Thursday, May 10, 2012

The Pubco Scam: what the tied pub system is really, really, all about:

Some people are under the impression that outfits like Punch, Enterprise, S&NPC, Marston's ... it goes on and on and on ... actually KNOW what they're doing when it comes to 'running pubs'.

Well they don't. Where's the evidence then? Have you noticed? Half the pubs in the UK are either falling down through neglect and abandoned by consumers or boarded up, for sale: 'suitable for alternative use, subject to planning'? The stark evidence of the Great British Pubco Scam is staring the World in the face - a landscape of closed pubs. Our cultural heritage lying in tatters around us. Pubcos
turn THIS:  into THIS

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This is not market forces at work as we know them. These pubs are failing because of decades of chronic underinvestment in the pub industry by the companies who became so rich on the back of it that they carry £billions of unsupportable debt raised on their industry's financial success. A financial success predicated upon extracting maximum possible financial return while concentrating on investing as little as possible at any level of operation; from training to product development to estate maintenance and strategic business innovation. Instead of doing anything that any regular FTSE listed blue chip company would do to protect their long term growth the pubcos simply devolved every last responsibility for all day to day functioning of their massive pub estates to thousands of individual publicans - the people who invested in the fabric of the buildings and covered all business costs while the pubcos fiddled with usurious rent increases and perennial supply price increases that steadily eroded their entire estate's ability to make a profit that would be reinvested in the property, product development, training and improvements. The pubcos are responsible for taking all the profit and not putting anything back in. The estates are dilapidated, the pubs run down, and customers have gone elsewhere. This is because pubcos don't know about running pubs.

What they know about is numbers. Pubs are like beads on an abacus to these clowns. Or CLODS. Other people do ALL the work and most of the capital investment for them. All the pubco's have to do is make sure the beads don't fall off... the tenants do everything else.

The truth, and I say this without any tongue in cheek whatsoever, is that these are cowboy businesses run by fly by night shysters who operate by the seat of their pants all the time. Their businesses are in chaos, they do not return any sustainable shareholder value; they have not a jot of creative insight into what makes pubs work, by and large they have no experience of working in pubs. If they DO have experience of working on the floor of the industry, it's usually for some outfit like Wetherspoon's or another chain, and they were told what to do about every thing from morning till night. They got out because the work was too hard for them and they didn't have enough power. They got into the management side of the trade because they wanted a car and a bonus and a 9-5 Monday - Friday. They are essentially clueless dorks who've been told how to screw down tenants, what to say in a given situation, how to extract the most out of them and never give anything back.

It's disgraceful but no more complicated than that. That is why the pub sector is in such a shambles.

Sorry, didn't wrap that up very well. The pubco SCAM is ALL about numbers. Nothing whatsoever to do with pubs, beer or people. Pubs and people to pubco execs are just easier to manipulate on a P&L and cashflow than irritating products that have to be devised, designed, made, marketed, distributed and actually sold before any profit comes near head office pockets.

When you have thousands of pubs none of the above applies. Here every last bit of the supply chain is already there and in operation. Other people do every last bit of it. And it's absolutely FINE if quite a lot of them are failing - all the time. It's part of the model. The Churn. This, essentially is why the pubcos have never been able to change their spots - failure is built into the system. Not THEIR failure but that of lessees who start the process for the pubcos by investing in the pubco premises before spending an indeterminate amount of time failing as the pubco drains all the profits out of them systemically. The estates are SUPPOSED to work at only 80% - 85& efficiency (when efficiency means a pub is open and earning the pubco a crust) - if there were not such a high level of attrition the pubco itself would be failing - failing to maximise its skills of syphoning cash out of the estate. 95% of the estate trading? That's FAILURE - in the eyes of pubco head office where the spreadsheets are being perused and targets being set, 95% pubs open and working would be CLEAR evidence that their leaseholders are not being pushed hard enough by pubco staff. A steady rate of business failure is proof that the rent reviews and wholesale price hikes are running hard against the publicans' abilities to keep up with ever increasing demands.

Get it?
IN case I failed to make it clear. THE TIED PUBCO SYSTEM IS A SCAM. And the reason the pubcos cannot change - even when they know, with a desperation that they HAVE to change?

1) DEBT - they cannot let their income fall or they will default on bond and loan repayments and then doo doo hits fans, well, a little bit - Their real fear is not stiffing the bondholders or shareholders - it's that the execs at the top might lose their easy jobs where they don't have to exert themselves one jot.

2) BRAINLESS IDIOTS - the pubco execs (there HAS been some change since the M&S chaps were called in to save the day) have not even a scintillation of an idea about how to actually RUN a pubco. They cannot innovate, they cannot invent, they cannot think outside of any box other than the cash drawer at the bank.

The antidote to this nonsense? 


  1. It's like clockwork:

    Everyone a tied lessee works with will do so on standard credit terms of between thirty and ninety days. The moment a tenant has difficulty paying a pubco bill, rent or supply, the pubco goes on alert and will use any further 'breach' of terms as an opportunity to put the tenant on cash with order. This instantly improves the pubco's cash flow while mitigating its exposure to a mounting debt on the tenant's account. It also handily puts the tenant into crisis as the sudden loss of liquidity means they have to begin getting creative just to survive from week to week while they look for a way to stabilise their finances. The pubco can do this very easily without argument by simply withholding supply if a DD is paid late and the action is often backed uo by sending in bailiffs to take an inventory. No beer means no pub trade and bailiff action (usually Friday late afternoon) puts the tenant in fear of having trade interrupted and beyond that of being evicted. The tenant has little choice but to comply immediately and finds cash to pay whatever the pubco demands which, often, will include any outstanding credit from the 14 days terms the tenant was in until CWO. This typically will be several thousand pounds the tenant has to find out of evaporated cash flow.

    This is how Robbing Peter to Pay Paul begins. Any cash reserves, family money, overdraft / loan facility that's available at short notice which is used to meet pubco demands, even if it's been put aside to pay VAT HMRC or rates. The tenant knows they can negotiate payment terms with these creditors while the pubco will just shut them down without a second's thought by refusing to deliver product. Desperate tenants will often try buying out which, although much better for them financially, immediately puts them in breach of contract and further into the pocket of the pubco.

    While, and as long as, tenants are able to extend credit with their many other suppliers, HMRC and Business Rates are invariabl the biggest apart from the pubco, the pubco gets paid in time and in cash.

    It works.

  2. If the tenant succeeds in digging themselves out of the hole the pubco has put them in so much the better. If they don't the pubco's barely affected because the outcome accords with their business model which is to sweat assets as much as possible, the measure of which is that if a tenant is still trading then the pubco's not sweating them enough. When eventually a tenant goes down, the pubco's got a site with history - a rent and barrelage level it uses to set its expectations of the next lessee's performance by. If the next lessee's skills are not those of the alchemist, then the next lessee's skills should be. If five lessees in succession can't lay golden eggs then the property is out up for sale to another pubco or, eventually is out on the open market 'freehold, suitable for alternative use, subject to planning' as 'a free of tie pub' which the BBPA can use in its meaningless stats proving that more pubs from the free sector come onto the market than do tied pubs.