Pub Business and Common Sense
I have long been trying to apply common business sense to the Licensed Industry, having written several books that relate to common sense in business rather than some cock-eyed system that has evolved with some very sharp and devious people to exploit the less fortunate.
If you have enough money and commercial clout you can get away with it for a very long time, until someone questions the wisdom of the system and you have the King’s New Clothes.
The licensed industry as with most property based businesses is rife with over valuation, the realisation has hit the RICS very hard very much to their professional embarrassment, but many of their surveyors are locked into a previously flawed system and are having serious problems readjusting to something that they have no first hand experience of, running a licensed business.
FMT (Fair Maintainable Trade), Comparables, Reasonably Efficient Operator and host of other hackneyed words, all are convenient let outs for not doing a deep analysis of the actual trade of a business in an area and it’s actual market share of that area, in addition where growth, if any, may actually come from and at what cost.
I have always bought run down freehouses and naively assumed that the world will want to beat a path to my door, not on your life, the world is very happy with most of their present arrangements, even more so in a recession.
The only way that you will get growth in a recession and I have survived a number, is by being better than anyone else if possible and cheaper on quality products than anyone else, and the customers don’t just come for that, they come to you to be entertained and if you can make them all feel special they will stay with you.
But at what cost if you achieve that, you haven’t created new business you have taken it from another business or businesses, so some poor hardworking licensee or restaurant owner is struggling to pay the bills.
This brings me to the point of this article, FMT, Fair Maintainable Trade, every surveyor and BDM wildly over estimates the business that any particular pub does, based on Comparables, using the cherry picked successful ones within a ten mile plus radius, not taking every pub in the immediate area, many are now closed or under management to get a true picture.
What I would like to see is an honest Family Brewer, and their are a number, as an exercise look at you beer sales for all your pubs tenanted, leased and managed for the last five years, note the growth or drop so that you can give an accurate prediction, check it against your previous annual predictions.
Then take the FMT for all your pubs tenanted, leased and managed, including the bonus predictions for beer sales for the managed pubs, the totals should be very similar, but they are unlikely to be, if they are less than five percent difference, this could be construed as reasonable in a recession, or does your FMT etc involve an extra fifty percent increase in brewing, which has never happened.
Look at any of your pubs that has enjoyed growth beyond a small percentage point and look at which pubs have lost that business, if none have, great, it means the growth has been achieved at another companies expense, but if one of your pubs or several have lost the busines, you have a problem.
If you increase the rent or the bonuses on the successful ones, what will you do about the less fortunate ones reduce the rent or bonus target, the assumption that business is infinite, it is not, it is finite and falling and will do so for some considerable time, can you afford to lose a good operator, we have far too many good people on the scrap heap, it has to stop and common sense has to prevail.
Being a top operator is fine, staying there is very difficult, raising rent (FMT) or bonus targets in a finite market destroys many good operators, to be replaced by novices, a very costly exercise.
If any brewer is prepared to run this exercise, I suggested beer, for a start to simplify it, we would be delighted to publish the results as a start to common sense.
Many pubs have lost their core business through smoking legislation, many of these people now buy in the supermarkets and drink at home, having a strong core business is vital to development, people make people, and empty pubs remain empty, if your business moves you have to stay ahead of the market and landlords need to recognise these points, but it is not always possible to compensate in a falling market.
I would like to see the Morning Advertiser raise this issue, always remember whatever business a licensed property is doing, that is it’s market share at that moment of time, not what it might do or what it has done.
I used the word Honest Family Brewer, not to infer that they are dishonest, but that if their findings are that the FMT etc calculations are above 5% of annual total sales, to admit over estimating and possibly setting targets at more than their market share will stand, we need stability and common sense to put the industry back on it’s feet, not the head in the sand, tomorrow will resolve the problem, too many good people are being put on the scrap heap.
We need thinking companies to put the industry back to a career for life, for those that seriously love the industry.
The views expressed are not necessarily the editors and www.buyingapub.com accepts no responsibility for them, we do try to avoid offensive or litigious statements being made. They are written by concerned professionals in the industry who feel that these issues should be raised to ensure that all licensees made fully aware of many hidden pitfalls.