Balancing act

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Relentlessly rising costs can lead hard-working hosts to despair of earning a decent living. Mr Y asks our experts for advice on making his business...

Relentlessly rising costs can lead hard-working hosts to despair of earning a decent living. Mr Y asks our experts for advice on making his business effective

Like many other licensees, I am under a great deal of pressure. My main gripes are the level of rent I have to pay and utility costs. I consider myself to be a hard-working, astute businessman and have managed pubs for 20 years, but I am concerned about the future of my business.

When my wife and I came here three years ago, my first day's take was £8.65. We have grown that to a turnover of £450,000 last year.

When we signed up for our three-year rolling tenancy we knew the rent was high at £50,000 a year. We signed another agreement in November and our pubco put the rent up to £54,000. It seems so unfair - we have worked our guts out.

On top of that, we got stung by our electricity supplier on the day we took over. While stuff was being moved in and stocktaking was being done, an energy company agent arrived and told us they supplied the electricity; if I signed their contract, they would continue. Being in the middle of a million things, I thought "Great - that's one thing off the list," and signed. I didn't realise that it tied us in for five years and is not set at a fixed rate. Our unit price for electricity has risen from 4.6p per unit to 11.7p. We have another 18 months to run and have been told it would cost £800 to end this contract early.

Now, I have received a letter telling me that beer prices will go up by £20 a barrel. We rely on tourism to some extent, and accept that there will be ups and downs, but this winter I have had to hold cheques back from suppliers.

The sad fact is that I run a lovely country inn with 10 letting rooms. I could probably grow the drinks trade three-fold but I am not willing to do so because I don't make any money from the bar.

I have focused instead on food and our 10 letting rooms. Our trade is now split 70% food, 20% accommodation and just 10% from the bar - it's a real shame.

The final straw that broke the camel's back was when the pubco refused me help to redecorate the outside of the pub.

My two questions are:

1. How can I make the pubco hear my case for a rent reduction?

2. Is there a way out of my current electricity contract and how do I negotiate a better deal?

Any other advice you have to offer would be greatly appreciated.

Ali Carter licensee, Bayview Inn, Widemouth Bay, Cornwall

With all due respect, what is your case for rent reduction?

I don't hear one. As you say, you took this tenancy with your eyes open. You knew the rent was high, but felt confident you could build a business which sustained this level and signed up. Rental increase of £4k after three years equates to a rise in line with inflation and the rent itself represents the industry norm for the level of turnover.

It is brilliant that you have grown the trade to £450,000, but why are you unwilling to grow the drinks trade three-fold? This is madness, even if you don't make money from the bar. Most licensees would give their right arm to grow their drinks trade by £114k (your current wet trade of £38k x 3). Wet trade brings food sales, which you are turning away.

Consider your drinks pricing strategy - "lovely country inns" are not price-sensitive as they derive trade from being destination venues, particularly where the food and

accommodation percentage split is high like yours. Even with a full tie and list prices, you should generate 40% to 50% GP from drinks - more from wine and soft drinks. Pass on price rises to customers, rather than squeezing margins.

I'm sorry if I sound unsympathetic. I know it can seem

unfair that the pubco reaps financial rewards from your hard work - that's why you need to work smarter, not harder. You sound frazzled - ditch your negativity and focus on profit from existing trade. Take time to focus on goals. Write them down, make them the reason you get out of bed, and stop blaming the pubco. Grab a holiday to help you re-energise. I'm not sure the energy company's salesman's tactics were strictly ethical and would seek legal advice on that matter.

Karl Brookes Energywatch

This situation is all too common. Any business person needs to know there is no cooling-off period or exit clause, unlike

domestic contract arrangements.

Employees should be told never to say yes to any sales representative "to get rid of them" and always to exercise extreme caution, especially if receiving a sales call.

Energywatch has seen numerous examples of power

companies holding businesses to harsh contracts because a busy staff member has agreed to what they thought was a request for further information. Through a power company's use of carefully-chosen and often misleading words, the staff member finds themselves entering into a contract. Arguing that the employee was "unauthorised" does not work.

To choose the best supplier, you need to know how much energy your business uses in a year, based on accurate

meter readings - don't use direct debit or bills as they may be estimated consumption. With a little attention to detail and about an hour's work, you can save on your energy bills.

This licensee's case is sadly a classic illustration of how not to negotiate your energy contract. Businesses need to realise that their energy bills are now a top priority.

Remember to check the price, and length of contract, and to read the small print. You should always check whether you can cancel the contract without penalty if the price rises - if you can't, you may be unable to switch to cheaper offers.

Put simply, the more rights you have, the better. Make sure you are aware of them and use them when you want to. In most cases, suppliers are likely to have more rights to exit a contract than you do.

Ken Nason trade consultant, Inn Mentor

Most licensees would empathise with the issue of rent. It is relative in your eyes to turnover and profitability.

With your trade mix I assume your rent has been set to reflect your low barrelage and subsequent loss of profit the pubco expects from low supply requirements. Your food and letting turnover is unknown to them so it is not surprising if they err in their own favour when calculating rent.

The time for negotiating is when you take over and at the rent review. When exceptional circumstances, outside your control, effect trade, then the pubco may re-negotiate your rent in the light of the changed viability of the pub.

Your case shows it is vital to understand implications of accepting things at face value and to scrutinise the

commitment expected. It also demonstrates how difficult it is to put matters right after such commitment is given.

You need to put forward your case to the pubco about why you think the rent needs reassessing. This should be backed up with sound financial records and data and done in an unemotional fashion to get the best results.

The tenancy will show whether their refusal to decorate is justified. If your terms are not full-repairing, you must insist they carry out their contractual obligations for repair.

Your reluctance to grow the drinks trade is self-defeating. You must make a profit from wet sales, even if you only sell one keg a week, and develop your business to generate enough profits to cover overheads, including rent and increases from utility companies.

Balance penalties of changing power companies against potential savings. Choose whatever is best for your business.

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