What does 2009 hold in store for pubs?
Morning Advertiser managing editor The PMA Team makes some predictions about the year ahead.
Managed operators death roll
Managed operators have begun a brutal and bruising dash for market share. JD Wetherspoon (JDW) has dived deepest as usual with a 99p offer on a pint of Greene King IPA, which, unlike the usual JDW January sale, will last until table talkers are changed — three or four months. Significantly, Wetherspoon is calling its offer the New Deal — a deliberate reference to Depression-hit 1930s America. Mitchells & Butlers (M&B) has extended its Harvester Early Bird offer across the week (Sundays included) while Ember Inns is doing a Two for One offer. Chef & Brewer, the upmarket Spirit brand, is offering two courses for £10. M&B claims to have achieved a beer volume out-performance of 8% in October 2008 thanks to its strategy of holding prices to create ever better value. Value offers are likely to be a fixture of 2009 as managed operators engage in a death roll, trying to squeeze market share out of three main sources: each other, full-service restaurants and the tenanted sector. No apologies for requoting M&B chief executive Tim Clarke's plan for 2009: "Exploit increasing distress in large parts of the on-trade."
Tenanted test
Last year, the tenanted pubcos faced their sternest test since the recession of the early 1990s. It is likely this year will bring even greater trials. Before the UK economy began its slowdown midway through 2008, they were already struggling with multiple problems: a smoking ban affecting wet-led pubs particularly badly; an 8% decline in beer volumes as drinkers gravitated towards much cheaper prices in the off-trade (and managed sector); and two wet summers taking the shine off what is ordinarily one of the busiest times of the year. Yet the worst of the pain for the real economy was in the post in 2008. In the early months of 2009, the UK consumer is likely to go into lockdown with spending even more constrained. The cost to both Punch Taverns and Enterprise Inns of "special help" for struggling licensees has been running at around £1m per month. The biggest test of these pubs' durability will come in the traditionally quiet months of January, February and March. Enterprise has budgeted for up to £15m of support in the current year, a further stepping up of support. Punch's run-rate of support stands at around £20m. These run-rate figures could well rise higher. With no market at the current time for buying batches of pubs, much will then depend on finding individual buyers for embattled bottom-end pubs. Enterprise Inns is tapping into the alternative use market while Punch is giving 500 licensees until Easter to decide whether they want to buy their pub.
Downsizing to survive
Profitable pubs produce cash slowly, loss-making pubs lose it quickly. The answer for the vast swathe of multiple managed operators, often operating leases, will be to have a long, hard look at which sites need ditching. A significant number of operators have been and will be downsizing their estates. This is graphically illustrated by Passionate Pub Company, which reduced its 26-strong estate to 10 last year. Non-executive chairman Alistair Arkley explains: "Multiple-leased companies are having a tough time of it at the moment. We're concentrating on pubs with a higher turnover that are more sustainable, with food if possible. We're focused on survival in the short term. In the longer term, we'd also like to consolidate more geographically. We've managed to assign quite a few leases, although for a lot less than we were expecting." A similar strategy is being adopted at Croydon-based CCT Group, which now has 32 units compared with 40 last year. Chris Compton explains: "I'm trying to sell another five at present. I probably wouldn't mind selling another 10 — not that we need to sell, but just to reduce management time. We'll then sit on things for two or three years to see how the situation develops. That said, I'll look at any opportunities at any time, but we need to have quality people in place before we start expanding the business."
Pre-pack administration controversy
As companies increasingly seek the quick fix of the pre-pack administration, controversy around the practice is bound to increase. Last April, Jon Moulton, boss of Alchemy Partners, referred to the pre-pack administration, in the MA, as having the potential to cheat creditors. "It is not a procedure with any legal basis," he says. "Bad management can plan for a pre-pack months in advance, line up an administrator — and then be back running the business immediately." New regulations from Government seek to exert tighter controls, with insolvency practitioners having to produce evidence to show why assets are sold in a pre-pack (where buyers do not get a chance to bid for assets) rather than more traditional liquidations. Landlords, who find properties abandoned in administration by management teams who scoop out their best assets, are likely to get more vocal. Government tax-collecting agencies are also likely to start contesting a process that leaves them with debts from businesses that rise phoenix-like from their unmet obligations.
Silver linings
Every black cloud offers a silver lining of opportunity. A devaluing pound is likely to suck in tourists from abroad. The same reality means more of us are likely to take holidays in the UK, spending cash in British pubs rather than Spanish bars. Value offers in the pub sector will prompt customer defections from the more fully-priced swathe of full-service restaurants. Freehold pubs opportunities will proliferate, with existing, financed tenants largely unopposed in buying terms. In tough times, good pub operators tend to out-perform bad pub operators more markedly. Even more poor pubs will close in 2009 than in 2008. Each time a pub closes, another pub nearby gets the opportunity to strengthen its performance. Nobody automatically inherits customers. But those that maintain their standards stand every chance of doing so.
