No pain, no gain — pub closures are inevitable
Twelve thousand pubs to close this year! Whether you believe such a prediction, welcome it, or would regard it as the worst news possible, the inevitable truth is that we will continue to see substantial pub closures during 2009.
While this is a tough, highly unpleasant process some pub closures are necessary and will help our remaining pubs in the medium term. The brutal truth is there is already too much capacity in the market for too little custom. Like it or not, there has been and continues to be a cultural shift away from visiting the pub in favour of home drinking, a shift the Government's current policy on beer duty is accelerating.
While we all need to compete as hard as we can, we are largely competing with each other for the available spend. Hopefully more people will be persuaded to enjoy and support the cultural gem that is the British pub, but we have to face the reality that volume has fallen substantially, is continuing to fall, and is highly unlikely to rebound in the medium term.
If you run one of six pubs in a village or small town, then there is probably at least one too many and a closure would improve trade for the majority. The trade that marginal units are taking is keeping all pubs weak, rather than suitably profitable so they can generate a proper income for the licensee and adequate funds to repair and reinvest in the unit.
Of course, the million-dollar question is which should go? This is a tough and unpleasant question and there is no easy answer; some pubs are simply obsolete — too expensive to run in the current age, the wrong layout with inadequate outside areas, no parking, costly to light and heat — others are simply in the wrong place. Once closed, sadly the majority do need to stay closed.
Pub closures bring misery and financial hardship to those who run the pub and job losses for those who can least afford it, none of which can, or should be dismissed lightly. But for those who are already struggling, and even those that have yet to struggle, it is vital at times like this to carefully consider the pub's financial position and whether it would ultimately be better to close before the losses and stress begin to mount.
This is not a weather prediction, but 2009 is going to be a hard winter, and spring could be equally miserable. Hundreds, even thousands of pubs will close in 2009. The British pub is a unique and highly valuable community institution and it deserves protection. The Government has a role to play and so does the industry. The Government must reconsider the duty escalator and avoid unnecessary regulatory costs being imposed on the majority of responsible licensees and operators. We need a practical operating code, supported by a risk-based approach to monitoring. Failure to do so adds unnecessary cost and puts precious jobs at risk. Our duty is to be realistic and reduce the number of weak units, so that we have a robust and profitable industry that can compete effectively in the coming decade.
Let's not forget the landlords, too. While some would suggest that a number of landlords are at least partly responsible for some of the pain, let us acknowledge those that are taking a more responsible long-term view and yet are also taking the pain. Whether through wet or dry rents, those with a longer term view will be cutting their rents to a sustainable level and thus avoiding the wholesale return of pub keys and the erosion of their property value that follows. Landlords need responsible, quality tenants who can reinvest in the pub and pay their rent on time.
Quality tenants need a rent that provides a proper living and reward for their enterprise. The message is clear for landlords, tenants and freeholders alike: review your numbers carefully, be realistic about what the pub trade will be like this year, what the pub trade will look like beyond 2009, and whether your pub has what it takes to still be in business.
Mike Coughtrey is a partner at KPMG. He and his wife, Marian, run the Pheasant Inn in Dunstable.
