This is not the beginning of the end for pubs – yet

14 August 2008 by
This is not the beginning of the end for pubs – yet

With the Food & Drink Group and Cains calling in the administrators within a day of each other last week, is the worst is now over for the licensed trade - or is it still to come? Christopher Walton reports

The UK pub sector is currently enduring the "perfect storm" of falling consumer spending, a drop in custom because of the smoking ban, fierce competition on the high street for the casual dining pound, and escalating staff and utility costs.

A turbulent Thursday last week saw the services of both PricewaterhouseCoopers and BDO Stoy Hayward called on to handle, respectively, the administration of 109 pubs for Liverpool's Cains and the sale of 17 bars and restaurants in the Food & Drink Group.

Jobs at risk

Brewer and pub operator Cains employs 900 people in its pubs, and unless a buyer can be found their jobs will be at risk. A worrying indicator of the current appetite to buy in the pub sector is that, while Food & Drink Group managed to save 300 jobs following the sale of 17 bars to private equity-backed Mainpaint, no one was willing to stump up the cash for the other 11, including the Breakfast Club in Birmingham and Henry J Bean's in Bristol. As a result, 125 staff have found their jobs made redundant.

The collapses of Cains and Food & Drink topped off a tough couple of weeks for the pub trade. The ambitious Bar Sport chain, which planned as many as 100 franchised sites, has also appointed administrators, while the Bar Group, owner of Bok bar, has applied for protection from its creditors via a Company Voluntary Agreement (CVA).

So, is this as bad as it can get?

David Humphries, director of Friary Marketing and Consulting Group, argued that the tenanted side of the pub business was struggling the most because it was those pubs that had lost their individuality in the push for cheap food.

"It is the targeted operators that understand their customer that will survive," Humphries said. "One chain, for example, I believe has really lost the individuality of its menus. They have moved from pushing quality to getting the price down. If people are only eating out once a week now, that offering is not going to entice them."

David Thurgood, director of Grant Thornton's recovery and reorganisation practice, handled the administration of Massive Pub Company earlier in the year. He believes that the operator, which also owned the Tups and L'Auberges brand, suffered for failing to update its brands.

"Anything that involves the licensed trade always needs to be refreshed," Thurgood said. "In Food & Drink's case, it had Jamies Wine Bar and Henry J Beans, which are older-style brands that have been around for a long time. The same thing is happening at Walkabout, where owner Regent Inns has struggled to find a buyer."

Thurgood's forecast for the industry is bleak. "Certainly," he said, "the pub trade is going to continue to see a difficult environment for this year and into 2009."

Humphries concurred. "While the well-financed operators will obviously survive," he said, "with a falling market, the weaker ones will inevitably fall out, leaving more room for the fitter to survive. I would expect to see a few more [business failures] - and, looking ahead, things are only going to get bleaker."

Ultimate demise

However, Michael Turner, chairman of Fuller, Smith & Turner and of the British Beer & Pub Association, did not expect the ultimate demise of the pub.

"The businesses that survive the current downturn should be looking at a time when the pub is going to evolve and once again become the centre of attention for people to meet and have a fantastic time," he said. "You have to focus on good food and a really good drinks offering."

Things can only get better

A reminder of the pressures facing the pub industry.

  • The smoking ban - the elephant in the room that won't go away. Pub operators say they love it, but the balance sheets say it has hurt business.
  • Credit crunch - customers are eating and drinking out less than they used to. Not the ideal time to flood the market with food, which has lower margins than drink.
  • Inflation - the cost of food, utilities and labour is rising, just as sales are falling.
  • Falling beer sales - down by 10.6% or 1.6 million pints a day in the second quarter of the year, according to the British Beer & Pub Association. Above-inflation tax rises have not helped.
  • Alcohol is the new tobacco - the Government zeal to stamp out binge-drinking will put pressure on the way pubs and bars can promote and retail alcohol.

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