Back to Basics: Rent concessions
I recently obtained a rent concession from my landlord Punch Taverns. This was in response to a serious downturn in trading experienced in the second half of November and continuing through December and into early January.
The concession was granted after going through the following process:
1 Initial call to business relationship manager (BRM) to alert them to the problem and the need for an urgent meeting
2 Meeting with BRM to present the situation
3 Passing on financial information including takings, category splits, staff costs, overheads and margins, with an indication of break-even point
4 Second meeting with BRM and his superior (the regional operations manager).
The concession was granted on the spot at the end of the second meeting, subject to certain conditions.
The process from beginning to end took three weeks (one of which was Christmas week). The pubco responded quickly, assessed the issues on the spot and made the decision there and then. I believe that the way the request was presented, along with the high standards clearly apparent at the pub itself, were hugely influential in obtaining a positive result.
As the regional operations manager said: "We don't grant rent concessions to badly run pubs - this place clearly isn't. It's probably the best pub in town and I'd be pleased if it were my local."
The other thing to remember is that it is very expensive for the pubco if a tenant goes out of business. They will incur legal fees, probably be left with a loss-making pub to run or close down, may have to reinvest in the site to bring it back to an acceptable standard, and then have to locate a suitable tenant who hopefully has the business acumen to avoid having the whole situation happen again in two years' time.
The overall outcome is that the pub has been granted a second chance after factors outside its control - economic worries, the onset of cold weather in the post-smoking ban environment and fierce competition from supermarkets and other retailers desperate for the leisure pound - derailed the business in the second half of November. We now have 12 weeks to rebuild the business - it's a lifeline, but it's still touch and go.
If you're in a similar predicament:
• Don't bury your head in the sand. Face up to the problem if trade is falling away or costs are spiralling.
• Get the calculator out and work out when the money is going to run out
• Think through your current offer and try to pinpoint a handful of issues that have contributed to the situation - the pubco will ask you what has gone wrong
• Talk to your BRM or area manager and be honest with them. There's no point beating around the bush, it's your livelihood and sanity at stake
• Prepare your case thoroughly before you meet the pubco representative (see below).
It's not a nice thing to have to go through, but your sanity is seriously at stake if you don't at least try. Preparing your case
- Get the pub looking as good as possible.
- Make sure you know how to answer the question "what has gone wrong?" You may not know the exact answer - after all, if you did you might have been able to do something about it - but you need to be able to talk sensibly about what has affected your business.
- Back up what you're saying with evidence. Show them accounts, bank statements and a cashflow projection so you can demonstrate the financial situation. It also helps if you have marketing material to hand for any campaigns you are running to help improve things. I set up a table in the dining room for the meeting with all our press clippings, customer survey results and awards on it.
- Be clear about what exactly you are asking for. Again, it helps if you can produce a cashflow showing when your money will run out and how much is needed to cover this period until trade rebuilds.
- A bit of flattery doesn't hurt. The BRM should have lots of ideas and suggestions for improving trade and listening to them with bated breath is advisable. They may not be relevant to your business, and they may have come straight out of a textbook but part of their job is to help you run a good business so there will be suggestions in there that will help.
- Don't overdo the sob story. There is a fine line between presenting the seriousness of the situation and overdoing it. The danger is that things look so bad the pubco will come to the conclusion that not even a rent concession can help you.
