OPINION: What do recent trends in pub ownership models tell us about the UK pub market?

Pub ownership models impact on the market

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Since its humble beginnings as a place of rest for weary travellers, for centuries the great British pub has remained a cornerstone of our culture and local communities.

While pub ownership models have changed significantly over the years, the pub also continues to serve as a sound investment opportunity for someone thinking of running their own business.

Until the 1970s, the UK pub industry was vertically integrated, as 75% of pubs were owned by six major breweries and only three forms of pubs existed: managed, tied tenancy and owner operated. The Beer Orders sought to break up this monopoly, with brewers forced to sell off most of their tenanted pubs.

This was a fantastic opportunity for investors, known today as pubcos, to purchase pubs and rent them out on commercial long leases whilst retaining additional income from supply agreements with brewers. Not all went down this route and those who stuck to the tried and trusted tied tenancy model have continued to see growth.

Increased pathways

Over the years, various other ownership models have evolved alongside this structure, offering publicans increased pathways to pub ownership. Managed house groups have emerged as key players, strategically expanding and developing tailored brands to suit consumers tastes and benefitting from economies of scale. With a focus on food-led offerings, these establishments can compete with “high street” casual dining venues.

“Manchise” style agreements, like the franchise and management models, have also grown in popularity. This structure sees the pubco retain ownership (and property liability) but not operational control, allowing the operator to develop the business to suit the local demands, which encourages pubco landlords and tenants to work closer together, as both will benefit.

In contrast, in recent years long lease agreements have reduced in numbers however, we still see an appetite for pubs operated on this basis. Free-of-tie pubs are particularly sought after, as well as those on a tied agreement, where the tie is not so prohibitive and allows the tenant to have a guest ale of their choosing or to buy a limited number of products outside of the tie. This increased demand is driven by location and affordability, as taking a lease is a cheaper option to buying a freehold and an easier route into the industry for many operators.

Share of the market

What is clear in the current market is that the once robust influx of investments funds into the pub market has slowed, as the returns required are now higher, and the options to increase income are limited. In recent years, we have seen multinational brewers regain a larger share of the market and this prompts the question: has the industry started to come full circle and return to vertical integration?

Interestingly, when considering the ownership of the UK’s largest pub companies it appears so. Albeit beer sales have declined since 2019 so they cannot rely on beer alone as a profit driver. This shift is further illustrated by the number of the UK’s family brewers who have ceased brewing and others that have reduced their brewing capacity to suit their own needs, making it almost exclusive to their own outlets. Investors and lenders are likely to hold back until “value” returns, when rents are proportionate to income and running a pub becomes more viable. This rebalance will help stabilise the market.

All parties, including landlords, brewers and investors need to accept that there has been a cultural shift in the way people live their lives and for many under 40, beer is not part of it. There are plenty of alternative ways for customers to spend their money in the pub, even those seeking healthy alternatives and low-zero drinks. Pubs now offer food, entertainment and accommodation in response to these changing consumer demands, but margins are tight. Nonetheless, pubs have survived wars, pandemics, economic downturns and more, so we are confident the British pub industry will still be standing in years to come but the pub model will continually need to adapt to survive.

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