Street fighting brand

When JD Wetherspoon, one of the most rapidly expanding pub groups in the industry, starts telling shareholders that its profits would be lower than expected then something must wrong.

Figures released earlier this month show pre-tax profits up from £44.3 in 2001 to £63.6m.

But while Wetherspoons is still making money, albeit not as much, other high street pub groups are buckling.

Yates's, for example, suffered a large drop in turnover in the first 12 months of the last financial year. It was so sudden and drastic that an entirely new management team was brought in to stem the leak and, while things improved, by the end of the financial year the company's profits were down from £13.8m to £12.1m.

So, is the high street pub market losing its fizz? Are these and other companies failing to keep up with the changing moods of the increasingly fickle customer?

Fame and fortune There are other indicators that certainly point towards a downturn in high street pub fortunes. Big traditional operators such as Six Continents are looking to get out of the area altogether. The group is looking to sell off its All Bar One and the UK's biggest pub companies are those concentrating on the more traditional local unbranded outlets, such as Laurel, Enterprise and Punch.

In a market that, according to Mintel, is worth £2.75bn a year, this is perhaps the problem is simply that the market has reached saturation and it is now all about the survival of the fittest. This is certainly the view of Peter Brown of Gerald Eve: "The reports about the exodus of pubs from the high street need to be viewed in context," he says. "We're not witnessing the death of the high street pub, but a degree of overheating in the town centre pub market.

"But even after any decline in the number of high street pubs, there will still probably be more pubs there than there were 10 years ago, because the high street pub explosion of the '90s was at the expense of less fashionable, less well-located outlets."

In other words, the high street has a larger share of the available market than it did a decade ago. With most of the bars in any town centre concentrated in one small geographical area, huge competition has developed between them, leading to the birth of the "circuit".

The average customer's night out has changed from being spent in a single venue to moving around a circuit of five or six pubs or clubs in an evening. This is why it makes business sense to open one bar right next door to another, even if the same company owns both of them.

"There is tremendous competition in this market," says Neil Perrin of Hartnell Taylor Cook. "Pub companies are still creating an ever-increasing range of brands and concepts, often trading several different brands in the same high street or leisure development. This lets them grab maximum market share from any circuit of bars."

And in an uncertain financial environment, opening up a new bar on an existing circuit will reduce the amount of risk involved.

"For example, we're currently marketing the initial phase of units in the £30m The Avenue mixed-use retail, leisure and residential scheme in Sutton Coldfield," says Perrin. "And we have six operators bidding for just two units. We wouldn't be in this position if the scheme was located on its own with no link to the existing circuit."

The other key to high street success is about changing to suit the demands of the customer. Some large companies may have hung on to old brands too long and are paying the consequences now. Operators that want competitive advantage over their rivals cannot solely rely on a good location on a prime circuit. Instead they must keep up with the latest fashions in terms of both stock and décor.

"Pub companies that commercially performed well in the 1980s introduced brass rails and edgings alongside traditional pub attire," says Tom Cunningham of Chesterton, Manchester. "But they transformed themselves in 2000 to incorporate chrome furnishings and a minimalist modern look.

Adapting stock
"Successful high street pubs have also adapted their stock to include designer beers, a wide range of wines and alcopops alongside real ales. These are critical success factors to drive footfall into pubs and ensure their long-term survival on the high street," says Cunningham.

Consumers have become bored with overly-branded pubs. They like to go out somewhere that either reflects the lifestyle they have or the lifestyle they wish they had.

Bars and pubs that are the most successful on the high street are those that can change and adapt to suit any requirements. These chameleon bars bridge the gap between pub, restaurant and nightclub. Operators such as Regent Inns or Luminar have been pioneering these concepts for some time.

SFI Group, for example, released some impressive yearly figures at the end of May; turnover was up 25% to £144.1m, pretax profits increased 22% to £20.0m and the number of outlets increased to 186 from 143.

Its portfolio of brands includes several of these chameleon concepts. The Litten Tree, for example, has been improving its food offer for the day and entertainment offerings for the evening. Its venue bars Fiesta Havana and Bar Med take this concept further, many having late licences and dedicated dance floors and light shows, as well as quieter restaurant areas.

The one area that the profit downturn has affected is rental levels. Operators with smaller concepts of around 3,000 sq ft- 4,000 sq ft have to compete with restaurants or retailers who can afford to pay much higher rents.

"From 1996 to 1998, many pub operators took new leases and their standard rent reviews will be coming up now or in the near future," says Cunningham at Chesterton. "The outcome of these rent reviews could have an impact on the profitability of each operation and may justify pulling out of a high street location."

For the pub operators, falling profits and rising rents are obviously bad news but, in many ways, they only have themselves to blame. Consumers are spending more and are going out more, but many pub companies are not moving quickly enough to satisfy their needs.

"The traditional pub will always have a place on the high street or in close proximity to local catchments," says Nicholas Weir of Shelley Sandzer: "But as long as the breweries and large chains look more closely at their assets and their products and then evolve them to reflect the changing needs of the customer, there is no reason why they shouldn't succeed."

Licensed and Leisure Property Supplement, September 2002

A joint supplement by Estates Gazette and Caterer & Hotelkeeper magazine