Monday, October 29, 2012

Chart of the Day: are Britain's pubs being taxed to death?

The British pub is truly a unique institution. - article in City Wire Money

The modestly named Public House has been a fundamental part of our nation's diverse cultural heritage since at least Roman times. Pubs are woven into our history, heritage and sense of place. Uniquely they are places to meet and socialise in, spend time sharing conversation, reflection and relaxation.

More than any other businesses, pubs revolve around people, the communities they serve. Yet all over the country pubs have become run down, neglected, unattractive places abandoned, shut and boarded up forever. This reality is affecting millions of people in communities everywhere...

It's the result of the nation's pub building stock being bought up by Private Equity then systemically and cynically asset stripped to return profit to boards of directors whose social time is spent in wine bars and shareholders who don't need the money and to repay debts the boards raised to buy the pubs in the first place. On the leased side of the pub sector the intervention of Private Equity has starved pubs of investment on a grand scale and led directly to thousands of pub failures while the managed side of the sector has inevitably thrown up thousands of anodyne carbon copy pub 'brands' to grace our towns and cities with pubs we don't want selling products at prices that hurt.

This is a cultural crime of unprecedented national proportions and will be remembered for imposing as significant an impact on British Society as the dissolution of the monasteries but without the upside for the common populace.

CEO and COO's responsible for this devastation to the British way of life should be banged up and the keys thrown away.

Here is a video from CAMRA which gives a fair and accurate presentation of the root of the problem.

Some people are working to arrest this decline:

Well Anonymous - the market is a lot more nuanced than your distillation suggests but there is a point to your son's observations, which are not without merit. Private Equity driven pubcos have actively, aggressively marketed to and attracted people who do not have experience of business, or of pubs, for their money to be the source of investment in the bricks and mortar of the tied pub sector.

They have irresponsibly leased out more than half of the nation's pubs to anyone (some highly experienced and skilled publicans among them) who's had enough money to put up for a lease - in what the pubco's call 'partnership' arrangements where the pubco adds its experience, standing and buying power into the mix with a tenant who has the drive and enthusiasm to make a business work.

The reality is the pubco rents the property for more than it's worth and charges double the price for beer the tenant would pay if they were in a free of tie lease - the pubco provides no support whatsoever other than to fine the lessees if they ever buy beer outside of their agreement, which happens as soon as the lessees realise their rent and beer prices mean they are losing money. When that tenant has lost everything they've put in including their shirt and sweat and soul the pubco gets the pub back as inland revenue push out the lessees and then gets a new sucker in. It's called Churn and is a well understood business mechanism used to stimulate in the pub sector.

Coffee shops have been burgeoning because pubs have not innovated - in large part because of the Private Equity factors above. Pubco's have not invested in pubs - their wilful, greedy, short term and completely unsustainable business model instead has totally ripped the heart out of them.

This is why you walk into pubs all over the UK and they still trade on carpets that are forty years old and are unable to serve a cappuccino - they can't afford the equipment.

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