Speaking at the Tenanted Pub Company Summit 2014, Parson said that the industry is facing many challenges but, as the economic recovery continues, the pubs that have survived the recession should prosper.
His view is at odds with the general consensus that pubs will continue to close at an accelerated rate, he believes pub numbers will stabilise over the next decade.
Despite this return to equilibrium, large pubcos will continue to reduce their tenanted estates by up to 10,000 pubs from their 2005 peak he said, adding he “would be surprised” if Greene King has any tenanted pubs left in a decade. To fill this gap, there will be a rise in pub ownership by the new breed of ‘regional’ brewers, growing tenfold in the next ten years, he predicted.
“They will be major buyers and they will bring vibrancy to the industry,” Parson said.
He sees this as a segment that private equity should find attractive with the ‘Big Eight’ comprising Castle Rock, Butcombe, BrewDog, Thornbridge, Bath Ales, Hopback, Moles and Titanic Brewery.
Parson said the recent trend for financial players to buy tenanted pub assets will continue and these financial owners are set to become major players in the industry. The new firms include Cerberus, Apollo and newly formed Hawthorn Leisure backed by Avenue Capital and May Capital, which is looking at a 16.4% EBITDA yield on its recent Greene King pubs investment. These new buyers are expecting a big upturn in UK pubs and are investing heavily in anticipation.
He argued that the franchise model in pubs will grow and become widespread and the industry should encourage the people who are being innovative. These agreements are attractive as they remove the friction point of rent and attempt to set out new, more collaborative ways of working.
Parson called the regulatory framework: “a massive positive result for tenants” following on from successful campaign to scrap the beer duty escalator in 2013. But he urged all players in the sector to work together to find common ground on major issues as the “gap between failure and success is wider than ever”.
He said the issue that needs a unified pan-industry approach is 5% VAT campaign, which must be successful for pubs to increase profitability as well as being an important economic stimulus and creator of jobs for young people, the segment hit hardest by the recession.