Monday, 24 November 2014

Pub Co's & Craft Beers....Back to the Future!

Just like the De Lorean.....The Major Pub Co's had a model that seemed perfect for its time and for ever, but it just didn't last the course.........basic design failings and a mismatch in funding.......The Pub Co's have taken longer to unravel than the infamous sports car but it does seem that MPs, rather than the government, have taken the opportunity to finally kick them, for serious misdemeanors which took place 10 years ago.......and with that put their business model under severe scrutiny and pressure.......Enterprise and Punch shares all but collapsed this week, as MP Greg Mulholland, supported by lobbyists, Fair Pint & CAMRA saw through Clause 2 of the Pub Legislation Bill, The Market Rent Only Option in a House of Commons Vote. The Government has been against it.

If the Bill progresses with this clause....best guess 2-4 years.....the landscape for the tenanted pub trade will change.........at a time when both Punch & Enterprise have gone through massive cultural and business practice change....for the better!.........In particular circumstances the pub tenant would be allowed the pay a higher rent for the ability to purchase their drinks products in the free market, rather than being tied to the Pub Co

As we have said many times before in this newsletter, the people to punish were the senior management from those Pub Co Companies and others 10-15 years ago.....if this was the USA, they would be indicted and if convicted, then jailed......by todays Code of Practice standards their methods were underhand, fraudulent and unacceptable during a period when the German and Japanese banks took a financial interest and hold on the pub industry growing both Enterprise and Punch at lightening pace. Hashtag Pyramid scheme.......If CAMRA want a real campaign to get a hold of then this is surely it.

The premise, however, that suddenly the fortunes of tenants will change if they are able to buy beer free of tie is naive. The beer wholesale market and the brewers pricing will shift significantly and the model, as it always does will pressurise the person at the bottom........currently many people(not all)are able to enter the pub trade at low cost......moving into a high quality invested tenanted pubs and if they are good and work hard will earn a reasonable living......will they be millionaires?..no!....but they will get support and guidance from the Pub Co and if they are sensible....then so will the Pub Co and they will make a good living........if they act like idiots (which some do, and then generate negative PR for the Pub Co and the industry, because the media likes that) then the Pub Co will get upset.......I can assure you that the most difficult Pub Cos to deal with are those where the tenant is not tied.....they just collect the agreed rent.....no vested interest in the business and investment in the pubs.....In Nottingham both Enterprise and Punch have spent major money on capital investments and received nil recognition......Old Volunteer, Nags Head, Bridge Sandiacre, Greyhound, Nuthall, Sherwood, Midland Stapleford to name a few.

As with most journeys like this.....there will be unintended consequences and some sage will write "be careful what you wish for!"..............CAMRA will assume that all micro breweries will immediately have a brand new and larger market to target their ales.........This is credible as the Pub Cos priority will be to ring fence secure volume purchases of lagers and bitters through negotiations on capital expenditure on pubs.....to remain tied.....It is feasible they will sacrifice micro brewed beer......it is fiddly for them to deal with and the margins low once SIBA have taken their cut. This may impact on regional brewers however who actually do very well out of the Pub Cos....Pub Cos also resent having to install and maintain beer engines....which micro brewers may have to do in he future, thus creating a quasi tie.

But what of our new friends in the Craft Beer World...........here is the parody......Craft beers will play an important role in the future, but however clever the Pub Cos were at financial engineering, they will struggle to provide a platform to showcase these beers any where near as effectively as the free trade.......in the same way they have toiled with cask.........they cannot pin down enough discount to make margin so the tenant has to buy at an exorbitant rate, nor can they procure the regional and local ranges required......the customers demand will grow for much more localised products rather than the domination of global brands........Pub Cos are too slow to react to these market changes ...and this market is moving very quickly....look at the new operations that have opened in Nottingham recently, Annies, Junkyard, Boilermaker....these operators cannot work with the inflexibility of the Pub Cos.

Whether you agree with the Market Rent Only amendment or not, the balance of power between tenant and pub will change.......now the tenant will have a choice....The Pub Cos will be destableised but will prepare for change.......Who knows what the Future holds?....We need Doc Browns De Lorean time machine!!

Andrew Crawford
Operations Director
Pub People Co


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