Fair Maintainable Trade

By | December 12, 2009

DSC00643Fair Maintainable Trade.

I was asked this week to view a pub and assess the Fair Maintainable Trade for a possible Rent Review.

I have banged the drum constantly that the business is finite and not infinite and that creating new business under normal circumstances is very difficult, taking business from another pub is creating new business for the developing pub, but actually getting new business from people who do not normally use a pub is almost impossible, certainly on a regular basis and even more so at this present time.

In a recession such as we have now, which the effects will run for years because of the pay back time, any serious growth to the overall industry will be a miracle.

We know that many pubs, especially community pubs business has dropped by as much as 30% with the added burden of the smoking ban added to the recession.

The closure of many pubs, through over renting across the board is disillusioning regular customers and making it easier and cheaper for them to drink at home and visit a local if they still have one, possibly once or twice a week.

The closure does push a certain amount of additional business to the surviving pubs, the only growth for the foreseeable future is negative growth or limiting your loss of business to the least amount.

Which all sounds incredibly negative and critics will say I should be talking the business up and I agree.

The point of these comments is that across the board we have surveyors, BDM’s, Pub Co’s assessing the Fair Maintainable Trade on highly questionable and speculative figures that bear no relation to the existing turnover way in excess of a pubs ability to do that level of  business.

These people using the highly flawed Comparables system, where rents are cherry picked frequently over rented and the whole industries rents are ratcheted up at every review.

To the surveyor or whatever acting for the Pub Co his job is to get the highest rent possible, he walks away and thinks that he has increased the rent by 16% for example, he does not consider the overall effect of his actions, the predicted beer consumption for that particular pub is probably 240 barrels, in reality it is 105 barrels.

The same can apply to food and other commodities, if this is applied collectively across the industry we have an estimated over capacity of anything up to 100%, calculated by people that never think outside their one pub project and have never run pubs.

We have in reality a vast over valuation of rents, which we are well aware of , this has had a serious knock on to rateable values since the same method is used for rating valuation and we have vast over rating across the board as a consequence.

The frightening thing is looking at the overall picture, the brewing capacity taking the worst case scenario, would possibly have to double along with the food supply and the overall business is not there, it is a valuers fiction.

The sad thing about all this is that every company has been infected with this policy, the thinking brewers might like to check the FMT calculations for all their pubs, link it to the brewing capacity and actual beer produced and sold to those pubs, they may be nearer the mark, but the major Pub Co’s I am sure are way adrift.

I stand to be corrected, but certain industry professionals feel the same way, the total of FMT’s calculated bear no relation to the products supplied, this issue needs to be addressed in depth, the exposure of the real facts will not be appreciated by many companies but I feel it is essential for the industry to move forward.

Barfly

4 thoughts on “Fair Maintainable Trade

  1. Thedevilisinthedetail

    Well said, the pubcos do not take into account their profits within the calculations so every pub is over rented against the very spirit of the tie.
    I think it is high time the RICS took action against those who have pushed the rents to unsustainable levels, ignoring the guidelines and principles of fair accounting practices. This is the primary reason for pubco property valuations being so far removed from reality.
    One may question whether they are technically solvent if the property valuations based on the FMT multiple are found to be incorrect.

    Reply
  2. Editor Post author

    Many thanks for your comment, the real devil in the detail, to coin a phrase, is that the estimated overall business by the FMT calculations is way above the business that is actually available, in fact some knowledgeable people consider it to be more than double.
    Just doing a rudimentary check it appears outrageous.
    This has been going on for years without anyone questioning the true reality between speculation and the reality.
    I sent a copy to the RICS for them to consider.

    Reply
  3. Newbie

    As someone about to get into the industry, this seems to be the absolute crux of the argument between tenants and landlords. Tenants are provided shadow p&l accounts, and are flying entirely blind as to whether they have any relationship to what is indeed “fair”. A better route would be to have an external body assess FMT, and to have that body enshrine a policy that its assessments be within a certain percentage of the real situation (this would require tenants to disclose their turnover for inspection a year after taking on a pub). For example, when checked after 12 months: “that 80% of FMT assessments be within 8% of actual trading figures.”

    Reply

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