We are starting to see the unintended consequences of the pubs code. Enterprise has come out strongly and more radically than many had expected with its future strategy in the face of the new regulatory landscape.
The numbers alone were a shock: by 2020, Enterprise aims to shift to an estate of between 750 and 850 managed pubs, up to 1,000 moved into a commercial property operation and about 2,350 tenanted and leased all under no greater than five-year leases. That means a disposal of more than 1,000 pubs.
In one fell move, Enterprise pulled the rug out from under the market, which, while it had been expecting some move in this direction, has been left staggered by the sheer scale of its response to the market rent-only option (MRO).
While the City will be pleased to know Enterprise’s plans for the future, responses from tenants and lessees across its estate were understandably one of trepidation and concern because the announcement has done little to settle nerves, serving only to throw further uncertainty across all those businesses.
Many will be left unable to plan for the future until they know how their business will fit under the new Enterprise model.
Some have complained that a more “sensible approach” would have seen Enterprise improve the offer of its tie, reducing prices to create a more “sustainable and workable model”.
But the idea that a publicly listed company would seek a longer term, less profitable but more sustainable model is naive at best. Enterprise is going to act in the best interests of itself and its shareholders in the short term.
Is that right? Probably not, but that’s the system and its not going to change unless we’re going to radically overhaul the entire process — and bearing in mind the recent election result, that’s not likely.
So, what does this mean? Well, as many have predicted, the aims of the introduction of the pub code and the MRO regulation to make things fairer for the publican will achieve success… for the few pubs left standing!
Enterprise will be disposing of at least 1,000 pubs — and you can guarantee they won’t be the crown jewels of the operation. Will they remain as pubs? Then there’s the 1,000 or so the company plans to shift over to its commercial property arm — what’s more profitable from a rent point of view, a pub with a low turnover or a supermarket churning out the volume? Plus, those businesses will no longer benefit from any support from the pubco — they will be left to sink or swim.
Enterprise’s announcement shows that from its current estate of more than 5,200 pubs, at least 2,000 of those are at risk — by my maths, that’s about 40%.
And, of course, all eyes are now on Punch. In light of Enterprise’s announcement, what will their move be? It has a new boss coming in, one with a background in franchising — does that spell the future for Punch? We wait to hear...
And for those well-meaning politicians watching those unintended consequences coming home to roost? Cheers guys. The first round in the post-MRO landscape is on you.