My rent is up for review shortly and, like many of you, I'm waiting to see how the pubco views things going forward. Are they still seeking to extract their pound of flesh or are they sympathetic to the idea of reducing rents in line with falling volumes?
Over the years pubcos have ensured that a strategy was put in place to 'grow' rent, evidenced by the emergence of a 'upward rent only' clause in lease agreements which by definition ensured rents could only go one way.
Consequently, up until now, the question has never been whether or not rent should go up, but rather by how much.
However, things have undoubtedly changed and given where we are today, the last thing on the minds of many publicans is a rise in rent; in fact I suspect that when the time comes to sit down with your BDM many of you will be looking to secure some fairly hefty reductions.
Rent calculations have always been a little bit 'murky'; they are after all heavily reliant upon a particular individual's interpretation of fair maintainable trade (FMT). The rent is, in theory a divisible split of profit made once all outgoings have been factored in, (no wage is allocated to the tenant/s).
Problems often arise when pubcos 'talk up' the earning potential of the outlet and 'talk down' the costs incurred in running them. This has over time, led to some pretty outrageous demands which have helped reinforce the stereotype of the 'greedy grabbing' pubco. (Factoring machine income into the rent equation when they already enjoy a 50/50 split of the profits is a prime example of this).
We can all think of reasons why we should pay less rent, similarly the pubco will put forward all sorts of reasons as to why their demands are in line with market forces. Well I've got news for them; rents are dropping in other sectors and I'm expecting my rent to mirror that trend.
Pubcos will argue, quite rightly it must be said, that rents should not be reduced merely to subsidise 'poor operators'. However, if you accept, as most of us appear to do, that the decline in volume is due to a variety of external factors that we have little or no control over then the case for rent reductions becomes much stronger.
Would it be fair to say that trading levels are in many cases substantially lower than they were five years ago? I would suggest they most certainly are.
Is it likely that expectations are likely to rise substantially in the foreseeable future? I suspect not.
Increasing numbers of pubs are having to contend with lower volume and lower margin, consequently the issue of rent as a rapidly increasing percentage of profit has become a major issue.
So what is a viable rent? Most people work on the understanding that rent should constitute no more than 10% - 12% of total turnover.
More significantly however, is the fact that this figure is based on the assumption that the pub is trading at a GPM of around 55%. How many of you are managing to achieve that at the moment?
Outlets where food constitutes a high proportion of turnover are probably best equipped in this respect, as are those pubs located in affluent areas where rising prices do not have quite the same impact upon trade they do in other locations.
Pubcos will undoubtedly argue that the current slump in trade is a 'blip' and that things will undoubtedly improve next year as we begin to emerge from recession. I would have to say that I wholeheartedly disagree with this assessment.
What grounds are there for concluding that prospects will improve in the foreseeable future? In short none, after all:
• The duty escalator will remain in place until 2015.
• The smoking ban will never be repealed.
• Supermarkets will never raise their prices.
• Pubcos will never willingly lower theirs.
• Changing lifestyles ensure that many people will continue to find alternative ways to spend their leisure time.
Just as significantly, the effects of the recession will continue to be felt for some considerable time yet. The International Monetary Fund (IMF) predict that government borrowing in the UK as a share of GDP is likely to be the highest of all the G20 countries in 2010 (The Economist April 2010).
This has prompted Mervyn King, governor of the Bank of England to warn that the next five years are likely to be 'painful', characterised by savage cuts to public spending and substantial tax rises to help address the fiscal deficit.
So let's be in no doubt whatsoever, there are painful times ahead with no short cuts, consequently I need to make sure my rent reflects the market conditions, both now and going forward.
So when my BDM comes round next month to collect the 'cake' I will suggest he leave a couple of slices on the plate for me. Is that too much to ask for?
I don't want to hear him talk about 'historical trading performance'; it is the product of a bygone era, one that we will probably never witness again.
Nor do I want to hear him talk about an 'imminent recovery' for the reasons I have mentioned. I want him to show me that he recognises that the landscape has irrevocably changed and offer me a deal which reflects that recognition.
After all, if he doesn't give it to me then he'll probably have to offer it to my successor anyway, won't he?