Geoff Newton: Industry needs to pull together

Related tags Mortgage Real estate Renting

The papers have been full of doom and gloom lately - volatile world stock markets, a global credit crunch, concerns over certain banks and their...

The papers have been full of doom and gloom lately - volatile world stock markets, a global credit crunch, concerns over certain banks and their exposure to the US sub-prime mortgage markets, Northern Rock and a host of large corporate transactions pulled at the 11th hour.

Add to that the weakness of the dollar against sterling, record high oil prices, a slowdown in UK house price growth, increasing numbers of home repossessions and mounting credit card debt and one could get quite down.

As the licensed trade enters its most critical time of the year (most operators rely heavily on a busy and profitable November and December), spare a thought for the thousands of tenants and lessees who are holding up the core of the British pub industry.

Consider for a moment the long term viability of the tenanted/leased model and how sustainable it is, going forward.

Pressure from all sides

More tenants than ever before seem to be waving the white flag as they are being squeezed from all angles.

Landlords, whether big pub companies or independent property owners, continue to drive up rents. Nearly all tenants have seen big rises in utility costs this year, there have been further increases in the minimum wage (now £5.52 per hour) and the charge for showing live Sky Sports in the pub is now so punitive that many are taking it out.

The impact of the smoking ban is yet to be felt and the cost of many food ingredients is increasing massively - barley prices have virtually doubled in recent months. Add in dreadful weather this summer and a generally uncertain economic environment and you can see the tenant's lot is not a happy one at the moment.

Running a pub tenancy in the UK in 2007 is possibly one of the most difficult occupations there is. The average tenant has to be a chef, a charismatic front-of-house operator, an accountant, a recruitment consultant, a marketeer, a health and safety expert and be prepared to work long hours with no holiday entitlement - sounds like fun, eh?

What we would all love to see going into 2008 is more care and support from the owners of Britain's pubs who have seen unparalleled growth in their freehold assets over the last decade.

No doubt the forthcoming results from Punch, Enterprise, Marston's, Mitchells & Butlers and Greene King will show another excellent trading performance and one doesn't doubt the support they offer to tenants through networks of BDMs and area managers.

A helping hand?

What would really make the difference, though, would be a reduction in rent and/or a better split of the barrelage discount to encourage the tenant to continue to grow their business in increasingly difficult economic conditions.

The recent announcement from Marston's saying it is introducing a turnover-based rent may not be totally innovative but by offering tenants the option of a base rent plus a turnover linked element, a sharing of the barrelage discount and a 50/50 scheme on capital investment at least shows that it is listening.

Like most things in life the devil is in the detail, but it will be interesting to see what take-up is like and how tenants perceive this opportunity.

The tenanted/leased model has been around for years and I am sure it will survive the next few decades.

What the industry needs more than ever right now is for everyone to be pulling together to ensure that this most resilient of trades overcomes increasingly choppy economic waters over the next 12 months.

Geoff Newton is managing director of GN Solutions, specialising in corporate and financial advice for the licensed trade sector.

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