Pub market 'will face greater rationalisation'

An analyst has predicted a greater rationalisation of the pub market and that will be to the benefit of the major managed operators.

In a report on the market entitled Survival in a Challenging Industry, Jonathan Leinster at UBS said: "After a jump with the new licensing regime in 2007, the number of on-trade licences has been very stable.

"This is surprising given the economic backdrop and the particular competitive pressures felt by pubs.

"We suspect that the sector has not nearly rationalised enough.

"Consumer spending is under pressure and long-term declines in beer consumption make for a continued difficult trading environment.

"Despite this, the pub industry is still struggling to reduce capacity. We therefore expect recovery to remain slow throughout this year.

"In the longer term we believe there must be rationalisation of sites that cannot return their cost of capital."

Leinster added that leading operators will take share, but only over a long period of time.

He said: "Within that context, we believe that JD Wetherspoon, Mitchells & Butlers, Greene King and Marston's will take market share from under-invested managed pubs, financially over-stretched leased pubcos, and the freehouse trade in the longer term.

"They have purchasing scale and — for those that are not overstretched — access to capital. That means they can offer their customers a wider variety of food and drinks at good prices in a well-furnished environment. A sole trader can still compete against a managed house, but they need to be that much better a retailer."

The report suggests that Enterprise Inns, Greene King Pub Partners, and Marston's Pub Company as tenanted and leased businesses face greater competitive and growth hurdles than managed pubs.