How to start a gastro pub
1. SHOULD I BUY A RESTAURANT OR A PUB?
Pubs are often housed in spacious, elegant buildings that include accommodation. They can have a great deal more character than restaurant premises and this is one factor that makes them attractive eating-out venues.
Perhaps you are one of the many chefs interested in starting your own food-led pub - you will find that pub companies are keen to have good quality tenants.
"Pub companies recognise where the money's going to be and they are happy to support chef entrepreneurs. It's still a buyer's market and a good deal can be struck," says Simon Chaplin, a director with licensed property experts Christie & Co.
Richard Negus, executive director at chartered surveyor Fleurets, agrees. "Business development managers want solid tenants and they will know if the fate of the pub in question is food-led or not."
The traditional tenancy route into the pub trade is probably the easiest and lowest-cost option, where the pub company or brewer offers most support to the operator. But tenancies are not assignable, which means you cannot "sell" the agreement on to someone else. If you have spent money and effort in improving the pub and increasing turnover, you cannot "sell" it at a profit. The choice for the more experienced and well-financed entrepreneur, therefore, comes down to buying a freehold, free-of-tie leasehold or tied leasehold.
You will need to be mindful of the differences between a restaurant and a pub. Unlike a high street unit, you will most likely be responsible for the repairs and upkeep of a much larger building. Although a pub, which may include accommodation, letting rooms, car park and garden, may seem like you are getting a lot for your money, the associated maintenance costs could be considerable, especially if the pub is listed.
In terms of footfall, depending on the location, pubs tend to be more seasonal and unpredictable compared to high-street restaurants, says Negus, so you will need to thoroughly research the market and catchment area of any potential purchase.
2. WHAT'S AVAILABLE?
There is a lack of good quality pubs for sale, especially freehouses, because there is still not enough liquidity in the market to sell businesses at the premiums they deserve.
Many would prefer to buy a leasehold at £100,000 to £150,000 compared to £500,000 upwards for a freehold, says Negus. "In terms of capital appreciation, the opportunity lies in finding under-performing, wet-led sites where the rent is based on today's Fair Maintainable Trade. If you are buying an already established gastropub, the upside potential is much less," he says.
Although the recessionary market does present opportunities, you will need to be extremely good at spotting them. There are plenty of wet-led disposals by the national pub companies, but not all of them are suitable for conversion to a food-led operation.
The vast majority of leases can only be purchased with cash, since bank funding for pub leases is not common. In terms of freeholds there are some banks, such as NatWest and Barclays, that are supportive of the pub sector and will, in theory, lend up to a maximum of 60% of the value of a business with good trading accounts.
3. ADVICE FOR PUB BUYERS
When searching for a business, it is important to keep an open mind and always be on the look-out, says Rupert Clevely, chief executive of Geronimo Inns. The London group of gastropubs opened its 26th pub last month at Exchange Place, Broadgate. Clevely says that it took about a year to seal the deal on the group's first City of London pub.
"We needed to make sure that the lease [from British Land and Blackstone] suited us and there was the right amount of outside seating," he says.
In terms of geography and tenure, you may have to widen out your search to find what you are looking for.
Whether you are buying a freehold, leasehold, a country pub or city centre venue, it is vital that you fully understand the characteristics and potential of the business you have in your sights.
Does it stack up financially? Are the rent and the rates affordable? Beware of annual rent increases based on RPI inflation and try to negotiate a more favourable agreement. Are the demographics there? Can you get the staff?
Location is also going to be a major concern. Does the pub serve a local catchment area or is it down a country lane that means customers must reach you by car? A Government-commissioned report released in June recommended that the current drink-drive limit be cut from 80mg of alcohol per 100 ml of blood to 50mg of alcohol. If the recommendation became law, it would clearly serve a blow to destination pubs.
"There is definitely a pecking order when it comes to location. As long as you've got some catchment you are always going to get trade from the local football team or the rambling society. If the pub is entirely destinational, you're relying on very hard work and your pub may look very empty on Tuesday lunchtimes in February," says Trevor Watson, head of valuation services at Davis Coffer Lyons.
If you are changing a wet-led pub into something more food-focused, don't alienate the local drinking trade, advises Chaplin. In villages, the locals can have a lot of influence and they can help underpin your business during the week.
"Do your homework. Accurately work out your costs and don't be too ambitious. Don't over-estimate trade and under-estimate costs. The first two years are critical, so ideally, make sure you have enough working capital to maintain cashflow in the beginning, because it can take three or four years to build up a reputation," advises Chaplin.
4. WHO'S BUYING?
A number of regional food-focused pub groups are actively expanding. These include Wiltshire-based Heartstone Inns, Dorset-based Hall & Woodhouse and Brunning & Price - owned by the Restaurant Group. In the North of England, Amber Taverns has an acquisition fund of £20m to help it expand from 50 sites at present to about 110 and then exit through a trade sale to a larger pub operator.
Greene King is actively rolling out its Hungry Horse brand and Mitchells & Butlers has sold off most of its wet-led pubs in order to focus on food-oriented sites.
The attractiveness of pubs is exemplified by Marco Pierre White's intention to roll out Wheeler's of St. James's, a historic and high-end London fish restaurant, not in London units, but a series of pubs across the Home Counties. The chef has embarked on a joint venture with pub company Powder Train to open 14 Wheeler's pubs over the next few years.
"More and more people are seeing a pub with good food as a very profitable way to invest," says Chaplin.
5. RECENT MARKET ACTIVITY
A significant recent transaction was the sale of Bel & the Dragon, a group of three freehold and one leasehold food-focused pubs in Windsor, Cookham, Reading and Godalming.
The pubs were sold by Orchid Group to Longshot, the London-based leisure investor and operator founded by Joel Cadbury and Ollie Vigors. Longshot is understood to have paid about £4m, considerably less than the £8.75m paid by Ultimate Leisure in 2007.
"The business was sold at the top of the market in 2007 and has since suffered from under-investment. It went through an administration [Ultimate Leisure became Premium Bars and Restaurants which entered administration in August 2009] but it's a good portfolio. Joel Cadbury is an experienced investor who will turn these businesses around and use them as a platform for growth," says Mark Sheehan, managing director of specialist mergers and acquisitions advisor Coffer Corporate Leisure, who acted for the vendor.
The deal, which attracted interest from a number of parties, demonstrated the eagerness of Longshot to get a foothold in affluent areas outside its traditional operating area of London.
CHECK LIST
â- Create a sensible business plan that doesn't overestimate sales and under-estimate costs
â- Does the catchment area provide the right demographic to support your business?
â- Look at the competitors and research the market thoroughly so you know where to pitch your offer
â- If taking on a lease, you are currently in a strong position to negotiate
â- A beer-tie lease will not be such a handicap for a pub which specialises in food and wine
â- Be prepared to have to invest in the kitchen
â- A smoking solution and/or outside seating are very important
â- Make sure you match your food with a strong drink offer
â- Have enough cash to cover the initial cashflow. Breaking even in your first year of business is absolutely essential
â- Once up and running, retrain all staff and do not over-work yourself - take at least one day off per week
Acting on behalf of Chris and Alice Cozens, Christie & Co has sold the freehold of the Red Cow on the Essex-Cambridgeshire border to first-time buyers Alexis Beeching and Toby Didier'Serre for an undisclosed sum, off an asking price of £557,000. Funding for the deal was secured by Christie Finance.
The Grade II-listed thatched pub located in the village of Chrishall includes a traditional bar with open fireplace, beams, a restaurant, beer garden and two-bedroom owner's accommodation. The site also features a barn, ripe for conversion, offering scope for further expansion of the business.
The Red Cow, which features in the 2010 Michelin Red Guide, Michelin Pub Guide and Good Beer Guide, attracts trade from the local community, neighbouring villages and a catchment area including Cambridge and Bishops Stortford.
Beeching will oversee the front-of-house operations in the new venture. Her partner, Toby Didier'Serre, has 15 years' experience as a chef, 10 of which have been at head chef level.
Most recently he was head chef of the Chequers in Matching Green and, prior to that, the Goose Fat and Garlic in Sawbridgeworth, formerly known as the Shoes - both well-known local restaurants. He brings with him to the Red Cow a reputation for creating and serving modern British and European cuisine of a high standard.
He is also a previous holder of two AA rosettes, as well as being the head chef at the recipient of the Greene King Best Regional (South East and London) Food Outlet Award in 2007.
Bill Colquhoun, the director at Christie & Co who handled the sale, said: "We are delighted to have sold the Red Cow on behalf of Chris and Alice Cozens, having previously sold the business to them in 2007. Over the last three years they have transformed the property and business which has gone from strength to strength.
Acting on behalf of Chris and Alice Cozens, Christie & Co has sold the freehold of the Red Cow on the Essex-Cambridgeshire border to first-time buyers Alexis Beeching and Toby Didier'Serre for an undisclosed sum, off an asking price of £557,000. Funding for the deal was secured by Christie Finance.
The Grade II-listed thatched pub located in the village of Chrishall includes a traditional bar with open fireplace, beams, a restaurant, beer garden and two-bedroom owner's accommodation. The site also features a barn, ripe for conversion, offering scope for further expansion of the business.
The Red Cow, which features in the 2010 Michelin Red Guide, Michelin Pub Guide and Good Beer Guide, attracts trade from the local community, neighbouring villages and a catchment area including Cambridge and Bishop's Stortford.
Beeching will oversee the front-of-house operations in the new venture. Her partner, Toby Didier'Serre, has 15 years' experience as a chef, 10 of which have been at head chef level.
Most recently he was head chef of the Chequers in Matching Green and, prior to that, the Goose Fat and Garlic in Sawbridgeworth, formerly known as the Shoes - both well-known local restaurants. He brings with him to the Red Cow a reputation for creating and serving modern British and European cuisine of a high standard.
He is also a previous holder of two AA rosettes, as well as being the head chef at the recipient of the Greene King Best Regional (South East and London) Food Outlet Award in 2007.
Bill Colquhoun, the director at Christie & Co who handled the sale, said: "We are delighted to have sold the Red Cow on behalf of Chris and Alice Cozens, having previously sold the business to them in 2007. Over the last three years they have transformed the property and business which has gone from strength to strength.
