Glass half full?
Pubs are closing at a rate of 40 a week. But the current economic climate could force a change in attitude from the pub companies who set the rents. Andrew Moody reports
DESPITE THE DIFFICULTIES FACING THE SECTOR, many still dream of running their own pub. For example, people made redundant often plough a lump sum into a new venture.
Now, for some, the dream is ending in disaster with 40 of Britain's 55,000 remaining pubs closing every week.
As more and more would-be publicans lose all their savings – some closing within only a matter of months of opening – the focus is back on the onerous leases that those entering the industry usually have to sign up to.
A report in May by the House of Commons business and enterprise select committee was critical of the so-called Pubcos, the pub companies that now operate the majority of pubs in the UK, over the financial pressure they apply to tenants.
The FSB, which has 4,500 publican members – more than half of which are tied – is joining forces with campaigning bodies in the pub trade to make sure that the small landlord can get a fairer deal.
Clive Davenport, the FSB's Trade and Industry Chairman, says that many people are losing all their money and going bankrupt because of the onerous conditions applied in the leases.
‘The problem is that people are drawn into the industry with the offer of a low rent, but find they are tied into contracts to buy their beer from the Pubcos at inflated prices – and they can't get out of them,' he says.
‘We want to reform the tie and we believe that, when rents are reviewed, the publican should have the option to be free of the tie and be able to buy beer from whoever he or she wants.'
The Commons select committee report certainly painted a dismal picture of the industry.
It pointed to two-thirds of lessees earning less than £15,000 a year – such low earnings even applied to many of the pubs that were actually turning over more than £500,000 a year.
Some 78 per cent of lessees were dissatisfied with the Pubcos whose leases they had signed up to.
A number of pubcos have emerged over the past two decades as a result of a previous antimonopoly investigation into the industry in the 1980s, which forced the major breweries to sell off the majority of their tied pubs.
These were snapped up by companies such as Enterprise Inns, Punch Taverns and Admiral Taverns, which are now among the leading players in the pubco sector.
Since the House of Commons report, consumer organisation the Campaign for Real Ale has lodged a ‘super-complaint' with the Office of Fair Trading, which must decide if the beer tie is anti-competitive.
Neil Williams, spokesperson for the British Beer & Pub Association, which represents pub owners, says there is nothing new about the tied relationship with tenants operated by the pubcos.
‘The business model has been in existence for more than 200 years. It actually affords people a low-cost entry into the industry. The cost of renting a pub is a lot lower than having to buy the premises and, as a result, landlords do end up paying more for the beer, which is what is called ‘wet rent."
He says the contraction of the industry and accelerating pub closures is not down to the lease contracts landlords sign but to a ‘perfect storm' of events.
‘This perfect storm has been made up of a combination of events all appening at the same time. There is the economic downturn, the smoking ban, increases in beer duty and increasing regulation,' he adds.
He places particular blame on the government's decision to raise excise duty on beer over the last year by 18 per cent, and on the increasing regulation of the industry.
Mr Williams adds that while it is difficult for those entering the industry at resent, it is not impossible. ‘It is like going into any other business, you need to research the local area and look at the potential market. There are 56,000 pubs in Britain and not all of them are going to do well.'
The FSB is particularly concerned about the impact in rural areas of the closure of pubs, which are going the same way in many villages as local post offices, single shops and petrol stations.
Of the 40 pubs closing in Britain each week, 13 of them are in rural areas, and in its recent report, A New Approach to the Rural Economy, the FSB calls for the Treasury to make funds available for 100 per cent rate relief for a fixed period of up to 12 months to help vital village businesses.
Linda Walton, the FSB's Rural Affairs and Tourism Chairman, says assistance needs to be given fast. ‘Every week we hear of the death of village shops and pubs, yet the Rural Rate Relief scheme, which was specifically set up to help these rural businesses, is being chronically underused,' she says.
‘Village shops and pubs are at the heart of village life and the failure of such a business can devastate local communities.'
Whether or not publicans get a fairer deal from the Pubcos depends very much on whether the Government refers the sector to the Competition Commission.
In the meantime, with the number of pub closures escalating, it is a very difficult time for landlords. The latest challenge in Scotland, for example, is the impact of new licensing laws. These say that, to continue trading, all pubs and clubs will require a premises licence and must nominate a premises manager, who must hold a personal licence. This is already leading to considerable confusion.
‘The industry is in a very serious position and the government must take action,' adds Mr Davenport at the FSB. ‘Above all, there needs to be a closer examination of the onerous leases that would-be landlords are required to sign up to. If not we are going to lose a lot more pubs, which are often a focal point of everyday life for many people.'
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