Pub leases are perceived to be more expensive than they really are by those thinking of opening their own restaurant
Aspiring restaurateurs could be missing out on the opportunity to open their own business in a pub because of the mistaken belief that leases are more expensive than restaurant sites.
That's one of the key findings from a new piece of research conducted by The Caterer in association with Star Pubs & Bars.
In a survey of over 300 hospitality professionals who are considering running their own restaurant business, nearly a quarter assumed that restaurant leases were more affordable than pub leases, while another 16% believed that restaurant leases were about the same as pub leases. Just 17% believed that restaurant leases were less affordable than pub leases.
Those figures perhaps explain why renting a restaurant site turned out to be the most popular option among respondents when it came to considering ways in which to secure a site for their planned new business. The second most popular option was buying a freehold restaurant site, while renting a pub site came fourth after buying a freehold pub site.
This was despite the fact that those surveyed considered low entry costs to be the most important factor when taking on a lease for a new business, followed by low ongoing costs.
Interestingly, the most important factor in preventing aspiring restaurateurs from taking on a new pub was the fact that they felt they didn't have enough funds, and yet the majority appeared to overestimate how much money was required.
A total of nearly 26% of respondents thought that between £40,000 and £60,000 of funds would be required in order to secure and open a new pub business, with another 43.5% estimating that £60,000 or more is required. The real figure is closer to around £20,000-£30,000.
Nonetheless, new entrants to the restaurant business remain determined. An overwhelming 64% of respondents said they were not put off by statistics, indicating that 50% of new restaurants go under in their first year.
The Staith House
"This could be the best value, most honest, earthy, freshest tasting-menu on offer in our region."
Located on the Fish Quay in North Shields, the Staith House is a food-orientated pub (55% dry/45% wet), run by 2010 MasterChef finalist John Calton, his wife Kimberley and fellow chef James Laffen.
They took it from a down-on-its-luck pub taking £500 a week in 2013 to a great food pub, taking £12,000-£15,000 a week. They've established a reputation for excellent food, and are attracting customers from as far afield as Scotland and Lancashire.
"Our location on the quay means we can buy our fish, scallops and shellfish directly from the fishermen," says John. "We filet the fish ourselves and do our own butchery, buying in lamb, beef and pork. This is cost effective and ensures we can serve quality dishes at affordable prices with no waste."
A year after opening, Staith House is listed in the Michelin Eating Out in Pubs guide, described as ‘a local gem' in the Good Food Guide 2015, is the regional Best Newcomer winner in the Great British Pub Awards and a finalist in the North East Tourism Awards.
"I always dreamt of owning my own business," explains John, who has worked in three different Michelin-starred establishments - Andrew Pern's the Star Inn in Harome, the Box Tree in Ilkley and Seaham Hall. "Taking on a pub lease has enabled me to run my own business, which I wouldn't have been able to afford to do otherwise.
"Pub retailing appealed because it is more relaxed than a restaurant and in a pub you can serve good, honest food with unobtrusive service. It's nice to have the cushion of a drinking clientele as well, as it lessens the risk.
"When the Staith House came up for lease, we saw the potential. We put down a deposit of £10,000 and invested £10,000 on equipment. Star Pubs & Bars lent us £65,000 for fixtures and fittings and invested funds in the pub's refurbishment. We paid off this loan by the end of Staith House's first year of trading."
Leased pubs are much more affordable than they used to be
Chris Jowsey, trading director, Star Pubs & Bars
The research was very interesting and of concern, as the results show a disconnect between people's perceptions of the cost of takingon a pub lease versus reality.
Taking on a leased pub today is much more affordable than used to be the case. And Star Pubs & Bars for one has spent the last few years bringing down ongoing costs in order that lessees can keep more cash in the business at a time when they need it most.
This has included introducing a new policy regarding fixtures and fittings, whereby Star owns big-ticket items, such as ovens, fridges and grills, which are then leased to lessees, reducing ingoing costs by up to 70%, allowing lessees to hang onto their capital and improve cash flow. This is particularly beneficial for those wanting food-focused pubs, where equipment start-up costs can be very high.
We've also introduced a new, simplified deposit policy of three months' rent or a £3,000 deposit, whichever is the greater.
It was interesting to see that respondents were most interested in pubs which needed developing to reach their potential. This is an area where we recognise that more funds will be required by lessees, so for pubs with untapped potential there is a special first-year support package, which could involve additional brand discounts, payment of fixed costs, such as a Sky licence fee, and up to £5,000 based on mystery visit reports. Another way we try and help these lessees start off on a firm footing is by paying for their first year's accounting and stocktaking fees.
While ingoing costs and pub leases vary according to the size, location and condition of the pubs, few require the £60,000 which respondents believe it costs to take on a lease. The average ingoing costs, in our experience, are nearer £20,000-£30,000.
Running a leased food pub rather than a leased restaurant is not for everyone, but by appealing to different customer groups and catering for different occasions, there's less risk.
The last point that stood out for me was the concern raised by respondents about limitations of tied drinks. Not all drinks are tied with leased pubs. In our case we don't tie wines or spirits. As for tied products, we offer very competitive discounts on premium packaged lagers and packaged ciders and, in addition to our own brands, we have 40 reciprocal deals with regional brewers and we have 170 different casks ales with a 12-16 guest ales a month rotation. The result? Our lessees sold more beer and cider than the rest of the market in 2014.