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Brown's beer: The bitter truth about Britain's pub economy

by LLB Editor
6th Dec 13 12:00 am

Our male-about-ale Pete Brown on why pubs across the UK are closing

“One day I’d like to retire and run a pub.”

It’s a dream many of us have. Ditching the grind of the nine to five – or eight to eight for most LondonlovesBusiness.com readers – in favour of standing behind the bar, master of all you survey, polishing the brass while waiting for the regulars to arrive, then fulfilling your pleasant obligations as Mine Host, dispensing wisdom, confidences and kindnesses with the food and drink.

Sadly the reality is a little different: ‘retire’ and ‘run a pub’ are simply incompatible in the same sentence. If working an 80-hour week, coping with deliveries, supplier negotiations, staffing issues, licensing, police liaison, hiring a new chef after the last one went tonto – again – on top of cellarmanship, beer knowledge, and basic entrepreneurial skill, all wrapped up in the ability to be charming, charismatic and welcoming every day, even when you really don’t feel like it, sounds like your idea of retirement, then go ahead.

Many publicans go into this with their eyes open, and many excel across the board. This is why the good publican has been celebrated as one of the key fixtures of British life by everyone from Chaucer to Johnson, Orwell to Al Murray.

But over the past decade, even the most legendary titans of the trade can face ruin.

Pubs are currently closing at the rate of 26 per week. There are many reasons for this: the overall state of the economy, the price disparity between pubs and supermarkets, the smoking ban and changing social trends have all played their part.

If you’re a good publican, in the right area, with an idea of what that area needs, you can still run a profitable pub despite all these obstacles, and I spend most of my time in pubs that do – even if they have to work harder and be much cleverer than they did twenty years ago.

But even then, you often face an additional business problem: the company that owns your pub.

People – even Radio 4 newsreaders – still refer to ‘the breweries’ when talking about pub ownership. For the most part, this has not been true for 20 years now. The Beer Orders of 1989 was a well-meaning but hugely flawed piece of legislation that prohibited breweries from owning more than a couple of thousand pubs each. The idea was to erode monopolies and increase consumer choice, and in this it failed spectacularly. Tens of thousands of pubs appeared on the property market at once. No one could buy that many pubs without incurring huge debt. Investment banks stepped in and borrowed heavily to create big property portfolios – and then the pub market began to contract. People began going to pubs less often. The current cycle of pub closures began, and these big investments began to look like catastrophic mistakes.

Over the last 20 years, vast parcels of pubs have been bought and sold, as the new generation of pub companies – or PubCos – have shuffled the deck in search of a winning hand. They have thrown unprofitable pubs back into the freehold market, and sold others for redevelopment as flats or mini-supermarkets – often against the wishes of the publican or the punters.

The two biggest PubCos, Punch and Enterprise, own roughly 12,000 pubs between them (though this figure is declining thanks to heavy disposals). They attract prospective tenants with the offer of sweet deals and incentives – discounts on beer, promises of help and support. The tenant pays into the business with a stake of their own money, so tenant and PubCo form a business ‘partnership’. Often there will be a trial period before the tenant signs up for good, during which time the PubCo makes good on its promises of help, discounts, support and training.

Then, for many, the problems start.

The PubCo charges rent to the tenant. This rent is reviewed regularly, and if the pub is prospering, the rent goes up – often dramatically. But this is not the only way the PubCo makes money. Punch and Enterprise have massive purchasing power, just like the supermarkets. They can buy beer from brewers at steep discounts. So you’d think that, in a sane business model, these discounts would be passed on to those ‘business partners’, the publicans. Not so. Publicans are ‘tied’ and obliged to buy their stock from the PubCo at vastly inflated prices – up to twice market value. It’s often cheaper for the publican to go to a local off-licence and buy their spirits at retail prices instead of through the PubCo – but of course they are not allowed to, and are penalised heavily if found doing so. Perhaps no one would know if you bought your beer directly from brewers, cutting out the middleman. Except they would – the PubCo checks their sales to the publican against the pub’s turnover, and monitors the flow of beer through the lines, using ‘tamper-proof’ equipment to which their ‘business partner’ does not have access.

In many cases, the pub isn’t turning over as much as the tenant was led to believe in the first place. The projections given to the new tenant by the PubCo frequently turn out to be unrealistically high.

Within this ‘partnership’ then, the PubCo always makes money, the tenant less often. Many find themselves running busy pubs, working 80-hour weeks and taking home less than the minimum wage. It becomes unsustainable. When they throw their hands up and admit defeat, they often find that they have lost their initial deposit, as well as their job, as well as, in many cases, their home.

Pubs of all shapes and sizes are closing. But new figures show that those owned by the PubCos are going faster than freeholds, where the publican owns their own building: between December 2005 and March 2013, the number of independent, free trade pubs fell by 9.5%. By contrast, tenanted pubs declined by 15.9%. Even though some of this decline is due to pubs being sold by the PubCos to the free trade, the figures clearly show that being with a PubCo is less successful than being independent.

So how does the business model survive?

By selling the dream, over and over again. Every time Punch or Enterprise eject a publican, penniless, jobless and homeless, there’s another candidate standing there with a cheque representing their life savings or redundancy payment, eager to be churned through the system.

This can’t go on forever. The business model is flawed, relying on fleecing landlords to cope with billions of debt. That’s why campaigners under the banner of Fair Deal For Your Local are pressuring for changes to the law that would limit the number of publicans the big PubCos take down with them before their inevitable demise.

In my next column, I’ll be talking about the closure of one particular pub close to me in North London. Because however unpleasant this business sounds in summary, it’s far uglier seen close up. 

Pete Brown is the author of the newly published Shakespeare’s Local, an amusing romp through six centuries of history through the George Inn near London Bridge, watering hole to Chaucer, Dickens and the Swan of Avon. It is currently Radio 4’s book of the week. Pete is also celebrating being crowned Beer Writer of the Year for a second time.

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