Dixon: Time to get real about how much pubs can actually turn over

When I joined the old National Union of Licensed Victuallers (NULV) in 1979, not everyone used this phrase. Bass, then the leading brewery company, referred to the trade on which it based a new tenant’s rent as the ‘potential’.

There was some merit in this, in so much as I feel it could be argued that the ‘potential’ of a pub is not necessarily ‘a maintainable trade’.

We can all take an outlet and philosophise about what turnover could be achieved with a couple who can cook, keep ale, have triple the personality of a pubco property manager, and employ attractive competent staff, complemented by the best summer since records began and the national soccer team finally winning a championship!

We can, therefore, estimate the potential. However, what would be a ‘fair maintainable trade’ is, I would suggest, another matter altogether.

Recently at the BII (British Institute of Innkeeping) we received a complaint/query from an accountant who could not, he claimed, advise his clients on the figures on a brewery website.

I searched the vacancies (there were 27) within 10 miles of my house and indeed the details were a little confusing. ‘Pub is taking £3,000 but could do £5,000’ was the typical phraseology.

The accountant’s observations were that without declaring whether the take was VAT-inclusive or net of VAT, it was impossible for him to give accurate guidance.

Following a polite word in the ear of the local property director, assurances were given to ensure the figures would be crystal clear. I then began to analyse all the individual pubs.

The worrying factor was that every single one was being rented on an average of around £2,000 (£2,800 gross) a week more than they were doing.
So for those 27 pubs to be able to afford the rents, they needed to trade at well over £2m more a year than the turnover they were currently enjoying (£2,000 x 52 weeks x 27 pubs = £2.81m).

All this within a 10-mile radius of chez Dixon? I enquired as to what planet the brewery felt it may be inhabiting. The company was somewhat taken aback by the obvious fact that there were not two million pounds’ worth of potential consumers hiding in south Staffordshire caves, just waiting to patronise their local hostelries.

The brewery’s defence was the classic ‘We are no worse than anyone else’ and in fairness, it has a point. A detailed examination of a family brewer’s vacancy list highlighted their differentials between actual and fair maintainable trading levels.

To my astonishment none of the pubs to let had traded at their FMTs in any of the past three years. If there are 2,000 pubs to let at the present time, then all indications are that these pubs will need to increase sales by £200m to meet and afford their rental levels!

The Royal Institution of Chartered Surveyors (RICS) states that rents should be based on FMTs on the assumption that the licensee will be a reasonably efficient operator (REO), but RICS unhelpfully fails to offer any definition of an REO.
The key word here is ‘reasonably’: now, that word is defined by my thesaurus as nothing more mould-breaking than ‘modestly’. It does not translate ‘reasonably’ as ‘retail genius capable of turning back the tide of history’!

In World War II, from 1942 onward, RAF pilots would undertake up to two years’ training before being sent into combat.

However, in the desperate days of the Battle of the Britain some of ‘the few’ only received 20 hours before having to face the might of those German Fokkers.

Many of Britain’s publicans of tomorrow will not even undergo that amount of pre-entry training! It’s well worth noting that even the best companies only offer five days.

So just how do couples with no experience, little or no training, and limited skills development, transform pubs by millions upon millions of pounds’ worth of sales in a continuously declining market?  

The answer is that they can’t — and the vast majority will lose their life savings because no one has had to justify the FMT. Frankly, the system is rotten and unfit for purpose.

What needs to be done? FMTs should be justified in detail and subject to challenge and appeals similar to rateable values. There needs to be a definition of what is a ‘reasonably efficient operator’, how much experience, skill and what qualifications are required and — crucially — what period of time a person will require from taking on a pub to becoming reasonably efficient.

It’s time to repair the reputation of our sector by setting rents on fair trading levels that give those who want to run a tenancy or lease at least a realistic chance of success.