Storm risk: the forecast for 2008

Along with economic worries, Tony Halstead picks out some of the key themes set to shape the year ahead

Beer Prices

The threat of a substantial budget-duty increase in April and warnings of above-inflation price rises from the major brewers have already set the trade's alarm bells ringing.

Licensees and pub operators are bracing themselves for a steep hike in the wholesale cost of beer as brewers are confronted with soaring raw material costs and steep energy and fuel rises.

If Chancellor Alistair Darling bows to health-lobby pressure to raise duty as a means of curbing the nation's growing binge-drinking problem, pubs could find themselves hit by a double whammy by next April.

Graham Page, consultant for market analyst AC Nielsen, says it is impossible not to be gloomy about the price drinkers will be paying for their beer later this year.

"Government is being put under intense pressure by the health lobby to increase duty in the spring budget.

"We already know what the big brewers are planning, so the trade could receive two lots of bad news in the first quarter of the year," he said.

"The prospect of a £3-a-pint price tag in bars across the country by the end of the year is quite possible.

"On-trade beer volumes are down by as much as 10% towards the end of last year, which illustrates the decline pubs are already experiencing," Page pointed out.

The big four brewers are all scheduled to announce their annual price increases over the next four months, by which time the Chancellor will also have revealed his beer-duty proposals.

Consumer Spending

Drinkers will make fewer pub visits and spend less money on licensed premises, thanks to the impact of the credit and mortgage squeeze.

Licensees and pub operators will face increased pressure on their businesses as the worsening economic climate starts to bite, according to Tony Payne, chief executive of the Federation of Licensed Victuallers Associations.

"There are already signs that customers are spending less and, with other pressure such as increased energy costs, licensees have some hard thinking to do.

"The Federation has urged all its members to review their businesses to see whether they can lower costs and overheads.

"They also need to examine what changes they can make to encourage more customers through the door.

"It's going to be a tough year and I am under no illusions about how difficult things are going to be for many licensees. I fear we are going to see more going under."

Responsible Retailing

Licensees and pub staff face sustained pressure throughout the course of 2008 to prove they are running their premises in a responsible manner.

Once again, a series of "sting" operations to check on pubs serving underage or intoxicated customers will take place across the country.

BII chief executive John McNamara says it is vital that licensees and their staff remain fully aware of their responsibilities.

"The industry will once more be a key focus of attention and we have to maintain a high standard in the way we operate our pubs.

"The BII is doing a lot of hard work with the aim of driving up standards - and we have made progress.

"These are difficult economic times for the trade. It has also had a mound of new legislation to take on board but we must always strive to ensure that well-run pubs are attractive places to visit.

"Our BII schools project, which aims to educate young people about the culture of alcohol, is now up and running with 75 schools on board.

"We believe education is very important in ensuring that youngsters get the right message about alcohol," he said.

Getting A Mortgage

Lenders have tightened their belts as the effects of the American sub-prime mortgage

crisis hit the UK market.

Prospective pub purchasers are already finding that the main lending institutions have reviewed their credit

procedures and borrowing conditions.

Getting a loan to finance a capital project or buy a pub will be that much more

problematic, especially in more marginal cases which will be that much less attractive

to a bank.

Chris Heard, managing director of finance experts Marlborough Leisure, said: "Loans will be more difficult to obtain, but this is tempered

by the fact that pub prices are now more realistic, with rental values also under pressure.

"Banks we regularly deal with tell me there is still money to lend but they are now looking at things more carefully and are that bit more fussy about the quality of the loan applicant," he said.

Pub Consolidation

The rate of bottom-end pub disposals is set to increase as more licensees struggle to survive and a year of major consolidation could be on the cards.

Trade predictions already point to as many as 2,000 pubs closing down or sold over the next three years as an overdue "culling" of the nation's pub stock takes place.

Industry observers say it has been clear for some time that there is an over-supply of pubs to service the dwindling number of customers prepared to use them.

However, Simon Hall, director of chartered surveyor Fleurets, says there is no evidence yet

to support claims of a major sell-off by the big pubcos.

"Pubcos have always churned their estates, although economic factors are emerging to suggest that disposals this year may be above their normal activity," he said.

Paul Davey, managing director of agents Davey & Co added: "Pubcos bought at the top end of the market through last year so it is

inevitable they will now want to divest at the bottom.

"Many pubs are now unviable but the question is whether the local authorities will agree to these properties being de-licensed."

Pub Rents

Are we about to see the

day when pub companies start to reduce rents to help tenants and lessees handle the reality of the worsening trade climate?

Industry observers believe the signs are already there to suggest the pubcos are

softening their stance.

Trade consultant Phil Dixon said: "The pubcos and brewing companies have made it clear they will not seek to penalise licensees who lose trade through no fault of

their own.

"I think you will see more support for tenants and lessees over the course of this year, especially for those who genuinely deserve it.

"It is an unwise pubco that does not seek to support a competent operator."

Neil Morgan, head of the pub division

of licensed property agents Christie+Co,

said: "Pubcos tend to take each individual case on its own merits these days and work in partnership with their licensees, but such things as retail-price index links can hit

businesses.

"If there is a financial squeeze, pubcos have to ask themselves whether it might be better to have someone trading and paying rent than have a temporary licensee in the pub paying a lower rent anyway."

Food

Has food now become the main driver of the pub sector?

Pub catering continues to grow and the number of wet-only outlets is in decline.

Only a comparatively few specialist drinks venues appear to be prospering as

gastropubs and food-led houses continue to gather strength in the wake of last summer's smoking ban.

Trade accountant David Jones said: "Of all the pub accounts we handle, less than one- third are 100% wet trade - and this figure is dropping all the time.

"Food is obviously a major income stream for an increasing number of pubs but delivering an effective service can be very labour- intensive, so profit can suffer.

"I would urge licensees to try to develop other, easier revenue sources such as machines. These can often contribute as much as 20% net profit to a business."

l The shape of things to come - p19