The traditional make-up of the Midlands
pub is changing and would-be licensees are now searching for food-led outlets. TONY HALSTEAD reports
Buyers looking for a pub in the Midlands Black Country 20 years ago would invar-iably have gone straight for the beer barrelage sales figures to estimate its potential as a good business prospect.
But, like most pubs in once heavy-volume, industrial-drinking areas, beer volumes are no longer a reliable barometer to the likely success of a pub business. Like former working-class volume-drinking areas in the north, the Mid-lands has also seen a steady decline in the number of traditional beer drinking and ale houses.
Today, purchasers are more likely to weigh up the prospects of a pub with a view to developing a food business or a special niche in the market. Draught-beer sales will always be an important component of most pub businesses but they are being increasingly challenged by the growth in catering and the influences of entrepreneurial operators keen to diversify into music and sport to offer the all important unique selling point. And just as the drop in beer volumes has changed the pub property market, the current threat to smoking in pubs also looks likely to change the way many more would-be buyers will in future judge the potential of a business.
Freehouses are rarely available
If the traditional make-up of a pub business in the Midlands has changed, the region is follow- ing other parts of the country in property trends. Freehouses are as rare as gold dust, the leasehold sector reigns supreme and there is plenty of activity in the catering and letting accommodation markets.
Out of the industrial West Midlands heartland and its surrounds, the prosperous rural and semi-rural locations are still much sought after for both free-trade buyers and those happy to secure the leasehold of a business.
But whatever the merits of a property put up for sale, the entrepreneurial flair of a purchaser or the efficient business operation of the vendor, red tape is increasingly hampering the selling and buying process.
Andrew Whelan, who works in the Birmingham office of chartered surveyor Fleurets, says deals are being held up or aborted simply because of the growing volume of bureaucracy and legislation. The new Licensing Act, Gambling Act, changes in the Use Classes Orders, which has changed the planning status of many town and city properties, Disability Discrimination Act, Asbestos Regulations, and the minimum wage have imposed severe headaches for buyers and sellers alike. 'It means it is more vital than ever for vendors to have updated accounts and trading figures to hand,' says Whelan, 'and also to keep good records and relevant documentation about the businesses to hand over to their solicitors.'
Fleurets also points to consolidation in the marketplace, which is seeing fewer individual pub companies competing for each property.
'The major pub companies do not need bank approval for each individual purchase because they have significant funds already in place,' Whelan says. 'However, as these companies swallow each other up, there are fewer of them around to chase likely pubs when they go on sale.'
He adds: 'Many smaller companies need to get bank approval for each purchase and the institutions will insist on valuations, surveys and due diligence checks.'
This, however, favours individual multiple operators who are more able to cut through the red tape and will often take a speedy commercial decision in order to 'get the job done'.
Demand high for food-led pubs
In the south Midlands, towards Northamptonshire, food-led pubs are taking over from wet-led beer houses as the main target aspiration of buyers.
And when Fleurets conducted the sale of the White Bear, Shipston-on-Stour, Warwickshire, it changed hands off an asking price of £165,000. The pub is located in the centre of this busy market town on the edge of the Cotswolds and 10 miles south of Stratford-on-Avon.
Its strategic position is highlighted by the proximity of the well-known tourist towns of Bourton- on-the-Water, Stow-on-the-Wold, Moreton-in- Marsh, Chipping Camden and Woodstock, as well as Birmingham's NEC.
The Georgian building overlooks the town square and trades through a traditional bar area where beer sales top 450 barrels per year and also sports an excellent restaurant. The business capitalises on the thriving tourist business with the provision of 10 en-suite letting bedrooms. It also sports a 32-cover dining room and a function room that can accommodate 30 diners and more informal events for up to 60 people.
According to Peter Dowling, pubs negotiator at Christie & Co's Milton Keynes office, most buyers are looking for 'shells' to exploit an opportunity for food sales. But many are reluctant to pay exceptional premiums, especially if the pub is tied for wet sales.
'A perception exists that food sales are vital to drive the gross profit margin to an acceptable level that would otherwise have existed from a free-of-tie agreement,' Dowling says.
But he warns there is a cautionary tale for would-be Gordon Ramsays, saying: 'Some gastro pubs are so highly renowned and enjoy such a good reputation that buyers sometimes fear trade will exit with the owner.'
Buyers won't pay for goodwill
The scenario is known as 'dog goodwill', which means that wherever the chef goes, the business will surely follow. 'At this extreme end of the market buyers are reluctant to pay exceptional premiums for somebody else's gastro creation,' Dowling says.
Back in Birmingham, Christie & Co's associate director, Martin Davis, says high demand for freehold pubs is driving up values, and their scarcity means leasehold units are becoming increasingly popular. The past year has seen active involvement in the market by smaller pubcos and investors, who typically operate between five and 10 outlets.
'These smaller companies, such as Penn Street Taverns, Black Country Traditional Inns, Westbourne Leisure, Havana Taverns and Calco West Midlands remain extremely acquisitive,' Davis reports.