Tuesday, 6 September 2016

Unviable - who says?

The Plough in Crossens in the process
of demolition. It's now houses.
post by Paul Bailey concerning how a pub near where he lives had been saved got me thinking about how pubs are declared unviable - usually by a pub company that wants to cash in on the value of the land. Some people believe that unfettered capitalism is the way forward and that the market should determine the price of everything: they'd therefore see nothing wrong with this. If you agree with this, fine - that's your opinion - but it's not a point of view I share. Imagine that your home could be sold for much more than its current market value if it were developed as a block of flats or a convenience store; would it be right to do so? Where do we draw the line, assuming we do at all, with squeezing every last pound from property regardless of any other, non-monetary, value it may have?

In this area, we have had a number of pub closures after the pubco concerned had declared that the business was no longer viable. They are probably right when the finances are viewed through skewed prism of their highly flawed, debt-ridden business model with high rents, massive mark-ups on drinks, etc. It is not their greed or, perhaps more accurately, not just their greed: they have massive debts to service. They will never be declared bankrupt, although by any sensible measure they are in real terms; as J. Paul Getty said: "If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem."

Two pubs in this area have suffered declines with lengthy closures punctuated with short periods of being open while some temporary manager takes over, or some unfortunate mug is robbed of their life savings by unrealistic business projections - something I have heard from a number of licensees with whom I've chatted over the years. Both have been sold on by their pubco, in one case to a family, and another to small chain of pubs in the Merseyside area. Free of the tie, they seem to be doing all right. In one, I was told that the pub could not survive as part of the big pubco that had previously owned it, but it was doing quite well as a true free house. The prices were lower too.

I am fully aware that there are many factors, of which pubco mismanagement is merely one, behind the decline in pub use, but if the viability of a pub is assessed by the people who want to sell the site for redevelopment and thus chip a tiny amount off their mountain of debt, I think it's reasonable to view their calculations with some scepticism.

It must not be forgotten that the pubco business model is one that does best by failure: they hit the jackpot when a former pub is redeveloped, whereas it may a long slow process to gain a small amount of profit from a pub which, by their lights, is on the cusp on unviability. The big pubcos, Wetherspoons excepted, are property companies, not beer businesses. Their priorities are determined accordingly. 

The new Pubs Code has come into force, giving tenants more rights and greater protection when dealing with large pub companies that own tied pubs. I doubt that it's a silver bullet, but I hope it provides some help.

7 comments:

  1. For all their faults, the former Big Six brewing companies were perhaps not so bad after all. At least they were still brewers at heart, and had surveyors and maintenance departments looking after their often substantial tied estates. They would also have had cellar service teams to ensure tenants were looking after the beer properly; after all it was in their interest to make sure their beers were well received, and indeed enjoyed by pub customers.

    All this seems to have gone out the window with the big Pub Co’s who, as you rightly point out Nev, are first and foremost property companies. There have been a number of cases in this area of pubs that required substantial renovation; and in one case a virtual re-build, following years of neglect by cash-strapped Pub Co’s. This just would not have been allowed to happen when they were brewery owned.

    It is common knowledge that the Pub Co business model is deeply flawed, with the hapless tenant being squeezed at both ends. The pub in my area, which you refer to at the beginning of your article Neville, is now selling locally brewed beer for a much cheaper price than the previous tenant was able to do so, purely because the brewery are supplying direct. The same will apply to soft drinks, wines and spirits, as Cash & Carry prices will again be much cheaper than having to buy through the money-grabbing Pub Co.

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  2. So how long should you leave a pub closed and boarded with no takers before you finally conclude it isn't viable?

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    1. You've completely missed the point, Curmudgeon. No one is suggesting that every pub closed by a pubco should be put on ice forever in the vain hope of a saviour, but my two examples and Paul's one show that some pubs deemed unviable by pubcos, are not necessarily so. My point is that the pubco model makes pubs apparently unviable when in fact it's their stupid way of doing business that's to blame. Otherwise none of these pubs would have reopened.

      Obviously (and this is a point I have made in previous posts) some pubs do go out of business for genuine reasons.

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    2. I'm well aware that plenty of pubs have been sold off by pub companies to new owners who have made a success of them. But I'm equally well aware that plenty of pubs have been put on the market by pub companies, found no takers and been derelict for a prolonged period of time.

      Conversion to residential use requires planning permission, of course. But refusing it doesn't mean a pub will continue in business, and you can't force companies to continue running businesses they don't regard as viable.

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    3. I never said you could. You're still arguing against something I haven't said, nor Paul for that matter. That's why you are still missing the point, which is simply this: a pubco declaring a pub is unviable is not an objective assessment, but is sometimes a partisan decision with a business agenda (simply selling up and cashing in) behind it. You seem to be saying that the way pubcos operate is the only way things can be.

      You will note that I did state that reasons for pub failure are multiple, and not just down to 'malevolent pubcos'. I would also refer you to the final sentence of my previous comment.

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  3. At the end of the day, the only way of determining whether a pub is "viable" is whether someone can run it as a profitable business.

    But I think this issue relates only to a relatively small subset of pubs - ones (usually in suburban areas) - where the owners think there's a reasonable prospect of residential redevelopment. The pubco will think "well, we're not really making much money out of this, and we'd struggle to sell it as a pub for more than £200k, but if we got planning permission for housing, we could get a million for it."

    The council can refuse planning permission, but if it turns into a prolonged staring contest the pubco is likely to win. Local opinion will tend to prefer some much-needed new flats over a tatty and underused, or maybe even derelict, pub.

    And if a sale as a pub to a new owner was forced through, what's to say they won't be asking for the same thing in a couple of years, in which case the pubco will rightly feel aggrieved that they have been deprived of the redevelopment profit?

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    1. I'd agree that life's not perfect: there is no "one size fits all" solution to the problem of pubs deemed unviable. I also don't understand why some people who haven't set foot in their local for years start complaining when it closes, as happened recently when it was announced that a closed pub in Ormskirk would be reopened as a supermarket.

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