Business Opinion
Budget turns the screws on tenants
Last week's Budget saw the Government placing a very hard kick in the sector's soft parts. The decision will confirm one thing: this Government is not a friend of the pub.
For large parts of the pub sector, the decision to add so much duty to alcohol could not have come at a worse time. Rising food, beer and utility costs are combining with a 10% average drop in beer volumes to create what truly can be called a perfect storm. For managed operator Laurel Pub Company the answer is to close sites that are losing money, a dramatic junking of heaps of goodwill in a move that is likely to pave the way to administration.
The same conditions apply in the tenanted pub market. Now, more than ever, is a time in the tenanted market for the major operators to show imagination, forbearance and maybe an increased degree of generosity towards their tenants.
It's a hugely significant development that Admiral Taverns has decided not to buy any more pubs for the time being. It means that larger tenanted operators will only have two options with their smaller, failing, bottom-quartile pubs: sell them individually or re-invest in areas like training, discounts and support. Contacts with a reasonably clear worm's-eye view of the industry report a dramatic increase in metaphoric jingle post - tenants returning keys - in the past few weeks. Last week's Budget will have done nothing to halt this process. The problem is that for those pubs with marginal incomes the wave of increased costs will have left them with a severely reduced income. Sources report that some surprising people - tenants very well-established in the industry - have been calling it a day. One well-known tenanted pub company boss has been saying, off the record, that the time had come to redivide the profit pie so tenants earned an extra £10-or-so-plus in discount.
The industry grapevine suggests there is radical thinking going on at major companies in the key areas of training, support and churn reduction. The pubco business model means that they are remarkably well insulated from a downturn because their rent income stays intact. But if churn rates increase dramatically and good people are forced to leave the industry, then we're all worse off. These are unusual times (to say the least) and unusual responses are required.
Wetherspoon is net beneficiary
As we know, Laurel has 95 sites on its disposal list with Colliers CRE. Just two weeks into the sale process, another 60 will be closed. The dramatic slimming down of Laurel Pub Company's high-street division is bound to be good news for JD Wetherspoon. It hammers home one undeniable fact: JD Wetherspoon is a category killer. The only problem is that the high street has been a very big category and it's taken a very long time to kill most bits of it.
Power of Pub and Carvery
One Morning Advertiser website poster has spotted the frightening potential of Mitchells & Butlers Pub & Carvery brand as a category killer. William McLeod notes: "At present, we are seeing M&B's pubs in our area convert facilities from regular dining pubs that sold meals at an average of £6 per plate, to carveries that sell (roast dinners) for £3.50, while at the same time dumping beer prices by as much as 50p a pint. "They have gone from 150 covers per day to over 700 almost overnight." Yep, that's the power of the value/volume model.
Offers return to the high street
With times tough on the high street, it's no surprise to see offers starting to re-emerge. On Brighton's West Street circuit, Kulture, a Tattershall Castle Group venue, is offering drinks for most of the week at just £1.50. Regent's Walkabout is offering all drinks at £2 on a Thursday. JD Wetherspoon, as we know, is seeing many of its regulars staying put thanks to the cut-price vouchers it sent them through the post.
