Thursday, January 16, 2014

Bring a Great British Pub to Charlton

The White Swan in Charlton is being marketed by Punch Taverns. Meanwhile at head office the lid is off a pan of bondholders' boiling brimstone.

There's a lot of this stuff of boys with toys going on. Punch is run by people who know nothing about pubs, who have picked up the tatters of a company bogged down in debt with the worst possible business model you can imagine, set up by people who know nothing about pubs, who all left the show a while back to buy islands in the Caribbean: So indebted that it is forced to increase its prices for rents and wholesale beer supplies, during a recession, in a market that is declining rapidly, year on year = exactly the opposite of supply and demand. Here the demand falls and the suppliers put up their prices. What happens? All the pubs begin to fail financially while the pubco carries on making 'profits' (money it has stolen from thousands of individual pub businesses).

The fact is that IF Punch go down the Swanee, in an ideal world what would happen is: several thousand pubs, each autonomous businesses running under leases owned by individual (tied) publicans, would be free to buy their supplies from wherever they like - at real market prices ie around half what they are paying to Punch for the exactly the same beer they would buy from wholesalers. The pubs would continue to trade and the pubco would evaporate. The pubs would have no one to pay rent to and their income would SHOOT up immediately and within six weeks all publicans who currently are working like wheelying hamsters on adrenaline to keep up with all the asset sweating Punch is so good at, would be up to date with their bills to most suppliers and would soon after be able to think seriously about investing in their businesses and making the pubs better... However

Unfortunately in the real world - the 'ownership' of the pubs would pass into the hands of another bunch of people who know nothing about pubs - The Administrators - who would be bound to sell them to others for as much as possible as part of the winding up of the truly filthy affairs of Punch. The pubs would be sold with the leases intact and the lessees would all get a new Landlord of some remote, private equity money grabbing nature and Rachman would be replaced by Beelzebub.

OR in the other ideal world. The banks would provide loans to thousands of small business holders (the publicans who have the leases on their pubs) to buy the freeholds and the winding up would be a bit more complicated but the capital coming in would be greater over the long run because the publicans would not get the knock down price a PE shark would for shifting thousands of properties out of Administration into solvency for next to nothing.

Won't happen. A legacy of a rotten business model

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