broker, be sure you know how much they are making out of the deal.

4 Loss of credibility

The pubcos tell us that their rate of churn is less than 30%, but we all know that they have a problem with adding up. I believe the figure is closer to 60%. Most pub-goers have numerous stories of tenants coming and going in their local pubs. It has become the exception, rather than the rule, to find a licensee who is the pillar of the local community. Many trade suppliers, especially energy companies, are either refusing to deal with pubs or insisting on cash terms only. Not unreasonably, many suppliers regard the pub industry as too high a risk to give credit.

5 Off-trade supermarket prices

The supermarkets aren't stupid; they're taking a long-term view. By educating the general public to buy their booze with extraordinary price incentives, they are well poised to take an ever-increasing slice of the market. Our industry threatens to sink under the pressure.

6 Underage drinking

Nothing new here! Half the population will have had a drink in a pub before their 18th birthday. What is new is the heavy hand coming down on the pub industry as a whole. Irresponsible licensees deserve to lose their licences; however, we should not all be tarred with the same brush.

7 Sky's strategies

For some pubs, it's a case of "can't live with them, but can't live without them". My view is that Sky wants to price out our industry, forcing consumers to have their own subscription at home. Of course this fits in nicely with cheap supermarket booze and the upcoming smoke ban, though I'm not suggesting a conspiracy. Until Sky's monopoly on Premier League football is ended, either through regulation or competition, the chances are that we will continue to be at their mercy.

8 Red tape and local authorities

Feel pestered? You should! There are clever postgraduates from the FSA, PRS, PPL, HMRC, HSE, EHO, local licensing department, police and planning department, all with their own ideas on how a pub should be run. Of course, they are all after your money as well. If we're not careful, the only people qualified to run a pub will be employees of the local authority.

9 Smoking ban

All bets are off on this one. For some pubs the ban surely spells the end; for others it offers a unique opportunity. One thing is for sure - pubs which are struggling now will be most affected. Extreme caution should be exercised by licensees before spending money on outdoor areas and shelters until the ban is in place and individual local authority interpretation of the law is understood. If inconsistencies in local authority implementation are anything like the introduction of the new licensing laws, chaos will rule come the summer.

10 Tenant/pubco relationships

For tied trade, the quality of this relationship is fundamental to the success of the business. After 12 years in the industry as a multiple tenant and having run more than 150 leases and tenancies, my experience leads me to believe that the relationship between tenant and pubco is totally incompatible and beyond the point of redemption. This ever-deteriorating relationship is long overdue for a divorce.

I am often asked why it is that pubcos abuse their dominant position with their tenants. The answer is simple: because they can.

Pubcos rattle on about easy and cheap entrance into the trade but they never talk of the expensive exit. Many tenancies only last a matter of a few months. Most of those tenants throw in the towel due to financial pressure, but not until they have put everything they have into the proverbial sinking ship. That's when it gets really expensive - early surrender fees and moving and rehousing costs add up.

Then there's the big one - dilapidation, that final extraction of a tenant's cash. It wouldn't be so bad if that money was actually spent on the pub in accordance with the schedule of dilapidation. Not once have I ever known this to happen - it simply goes on the pubco's bottom line. The lack of transparency in rent calculation and wholesale profit is something that I have spent many hours debating with pub company executives.

Quite rightly, one pointed out to me that Woolworths don't expect to tell you how much they paid originally for a CD when you buy one from them. But I didn't receive a response when I pointed out that Woolworths don't force you to buy your CDs from them!

I believe that all pubcos now find themselves in an impossible position. They have all promised to pay so much to their share holders that they all have to keep returning bigger and better profits in retail market which is diminishing.

Why is it that they cannot seem to see the writing on the wall? The time will come when they can sweat no more out of the tenanted pub model. The seemingly endless queue of naïve dreamers who want to run their own pub will soon come to an end, if for no other reason than the appalling reputation pubcos are creating for themselves by the way they treat their lessees.

We must surely be fast approaching the point when we can start predicting the end of these property giants.

For an industry that is supposed to be all about people, we have a poor record when it comes to communication skills. Many challenges would be easier to deal with if we were able to speak with one united voice. The lack of an effective trade organisation leaves all of us vulnerable.

Perhaps our greatest challenge is to put sorely-needed checks and balances in place.