Thirst direct
The last thing bar owners want to do is give their punters an excuse to leave and go somewhere else. Now, following a recent change in banking laws, they can stay even if they run out of money. Andrew Davies reports
Unfortunately for bar owners everywhere, the average punter's pocket is not bottomless. Sooner or later the hand comes out empty, they shake their head and decide to go home, or head for another pub via a cash machine.
Short of tying them to the chair and giving out free drinks, there hasn't traditionally been much the bar can do about this. Thanks to the transaction costs involved, the use of credit or debit cards hasn't really caught on - if the customer pays by plastic, the bar pays a fee of between 18p and 25p for every swipe.
This reluctance to allow card payments has, until recently, only presented one partial solution - cashback. Let customers pay by card but encourage them to add cash from the till to the bill. That way, they pay by plastic only once and not at every round.
This is, however, an uneasy compromise. The dilemma is that bars need a way of giving customers access to cash without it costing them anything or, even better, have the customer pay the transaction fee and give the business a cut.
The answer is obvious: have a cash machine inside the bar.
Diahanne Rhiney is the marketing manager for Hanco, a company which supplies free-standing cash machines to 1,615 retail outlets nationwide, 276 of which are pubs. She says the transaction fee isn't the only downside of using cashback: "Cashback is a very public process. If a card is rejected, it's done in front of everybody else at the bar. And it takes staff away from serving, which is obviously a major headache in a busy pub."
There are rapidly increasing numbers of suppliers such as Hanco touting their free-standing ATMs (automatic teller machines) to pubs. So why the sudden growth? "The USA is 10 to 12 years ahead of us with this kind of equipment, so the actual technology has been around a while," Rhiney explains. "It came over to the UK only a couple of years ago because of a change in banking laws. That meant that we, as a company, could become a direct member of Link, the banking network that links the majority of cash machines in the UK."
All these ATMs work the same way. Being free-standing, they require only a normal power point and a dedicated telephone line to connect them to the outside world.
However, the retailer can have the choice of two types of package.
The first is to get a machine owned and operated by a banking company, such as the Woolwich, which will install the machine and fill it when it needs to be filled. These models require virtually no interference from the bar owner, and even automatically tell the bank when they're running low on cash. This system may be hassle-free, but it's also profit-free. The customer's transaction fee is split between the ATM operator and Link.
The alternative is the self-fill model, of which Hanco is a supplier. With this system, the bar fills up the machine with its own money rather than have someone come and fill it - and the bar gets a hefty cut of the transaction fee.
There are, however, certain conditions. "For our model, we say that you have to have at least 10 transactions a day," explains Rhiney, "but that's not very many at all, really. You're recycling money within the business. Instead of keeping it in the till, it's going in and out of the till through the ATM."
The transaction fee the customer is charged is set by the business but, says Rhiney, £1.25 is the usual amount. Link sets the upper limit at £5. From this £1.25, the business will make 65p and the remainder is split between Hanco and Link.
Hanco machines can be leased for £159 a month or bought for £4,995. But with a machine worth £5,000 full of the business's own money, isn't security an issue? "Our machines are bolted firmly to the floor," says Rhiney. "There are no large sums of money being delivered to the business. The self-fill nature of them means there's no ‘extra' money in the building than there would've been anyway. We do recommend, though, that you put in no more than £500-£1,000 at any one time. At the end of the night the business cashes up as normal and leaves the machine empty with the door open, to show there's nothing inside."
According to Hanco, its customers have reported an increase in turnover of 5-10% after installing the machine. These figures cover all outlets, though, not just pubs.
The growth in popularity of this kind of machine is entirely related to banks' stubborn insistence on charging businesses for card transactions. If that changes, society could become increasingly cash-free. So will these machines become obsolete? "I don't think cash will become redundant," says Rhiney. "It's been spoken about for so many years. I'm a busy person and I have plastic, but if I go into a bar or convenience store I use cash. For smaller items, cash is always going to be needed - and that's the market we're aiming for."
Further information
Hanco ATM Systems
Willow House, Dencora Business Park, Milton Keynes MK14 6EU
0800 195 8501
www.hancosystems.co.uk
Case studies
The Porterhouse, Covent Garden, London The Porterhouse is a huge, three-storey bar in central London. Its cash machine is operated by the Woolwich and dispenses between £20,000 and £25,000 a month. The bar takes a 3.5% cut of the transaction fee. The machine is restocked about once every two weeks.
"We went for the easiest option," says manager Peter Hughes. "It means we earn less out of it, but we never have to touch it - they fill it and service it. We're in the business of selling beer, not dispensing cash, so we're quite happy."
Hughes doesn't know exactly how much of the dispensed money comes back across the bar, but he says: "It must be the vast majority of it."
Asked if there are any disadvantages, he says: "The only one I can see is that it dispenses a lot of money and we don't make the kind of profit on it others do, but we have so little involvement in it that it's one less thing for me to worry about."
The Unique Pub Company The Unique Pub Company owns more than 3,200 pubs in England and Wales. It is currently running a trial scheme in more than 100 of them with two ATM suppliers, Hanco and TRM. All the pubs are using the self-fill model.
Why go for the self-fill option? "The other way costs you," says Rob May, Unique's operations planning director. "The machine has a rental cost. Then there's the cost of service and filling it up. We didn't know how many transactions each pub would do, as it was entirely new to us, so we went for the option with the lowest breakeven level."
May says that the average withdrawal is £40, although it varies a lot from pub to pub, and there's an average of 160 transactions a month on each machine. So, at 65p for each transaction, Unique is making £104 a month from each ATM. Not a lot but, May says, most of the money withdrawn goes back over the bar.
As for drawbacks, he says: "There are places you can't do it because there isn't enough space, but the main one is that the retailer himself doesn't really understand the proposition sometimes. So he doesn't fill it up and the customers get fed up if it's always empty."
