Pulling power of pubs remains - in spite of huge setbacks
- Credit: Antony Kelly
With margins squeezed, costs rising and a torrid two years of pandemic behind it, the pub trade is not for the faint-hearted.
But is still there enough in a pub business today to make it a viable enterprise?
Those involved in the industry think so - but suggest that those who enter it need to be aware that it’s not an easy business. Organisations like consumer lobby group the Campaign for Real Ale (CAMRA) are calling on the government to give the trade a helping hand as it emerges from two hellish years.
The phasing out of restrictions has provided pubs and other hospitality businesses with a boost - but they are still charting a careful course, conscious that painful price rises are likely to affect their customers as much as them.
Adam Bullas, director of the licensed leisure team at Savills, believes that the trade still has pulling power - but says the pandemic did create a markedly polarised market, with some clear winners and losers. City and larger town venues were particularly badly hit as office workers stayed home and the tourism trade hit the floor.
Bearing in mind that visitor numbers to the UK plummeted from an estimated 40.9m in 2019 to 11.1m in 2020 and 7.7m in 2021 a drastic fall-off in trade was hardly surprising.
However, pubs with large beer gardens, or based in coastal or rural locations, were able to capture much of the home market that was available.
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The start of the year brought a welcome uplift in trade as customers began to return to their favourite urban drinking holes. This resurgence has brought with it a sense of optimism among operators and investors who are now feeling more confident about the future.
“There is strong acquisition appetite for pubs in East Anglia as large pub companies and emerging regional brewers seek to capture the demand from people that have moved to the suburbs over the pandemic,” said Mr Bullas.
“East Anglia is a beautiful part of the country and has excellent accessibility into central London. Those who are looking to increase their representation in the region have favoured honeypot locations such as Burnham Market, Blakeney and Cromer.”
The re-emergence of the hospitality industry from Covid has been “a welcome blessing” – both for the British public and pub operators, he said, but added that uncertainty remains.
The old work commute returned on January 20 with a change in government guidance and with that, pubs have begun to fill up again.
“With the industry experiencing a resurgence of activity since the lifting of trading restrictions, operators and investors are now more confident in the future. While there are still a number of challenges that pubs have to overcome, such as staff shortages, supply chain disruption and rising costs, improved market confidence is resulting in the deployment of much of the capital that has been raised,” he said.
He believes that although there are still question marks over whether commuting workers will return to pubs in the same numbers as before bearing in mind some more permanent changes in working patterns, town and city centre pub trade – and thus pub property values – will improve.
Remarkably, stock is still low with few properties being openly marketed, but he believes this situation will improve by the end of 2022 after the pub trade gets some sustained income and profitability under its belt.
For those operators who don’t weather the mounting costs and loss of government support as well as others, there will be pressure to sell – and to turn some properties to alternative uses. But there will be some fierce competition for some of these pubs, he predicted.
“We think there will be increased estate churn from the main pub companies. Large freehold and leasehold multiples will be paid for sites with large outside space – ideally with a view or water close by and where there is proven sustainable trade. With low cost of debt and continued appetite from private equity and foreign investment, competition for sites will be rife and therefore we believe multiples will continue to improve.”
Richard Dixon, CAMRA’s pub protection officer for the Norwich & District branch, said there had been no notable rise in the number of pubs being marketed compared to pre-pandemic levels.
“I am honestly surprised there have not been more that have come up. Of pubs that are closing they have not come up for sale yet. If you were to run a pub you would have to be pretty dedicated and that’s always been the case,” he said.
He keeps a tally of pubs being marketed in his area and counted 59 in February 2022 compared to 80 in February 2021 and 77 in February 2020.
Pubs do face rises in heating costs as gas and electricity prices rocket, and this would affect brewers as much as publicans, he said.
“The only real way to help is to try and reduce the tax burden on the pub trade,” he said. That, and tackling cheap booze in supermarkets.
“There’s still a struggle. I admire anyone who wants to take on a pub at the moment. I will say from the pubs I have been into the pubs seem to be a lot quieter then they used to be. A lot more pubs close on a Monday or maybe a Tuesday.
He added: “I think running a pub it not easy at the best of times, publicans are very dedicated and many work long hours. Pubs in rural areas are in danger most to planning changes but run by the right people they can flourish. Of course the pandemic has caused lots of problems and with rising inflation the next year is going to be difficult.
“Pubs that are tied can be the most challenging if publicans cannot take advantage of buying on the free market.”
His CAMRA opposite number in Suffolk, Nigel Smith, said of the 17 pubs or former pubs he was looking at that were up for sale as of February most had been on the market for some time.
“While this is no precise measurement of the current market it does fit in with what we have seen in the wider market – currently most local pub owners and publicans are sitting tight.
“They are used to trade fluctuations and as their business is often part of their lifestyle so they do not react quickly to panic reports but may seek to re-scope their business model first. Obviously this may change and a number of factors could seek to change the situation.
He suggested that factors such as any additional government support – or tax, duty or VAT burden it imposes – will have an effect. Costs such as heating, rent, bank loans, staff wages and refurbishment costs will also be a factor.
And there is the thorny question of business rates. CAMRA is seeking a radical overhaul of the system in England to make it “fairer for local pubs” - recognising locals that play a role as community hubs.
“This could involve changes to the system that better reflect a pub’s profits - rather than just their overall turnover – and ending the current system whereby licensees who invest in their pub are then penalised with higher bills,” said CAMRA.
And customer support will be key, suggested Mr Smith. Pubs will be looking to re-establish trade at pre-pandemic levels - or at least a level that is sustainable long term.
“A good summer of trading with lots of people enjoying another staycation could help to secure many local pubs for another year – despite the risk of another poor winter of trade,” he said.