The human cost of pub closures

An unprecedented combination of factors has resulted in record numbers of community pubs closing - but what of the individual publicans who are struggling to keep their businesses afloat? Through the experiences of two such operators we can begin to understand the human side of a market in decline. Emma White reports.

 

The British pub has taken a real bashing in recent times. Just last month the British Beer & Pub Association reported that as many as 52 pubs were closing each week.

 

The phrase "perfect storm" has been used to describe the combination of high rents, beer ties, recession, supermarket pricing of alcohol, the smoking ban and the change in drinking habits that has conspired against the industry to force this unprecedented rate of closures.

 

While there's much understandable sym­pathy for the plight of the humble pub, many analysts believe the sector's problems actually stem from the corporate structure of the large pubcos and the way they are funded.

 

"The 1989 Monopolies and Mergers Commission recommendations on the brewing industry aimed to give smaller brewers the chance to gain market share by preventing larger brewers from tying more than 2,000 pubs. But this, in turn, led to the large pubcos, instead of breweries, having a monopoly over the market," explains Philip Booth, national director for licensed leisure and hotels at property agent Jones Lang LaSalle, citing Enterprise Inns and Punch Taverns, which now each have between 8,000 and 9,000 tied pubs.

 

BANK LOANS

 

This, combined with the fact that pubs generate more money than shops and offices - through a combination of rent, wholesale profits on beer, and slot machine income - meant they were deemed to have a suitable "securitisation model" by the banks. This meant that the pubcos could borrow vast sums from banks based on the promise of future returns.

 

Booth adds: "Through the 1990s the large pubcos went around the country buying a lot of pubs and packaging them up for securitisation. Over time they have pushed the average rent-against-turnover up from 10% of turnover to 15%, and this difference was traditionally the tenant's profit margin."

 

This risky model of promised returns was based on the assumption that the market would continue to thrive, that people would continue to buy beer, and tenants could pay their rent. But this hasn't been the case.

 

"If there is a small decline in the performance of the business because of other factors such as the smoking ban and the general economic climate, they will come to bite the tenant first because they have such high fixed overheads," says Booth.

 

According to Iain Loe, research and information manager at the Campaign for Real Ale (Camra), the amount of beer drunk in pubs rather than other venues has fallen from about 90% in the 1970s to 50% now, and the well-documented increase in excise duty is largely to blame.

 

"Beer is now four or five times more expensive in pubs than supermarkets, which can afford to use beer and other alcohol as a loss leader and make up money elsewhere through extra footfall through the door," he explains.

 

CHANGED HABITS

 

Simon Chaplin, a director at property group Christie & Co, points to the general shift in drinking patterns as the main contributing factor for pub closures.

 

"People just don't go out to pubs as much as they used to. Supermarkets offer alcohol at low prices, and licensing changes mean people can drink at lots of places, including restaurants and bars," he says.

 

In addition to the change in drinking habits and the recession, pub tenants have been faced with ongoing Government legislation, which Chaplin says is "fuelling the fire" of existing problems in the pub trade.

 

Camra believes existing legislation provides enough power to control the problems associated with antisocial drinking and that the latest measures are unnecessary. "Some councils are insisting on CCTV, employing extra door staff and replacing glasses with plastic containers. We feel the Licensing Act provides enough powers for police to close down disorderly pubs for 48 hours and for local residents to object to operating conditions, such as late opening hours and noise levels," Loe says.

 

He refers to the Camra-backed Institute for Public Policy Research report, Pubs and Places: the Social Value of Community Pubs, which found that pubs injected an average of £80,000 into their local economy each year through employment while providing a controlled environment for socially responsible drinking.

 

"The Government needs to adopt a more positive approach, because pubs deserve thanks and appreciation, and there are ways of doing that through the reduction in business rate bills, not this proverbial sledgehammer," says Loe.

 

Booth believes the only way for pubs to survive in the long term is for the pubcos to restructure. "The easing of the recession will not change the need for the pubcos to restructure and accept the fact that rent is too high. At some point they will have to move from offering temporary financial support to renegotiating agreements - if they want those businesses to survive," he says.

 

END TO BOOZERS

 

Chaplin predicts a polarisation in the pubs market, with the better pubs getting stronger while the weaker "traditional boozers" continue to die out.

 

"Pubs need to diversify by offering good food, letting accommodation, quizzes, music and not just drink. Good licensees are still making money whether they are freehold or managed operators," he says.

 

Some lessees also need to stop blaming the pubcos for the harsh market and start taking responsibility for turning their businesses around - or risk failing, he adds.

 

"Pubcos have no interest in having a lessee who is unable to pay rent. They don't want empty pubs, as it costs money. If the pubco sees that three other pubs in the area are doing well and you're not, why should they lower the rent? A lot of licensees get too ‘doom and gloom' rather than picking themselves up and getting on with it," Chaplin says.

 

The return of confidence in the market will also help to stem pub closures, believes Chaplin. "There is a slow, gradual improvement in the marketplace, which is encouraging people to invest in the sector. Small local regional operators are taking advantage of low prices and buying two or three pubs at a time," he adds.

 

"Unfortunately, pubs are getting a lot of bad press, but if confidence is brought back to the market I believe they can continue to trade well."

 

THE SMOKING BAN SIGNALS THE END

 

Peter Eveleigh operated the freehold Riverside Inn in Bradford on Avon, Wiltshire, for 13 years from 1995 to 2008.

 

In the early 1990s he decided to open a pub after successful careers in the Armed Forces and the export trade. "I had stayed in the best and worst hotels in the world. I felt qualified to know how I liked to be treated. I wan ted to play host," he says.

 

When Eveleigh and his wife purchased the lease for the Riverside Inn it was 70% wet-led and they set about transforming it into the "social focal point of the town - the place to be". They ran 12 guest rooms, introduced quality food and operated a private function room for live music events, weddings and parties. In 2004 they upgraded this to a nightclub for weekend trade.

 

Eveleigh says business was good right up until the smoking ban came into force. "It would be unfair to nail the ban as the sole problem, but between July 2007 and July 2008 we lost £30,000," he says. "Other things were happening: beer tax, rent increases and I had health problems, but the smoking ban was the real problem."

 

Overnight, the live music events went from attracting 150 regular attendees to 20 or less. "The impact of the ban was woefully evident. It was difficult for the musicians, as just as they got into their stride people would disappear for a smoke. It killed the atmosphere," he says.

 

Before the ban, Eveleigh had spent £6,000 on air-filtration systems, which he said were so efficient they even removed dust and pollen. "Pundits predicted the non-smokers would replace the smokers, but they didn't. We put up an outside marquee, added heaters and lighting, and there were times when everyone was under the tent while inside was empty."

 

Negotiating rent reviews was also difficult because Eveleigh found that his landlord calculated the rent level based on costs that were lower than those he submitted. To make matters worse, he says some mediators who were members of the Royal Institution of Chartered Surveyors, were on the boards of the big pubcos, which set the ground rules.

 

"My rent rose to nearly 30% of turnover. You can't sustain anything at that level," Eveleigh says.

 

The final blow came when the pub lost a large accommodation contract for workers renovating a nearby factory who stayed in the pub's 12 rooms and contributed several thousand pounds a week.

 

"The industry was in crisis, and we attempted to weather the rent increases, beer duty and smoking ban, but when the accommodation went it was time to go," he says.

 

A year after losing the business, and at the age of 61, Eveleigh says his wife is now a nursery nurse while he is just getting back on track. "Towards the end, my wife and I were working behind the bar and in the kitchen constantly to reduce the cost of wages, and I didn't realise how far I'd run myself down to keep the business afloat until afterwards," he says.

 

"We didn't enjoy the pub for the last few years, and it was a relief to be rid of it. I'm still scared to open an envelope - the fear doesn't go away."

 

SHUT DOWN AT A MOMENT'S NOTICE

 

John Westendorp was landlord at the Jolly Angler, Reading, from February to June this year.

 

He was in the middle of making a burger for a customer when he was abruptly told to close his pub that same night and be out the following day.

 

He'd made a fresh start at the Jolly Angler after ending his tenancy at a near-bankrupt pub in Oxford called the General Elliott the year before. He found the Jolly Angler through the agency Tabbins, which works with Enterprise Inns, and was keen to get on board. "The pub had been closed and reopened and it was in trouble, but it was a community pub and I saw its potential," he says.

 

Within 16 weeks Westendorp transformed the largely drinks-led pub from generating £1,000 a week to £5,000. "I cooked good, basic pub grub and made sure I spoke to the customers and got to know them. I was lucky to employ four local lasses who lived within 400 yards of the pub who could work at short notice," he explains.

 

A pub closed down the road so Westendorp was able to gain from its customer base. He screened the big rugby games at the pub, organised live music events, karaoke and even a beer festival that offered 15 varieties of beer over one weekend.

 

He says the smoking ban never really hit trade as there was no main road and customers were always happy to sit outside at tables and chairs. He says that although Enterprise Inns had made it clear from the start that they intended to sell the pub, he had no idea they would close the pub with practically no notice. "When the people from Tabbins and Enterprise came in to tell me the news I had a wedding booked and a lady working for me who was distraught and in tears," he says, adding: "It was the timescale I was angry about: to be told I had to close up that same night."

 

Westendorp jokes that the customer waiting for his burger happened to be parked behind the car owned by the Tabbins and Enterprise representative and he refused to move until he'd finished his lunch. "When the Enterprise guy came back in again the customer ordered a second beer and told him he had to wait," he laughs.

 

Fortunately, things have worked out for Westendorp and he now runs a freehouse in Wokingham called Crispins, complete with three of his former staff and a lot of his previous customers.

 

In the four-week gap between jobs Westendorp focused on his other business, a private catering company, to make ends meet. He advises other tenants "not to panic" if faced with a sudden closure. "Walk away. Think - don't take immediate action, and try to insist that your company is honest with you," he cautions.

 

The locals were so upset about the closure of the Jolly Angler that they got together to produce a song which can be viewed on YouTube (www.youtube.com/watch?v=O08XRX5g7vw).

 

The closure has also this month attracted wider attention, with Greg Mulholland, MP for Leeds North West, and Gareth Epps, the Liberal Democrat MP for Reading, gathering outside the pub with Westendorp and locals for a photo opportunity to raise awareness about the plight of British pubs.