Back in the 19th century, well-meaning medics would often resort to amputation as a cure. Their concern was genuine, but their prescription could leave the patient weakened and more likely to die of complications.
In a surgeon’s view, the offending limb had been removed; but sadly this was done with no consideration for the longer term consequences for the poor patient.
This week a range of similarly well-meaning MPs, many of whom are passionate supporters of their local pub and the UK pub industry, did much the same thing.
Pub campaigners understandably want to solve the problem of pubs closing, and help licensees who struggle to make a living. Their diagnosis is that these problems are caused by large pub companies selling beer at “inflated prices” whilst also charging high rent. Their prescription is simple: give lessees the option to buy beer elsewhere (or ‘break the tie’) and compel property owners to charge a ‘market rent’ for the pub. If this treatment is followed, their prognosis is that pub closures will slow and landlords will make more money.
Flawed
Unfortunately, their diagnosis is flawed and their prescription will cause more harm than good.
To understand the challenges facing our pubs, one must understand the nature of social change over the past decades. Since 2004, total UK alcohol consumption has dropped by 19%. The proportion of beer sold in the pubs versus at home has dropped from 68% in 2000 to around 50% today. Competition for share of leisure spending has never been greater, and it has become harder for pubs to persuade spending customers through their doors.
From beer duty and business rates, to VAT and energy bills; pubs have seen their costs rise significantly. The smoking ban and different patterns of socialising have had an impact too. When costs rise and revenues fall, the incentive to invest falls with it. Subsequently, too many pubs get stuck in a spiral of decline with inevitable results: customers vote with their feet and their wallets.
As a passionate supporter of the Great British pub, I share the campaigners’ desire for a healthy, sustainable pub industry, but my prescription is different: serious and long term investment.
Growth
If our pubs are to have a bright future it is critical to get the right people, running the right pub, in the right place; and then back them with the right kind of investment. For example, in our pub business, Star Pubs & Bars, we are investing for growth. We are focused on growing the size of the “cake”, not fighting over a smaller slice of an ever shrinking one. Over the last two years we have invested around £33m in major capital projects to transform our pubs, directly benefitting their lessees.
It’s also about transferring skills and knowledge. As brand builders, we have huge expertise in understanding changing consumer behaviour, and using that to develop the offers that customers demand. We use this insight to work with our lessees in partnerships that benefit both parties. Investment creates a virtuous circle of growth.
A good example is a pub of ours in Yorkshire. A few years ago it was dying and takings were just £155 per week. After a £100,000 investment to refurbish the pub and install a kitchen to provide a food offer, the pub now takes £15,000 a week. The lessee has a more profitable and sustainable business, and we have a return on our investment from selling more of our beers and ciders. The lessee now employs 25 staff and is clear that he could not have financed the investment himself: no bank would lend to him.
Partnership
In my view, removing the beer tie will cut off the investment needed to help pubs succeed. There is no viable investment model that stacks up if a lessee has the right to simply break the tie between renting from us and buying our beers and ciders. Furthermore, a “market rent” would be higher and would load fixed costs on to the licensee.
Indeed, if enacted, it would force the relationship to become one of a commercial property company and tenant. There would be no partnership approach, and one where the property owning company has little or no incentive to help the lessee grow their own business.
We don’t want to operate in that world, and we have a vested interest in creating a successful and sustainable future for Great British pubs. With certainty for the future, and a business model that works, we would continue investing over the coming years to refresh our estate because we know it works for us and our lessees.
Quite simply, breaking the tie means less investment, more closures and a vicious cycle of decline not a virtuous circle of growth. I urge parliamentarians to think again before they rush to a decision we may all regret.
The above article first appeared in the Daily Telegraph and has been repeated here with the permission of David Forde.