Robert Sayles: Recovery? What Recovery?

Brigid Simmons, chief executive of the British Beer & Pub Association, (BBPA) would have us believe that we are now over the worst of the crisis and that signs of a recovery are evident. She claims that the latest figures show "a sector starting to claw its way out of a recessionary slump."

I would suggest that the figures (published by the BBPA) merely confirm what we already know, sales are continuing to fall. Last year overall sales of alcohol (on and off trade) fell by 5.2 per cent, compared to a decline of 9.3% in 2008 and 6.5% in 2007. In short, we have had three years of falls and have yet to hit the bottom.

Reading Brigid's rather optimistic interpretation of the figures took me back to late 2008. Property prices were dropping like the proverbial stone and the optimism that had fuelled the housing bubble in the early part of the decade was a distant memory. I recall walking past a local estate agent's window and being confronted by a large sign which implored me, in large red letters, to BUY NOW BEFORE THE RECOVERY STARTS.

A good time to buy was the underlying sentiment; few fell for that line as it was obvious to all, given an ailing economy, a major shortage of capital and rising unemployment that prices were only going one way. Prospective buyers fled the market in droves, fearful of the spectre of negative equity.

Our industry is now suffering from a similar loss of confidence and this about turn in sentiment has prompted many to turn their backs on an industry perceived to be in freefall. Pubcos traditionally reliant upon a steady influx of new aspiring publicans to take on their outlets, (particularly those at the lower end of the market, frequently marketed as 'starter pubs') have found that the flow has become little more than a trickle. Given this, it is little wonder that some within the industry feel compelled to reassure us that things are not as bad as we think they are.

I would suggest that talk of 'green shoots of recovery' is both misguided and misleading and should be seen for what it is, a desperate attempt to drum up interest in an industry that many feel is already beyond salvation.

In addition to 'talking up' the market, pubcos have attempted to make much of a code of practice which encourages (it is not mandatory) pubcos to implement basic minimum standards; standards it must be said that most other business sectors take for granted. If the hype is to believed then flexibility and transparency will be the new buzz words as pubcos fall over themselves to try and attract new tenants.

Over the course of the last week I have spent quite a bit of time checking out a number of pubco websites, trying to ascertain exactly what is on offer in this supposed new era of perestroika. What seems all too apparent is that little has changed; in fact I would suggest that anybody attempting to enter the trade on the terms suggested by some of the pubcos will find that they are seriously disadvantaged from day one.

Many of the agreements appear flawed for a number of reasons.

Firstly they illustrate the failure of many pubcos to acknowledge the realities of the current market; nothing new there then I hear you say! This is aptly illustrated by the fact that the agreements on offer are based on the pubco's interpretation of FMT (fair maintainable trade). I looked at a number of outlets currently available, compared the FMT with existing trade levels and found that the FMT level set by the pubco was on average 25% higher.

The huge disparity between the pubcos perception of what could be achieved and what is actually being achieved ensures that anyone entering into such an agreement is severely disadvantaged from day one.

Secondly the FMT level implies that current trading levels do not reflect the true trading potential of the outlet and that the shortfall is due to other factors, such as a lack of expertise on the part of the current incumbent. Whilst it is quite often the case that a 'hands on' tenant will often outperform a manager or holding company for a variety of reasons, the notion that a 25% growth in trade is viable in the current climate is, at best dubious, at worst pie in the sky.

Thirdly the FMT level suggests that the market will recover at some point in the future; no doubt there are many out there who would question the likelihood of this.

Rather than denying what is patently obvious to us all, people who purport to represent the pub trade could follow the lead set by the housing industry. The reluctance of people to purchase overpriced properties compelled estate agents to acknowledge one important fact; the heady growth experienced in the early part of the decade was over. Once the penny dropped, they took down their absurd signs and told house owners to get real and reduce their asking prices.

The property market has not fully recovered but there are signs that a semblance of stability has returned. I'd settle for a bit of that right now!