MORGAN & CLARKE MARCH 2013 NEWSLETTER NO. 18
Pigeon House, The Broadway,
Oakridge Lynch, Stroud, Glos. GL6 7NU
Email: email@example.com Phone: 01285 719292
(Also at: London, Cardiff, Matlock, Braunton, Lewes)
It’s a strange feeling when you get bitten in the backside by something that is so obvious that you should have seen it coming. That rather big bite is called ‘midweek trade’. During February, almost without exception nationwide, Clients have suddenly come to the realisation that their midweek trade has all but disappeared. We did some further research and asked the specific question rather than waiting to be told. Again and again we had the same answer – “where has it gone?”.
A small example that underscores the position is as follows.
Middle-aged husband and wife, children long since flown the nest, welcoming supply tied village local that they had the habit of visiting three times a week on generally a Tuesday night and Friday night and Sunday lunch times after they had walked the dog round the village prior to coming home for a well earned Sunday roast. He always has a pint of premium bitter and she has a generous glass of white wine. They only ever had two drinks each at any one pub visit. Those two drinks were £7.85 per round, or £15.70 per visit. They suddenly realised that they were spending £47.10 on their three visits a week, or £2,449 per year. Looking at the price of the weekly shopping bill and petrol prices, they decided to cut out the Tuesday night. Once you lose the habit, it does not get re-kindled. Their midweek visit has effectively now gone for good.
1. The Statistics
With the acknowledgement of some help from CAMRA, the following statistics are particularly telling:
£20,000,000 – the hole in the Treasury Revenue caused by the Duty Escalator.
42% – the increase in Beer Duty in the last five years.
18 – number of pubs still closing weekly as the pub trade suffers.
180 – full and part time jobs lost every week due to pub closures.
It is a sad fact of life that the increase in Beer Duty has resulted in a massive fall in taxation revenue rather than generating extra income for Government. The counter-argument runs – if on 20 March taxation remains the same or even increases – that the health lobby will argue vociferously that the NHS is being over-burdened by drink-related referrals. It is of small comfort that the UK is now the second highest beer tax regime in the whole of Europe, just after Norway. As our simple example showed above, the increase of 42% in beer taxation since 2008, would indicate that going to the pub is now becoming a luxury and is almost looked upon as an unaffordable social activity. If the taxation position does not change and VAT is not reduced on restaurant and pub sales (fat chance of that happening!), the only way to ensure pub viability is through the substantial reduction in rent or a massive increase in product discounting, which are the only two flexible items that are capable of change in a profit and loss account.
We thought you might be interested in anecdotal evidence from Michael Axford of the Goat Inn, St. Albans. Michael wrote in and said:
“Just thought you may like to know that Total Gas and Power are not opening any new accounts for pubs any more. Just tried getting a quote for electric and I already have a fully paid up, never missed a payment account with them, for gas. Same thing happened with HSBC when we asked them for a new Business Account with a small overdraft. HSBC policy is that they will not touch any pubs that might need an overdraft facility, however small.
I guess it’s just a sign of the times………”
We are forever being told by the major Pubcos that the provision of hot plated food is an automatic “traffic generator” and certain to add profitability to any trading operation. This automatic mantra should be compared with an ever-increasing level of pub food operated under franchise rather than direct operation, which we are seeing increase week-on-week. This always generates the automatic response from the Pubco Retail Field Staff that genuine income is being lost and that if you are professional, you can always run a highly successful direct catering operation.
Whilst we always support and applaud successful food operations and indeed there are still a large number out there, thank goodness, the following illustrates that even highly geared professionals are not automatically guaranteed a smooth ride.
The 42 strong seafood change, Loch Fyne Restaurants owned by Greene King, has recently reported a decline in pre tax profits from £1.36m down to £414,000 for the year ending 29 April 2012. Overall turnover dropped from £49.2m down to £46.5m and the operating profit fell from £1.6m down to £769,000. The reduced trading performance over a relatively small number of sites, was attributed by a Greene King spokesman to: “a combination of site-specific trading circumstance and the general weakening of the UK consumer environment”.
Telling observations from a highly professional and motivated restaurant group.
4. Client Reaction
Following the conclusion of negotiations for a significant rent reduction at the Bell, Caerleon, just outside Newport, South Wales, our Client Lee Taylor wrote the following:
“I am more than happy for you to use us in your literature, in fact I insist upon it. I would say that lessees should always have their own independent valuation completed and this should then form the basis of the negotiation. Do not provide any information that they are not legally obliged to and always see it through to the end with arbitration used instead of PIRRS.
I would also advise the provision of a small fighting fund so the means are available to take the fight to them. As inevitably when a rent reduction is realised over the term of the review period, the initial outlay is a very small percentage of the overall monetary saving which is all bottom line profit.
Don’t be bullied, coerced or misled into accepting any settlement that you know not to be fair and equitable. Thank you very much for all of your help. It was very much appreciated”.
The Bell was a standard example of the provision of an upfront, free of charge, strength of case rent review, followed by agreement with a full and detailed Rental Report & Valuation and the subsequent opportunity of a face-to-face discussion with Lee Taylor, David Morgan of M & C and the Enterprise Inns’ Regional Manager. Lee Taylor subsequently finished off negotiations, firmly in line with David Morgan’s rent valuation. Job done!
5. And Finally
Two brief one-liners.
“Alcohol is not the answer but then again neither is milk” and
“Alcohol may indeed not be the answer, it just makes you forget the question”
Best wishes from the Team at M & C
Phone: 01285 719292
Comment from Barfly,
The stark reality is that, the business that a Pub or Restaurant enjoys is it’s market share at that moment of time, any growth in most cases is at the expense of another Pub or Restaurant, the market is shrinking due to legislation, the recession, smoking ban resulting in people drinking at home using cheap super market booze.
As M&C have said the mid week business is declining, pubs used to be open seven days a week, then closed on Mondays, add on Sunday evening during the Winter.
Soon, in rural areas they could be closed three days a week, it all needs innovative change and hard lobbying of your local MP to get legislation changed.