Pubs with restaurants

By Noli Dinkovski

- Last updated on GMT

Related tags Large pub companies Chef

Pubs with great food offers are on the rise
Pubs with great food offers are on the rise
With large pub companies still offloading quality outlets, there couldn't be a better time to set up a business with a food operation, says Noli Dinkovski.

With large pub companies still offloading quality outlets, there couldn't be a better time for anyone looking to set up a business with a significant food operation. But, as Noli Dinkovski points out, there are a number of factors that purchasers need to take into account.

It wasn't that many years ago that food in pubs was considered to be an optional extra. Today, it is seen as almost a necessity.

"We recently put a pub on the market that had one major disadvantage — it didn't have a kitchen," explains Selsian owner Steve Bagatti. "But the licensee was so acutely aware of the need to offer food, he showed me how they served cheeseboards and bought in pre-cooked pies. Little things like that can make a great deal of difference to a pub's market appeal."

Bagatti believes any pub will ultimately suffer if it doesn't provide food of some description. It's a view borne out by the pub property market — demand for pubs with restaurants or significant casual-dining areas are massively outstripping interest in 'wet-sale' only pubs. And it's a trend that isn't likely to change any time soon.

There are, of course, pros and cons to having a dedicated dining area within a pub, as opposed to simple casual dining. Some buyers will see a dedicated area as an opportunity for a more flexible business — the space can also be used as a function room or for private events.

On the other hand, many feel dedicated areas lack the warm, informal approach that should typify a pub-dining experience.

Of the two, buyers are showing a slight preference for pubs with casual dining, according to recent research by Guy Simmonds. "A 65% majority prefer to purchase or lease outlets of this type," explains managing director Stephen Taylor. "However, the choice really does depend on the purchaser's specific requirements and catering expertise."

Fleurets director Richard Negus believes a casual food approach is very often more appropriate in high-street pubs where space is at a premium, while most suburban pubs would be better served by having a dedicated dining area. "A dedicated area enables you to provide a more expensive food offer. It's difficult to charge £25 per head for a meal if there are drinkers standing around the tables," he says.

Taking on any food-led business isn't without its risks, and Negus says buyers really do need to have their eyes open when it comes to the costs involved and the potential business they can generate.

"Potential buyers need to thoroughly investigate the local demographic and the competition," says Negus. "It's all about understanding the local market and working out a food offer that fits. And then there's the physical potential of the property to consider — clearly, a large car park and a beer garden would be beneficial to any pub offering food."

Always check out any impending changes in the local vicinity or market that could impact on the business, suggests Neil Morgan, head of pubs at Christie+Co.

"Call the local planning department to find out about any proposed developments that may affect trade," says Morgan. "As regards to the property, are there any restrictions on future planning projects or external seating? Are there any restrictions on what signs you can put up?"

As with any acquisition, buyers must do their homework. Operators should have a thorough plan of what they want to achieve and what kind of business they want to run, says Morgan. "What will be your point of difference?" he asks.

Close attention needs to be paid to the kitchen in particular. If the kitchen equipment is in need of replacing, then it will most likely come at a significant cost.

"Check the kitchen equipment carefully, because if it's in good condition that can save you a fortune," says Bagatti. "On the other hand, a new kitchen will set you back anything up to £100,000."

Considerations

When leasing a pub, make sure that you get an inventory agreed, says Bagatti. "It's also well worth getting hold of the last environmental health officer's report," he adds. "That way, you can see if any issues raised have since been rectified."

Another issue to consider, especially when building up a food offer from a low base, is staffing costs.

To avoid staffing problems that may affect the progress of the business, Davis Coffer Lyons director Paul Tallentyre suggests having a good staff structure and not being reliant on one person to fulfil a function.

"A lot of pubs are employing experienced sous chefs who can readily step in if the head chef decides to leave," says Tallentyre.

"It's important to have that structure in place when you're so reliant on your food offer."

Prospective buyers should also look at the potential of other revenue streams such as letting rooms, says Tallentyre.

"Can rooms used for staff be converted? Is there the potential for building an extension? Such factors should be considered when weighing up the appeal of a property."

For those willing to take the plunge, agents agree there's plenty of opportunity to build a successful food-led business in the current market. With pub closures at a record high and a number of pubcos selling off significant chunks of their estates, investors and developers have been snapping up empty properties relatively cheaply.

As a result, there are currently plenty of pub owners looking for tenants, says Tallentyre.

"There are a lot of landlords sitting with empty units that need to be rented," he says. "This allows the lessee or tenant to negotiate deals at a low premium, leaving them with more money to concentrate on refurbishments. By risking less with the initial outlay, they also have more opportunity to change strategy if they don't get the concept for the pub right the first time."

Those interested in taking on a food-led pub are advised to talk to agents, as they can sometimes disclose properties that may not be on the market. "It all comes back to doing your homework, and talking to the likes of us can only help," says Tallentyre.

"The more thorough you are from the outset, the more likely you are

to succeed."

Who are the buyers?

These days it seems almost every chef out there — celebrity or otherwise — owns a pub of some description. Yet, while these high-profile chefs have no doubt helped to raise food-quality standards in the sector, they clearly only account for a small percentage of overall food-led pub acquisitions.

Guy Simmonds' managing director Stephen Taylor says there is a "new breed" of existing experienced operators who are making purchases. According to Taylor, these professional operators have the resources to build up a food business from scratch and have a proven track record and formula.

"They are happy to look at sites that can be extended to fulfil their requirements, with the usual prerequisite being a desirable village, large footprint and scope for a large beer garden," says Taylor. "Refreshingly, these purchasing clients are building slowly and employing quality managers, chefs and staff — rather than tenanting or franchising the units out. This is in direct contrast to the dramatic growth of the pubcos a few years ago who, of course, predominantly used the tied-leased model."

Another trend that has emerged over the past few years and is set to continue in 2011 is private investor acquisitions. Taylor says Guy Simmonds specialises in this market and is currently retained by many "cash-rich" investors seeking suitable pubs with restaurants.

"These investors are currently receiving negligible returns from the uncertain banking sector and are shunning the volatile stock market," says Taylor.

"They have instructed us to locate suitable pubs with restaurants with a view to creating long term free-of-tie leases at realistic rents. These leases are highly sought after and offer the lessee good profits in return for their hard work, while at the same time generating a sensible annual return for the freeholder investor who, of course, also retains the appreciating freehold asset."

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