Tuesday, 14 May 2013

Can’t see the wood for the trees

To listen to some people, you would get the impression that the main reasons for pub closures were a combination of pubs being poorly run, and being sold off by greedy pub companies acting in association with rapacious supermarkets and property developers. However, this, whether through simple ignorance or a wilful refusal to confront the facts, fails to recognise the wider picture.

In the period since 1979, beer sales in pubs have declined by over 60%, and around a third of the pubs in the country have closed. There has been a marked long-term secular decline in the demand for pubs which goes far beyond the specifics of individual businesses. Obviously, in an overall declining market, it will tend to be the better-run pubs that survive, and the worse-run ones that go to the wall, but the underlying reason for pubs closing en masse is not that they haven’t moved with the times and have failed to give customers what they want. Indeed, the average pub now is much better run and more welcoming that it was in 1979. It’s also the case that many pubs have become unviable due to an unfavourable location despite the best efforts of the licensees.

I asked the question here what difference it would may to the overall pub market if the average pub was run as well as the best. The conclusion was that overall trade would be unlikely to increase by more than a few percentage points. To suggest that pubs could have held on to most of the lost trade by being run differently is frankly ludicrous.

Equally, while I’m sure there have been cases of profitable pubs being sold off for redevelopment as flats or convenience stores, there are few areas of the country where there aren’t plenty of recently-closed pubs in all kinds of locations that would be available to anyone wanting an entry into the trade. There must be at least half a dozen in central Stockport alone. The fact that would-be pub entrepreneurs haven’t snapped these sites up suggests that they don’t see a potential market there, and those who whine that “pubs only close because they’re shit” always seem strangely reluctant to put their money where their mouth is. While matters may be different in some parts of London subject to intense development pressures, I’m not aware of a single pub around here sold for conversion to alternative use that previously could have been said to be thriving.

And, if you fail to understand the true nature of the problem, whether through ignorance or choice, you are never going to come up with a solution.

33 comments:

  1. I think the mistake often made with “profitable pub sold off” moan by leftie types is that it fails to understand that profitability isn’t covering your costs (beer, rent, staff) + a quid or two (not too much, mind, that’s exploitation), it is making a return on capital employed. The capital employed being represented by the asset (building) and having both a cost and value.

    If you have 2 uses for that asset, A (flats/shop) & B (pub), and A is more profitable than B, then the market value of the asset in the market is defined by A and not B. At that valuation putting it to the use of B doesn’t afford the asset an adequate return on capital employed. Therefore an efficient market replaces B with A.

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  2. I think I agree with you. It's sad to see pubs close, on a purely sentimental basis, but there's no point in keeping them on life-support, any more than it would have made sense to preserve a blacksmith in every town, or a cotton mill. Times change.

    Oddly, I'd never taken the 'only shit pubs close' argument to mean 'no pubs would have to close if they stopped being shit' -- only that most of those closing aren't worth mourning. Fatalistic rather than idealistic.

    I do think there are parts of the country where there is a hidden potential pub-going market who just don't like what's on offer near them, and would emerge if a pub opened that offered something really good. Refurbing/relaunching a pub takes a hell of an investment, though.

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  3. There undoubtedly are some untapped opportunities in the pub trade - it's just wrong to think that will turn the market around at a macro level. To take a very simple example, opening a Spoons will often draw out customers who didn't previously go to pubs much if at all.

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  4. When looking at the success of Spoons or even Brewdog/ craft beer establishments, the unanswered question is always whether they meet an underlying existing demand or whether they create the demand by existing? Both offer something existing complacent providers had ignored, a value offering or an unusual beer offering.

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  5. As I said commenting on your previous piece, There are less of them because less are needed.

    That means that shit pubs will be the first to go and as you say, even if all were brilliant, some would still close. You still have a better chance if you aren't shit though.

    Times have changed.

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  6. @Cookie - re return on capital. Rents may be sky-high in central London, but there are still plenty of pubs, albeit generally charging high prices. It is therefore incorrect to claim that in any particular location property development is squeezing pubs out. If pubs in an area end up being turned into flats and supermarkets, and no new ones open, it's due to lack of demand.

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  7. @Mudge I do not believe that was what I said. I was simply offering an explanation as to why a pub may be turned into a Tesco Express even if the pub nominally “makes a profit”. The price and value of land on London is higher than elsewhere but that does not alter how a market economy allocates capital across economic activity. The relative utility of a plot of land, building versus alternate uses is a question the market makes. The same may explain why a pub remains a pub or a shop becomes a pub. New pubs do open, from time to time.

    Allowing the market to allocate capital, rather than a central command authority is one explanation as to why market economies produce more of what people want than centralised command economies, producing more wealth and distributing it whilst unevenly still in manner than makes people wealthier.

    The demand for pubs really is a fragmented demand and not some overall demand for pubs. Some people demand the traditional Victorian/Edwardian representation you appear to prefer, others have a different idea of the type of bar they would like to frequent. Some don’t demand any. Over time and generations that will alter. As Tand says, times change.

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  8. I know that Tandleman chap moans a bit. However, he does talk a lot of sense and I nearly always concur with his comments.

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  9. "@Mudge I do not believe that was what I said." I wasn't so much answering your point as leading on to another one, that it can't really be said that areas become pub-free zones because of redevelopment.

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  10. @Mudge In that I misunderstood, but ultimately the point I made was to suggest a more complex and nuanced economy in relation to say a building as flats V pub.

    That less pub trade, due to your explanation of lack of demand would as you say harm the value of an asset as a pub. Therefore it may become relatively more attractive as a block of flats.

    However a change in housing supply or demand (migration, house building) would also affect the value of an asset as a block of flats irrespective of any change in the pub market.

    Therefore the performance of the pub sector is one factor, maybe the main factor, but not the only one. It is possible for the trade of a pub to improve and still be put to better use than a pub.

    A change in the law restricting change of use or limiting the uses an asset can be put to affects the value of an asset, reducing it. The more legal uses you or I can put to an asset, the greater it’s utility and value. The reduction in asset value suppresses the overall performance of the economy whilst protecting a sub optimal use of the asset. It is not until the sub optimal use as a pub becomes so uneconomic that it closes that the asset holder and wider economy notice the boarded up building. All the while the economy has paid an opportunity cost of underutilisation but this becomes apparent only when the pub shuts. Then what to do with it? Allow a change of use?

    So the beardy plan to use planning regulation will keep pubs open. That has a cost to society of the better and more profitable uses that pubs can be put to. It cannot protect a pub where trade is so bad it cannot function or protect against gamesmanship.

    Gamesmanship is where I notice an asset can be put to better use but the beardies have got these laws passed to stop me. The rotters. What do I do? I force a change of use. If I run it into the ground, claiming there is no market, maybe lease to fuck wit after fuckwit for a year or two, I can prove there is no demand and build my alternate use. All the regulation has done is delay me, increase my costs & delayed an overall economic benefit to the wider economy.

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  11. The question is, is pubs shutting a bad thing in and of itself? If people no longer want pubs, then what's the problem?

    Good pubs shutting is a bad thing, but then I have seen very few good pubs shut, and of the ones I have, one was bought wholesale to be turned into a Tesco's petrol station, and the other one shut because it was undercut by a new Spoons opening down the road.

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  12. If you like pubs (or indeed anything else) it is a matter of regret that many are closing even if to a large extent it is inevitable. Fifty years ago, many people were sad about the closure of branch-line railways even though they recognised that most were scarcely used and financially unviable.

    And I have seen very many once good pubs close, although in general they have tended to get into something of a spiral of decline in their latter years. The Railway at Heatley was one that did seem to close with little advance warning - it was included in the 2008 Good Beer Guide and closed shortly after the book's publication.

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  13. I like good pubs. I don't like bad pubs.

    Claiming to just like "pubs" in general is just madness, it's like saying "I like shops, therefore I hope none ever close".

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  14. What a strange statement. Surely it's very commonplace to say, for example that you like films, beer, railways, cars, rock music, Indian food, Tudor architecture etc. without implying that you like it all equally or that some of it isn't actually a bit crap.

    Few pubs have no redeeming features, or are incapable of improvement, and in broad terms pubs increase the sum of human happiness.

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  15. Martin, Cambridge14 May 2013 at 23:50

    Agree that there's something to be found in any pub, which I guess is why pubs like the Olde Vic polarise opinion, and some nondescript keg-only estate pubs seem to thrive despite the odds.

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  16. Yes but the sad bit happens when an incompetent or uncaring landlord or pub company allows a good pub to become awful, not when the awful pub then inevitably shuts. The pub may only just have stopped trading, but it died years ago. This is the point you should have been up in arms.

    I've been in plenty of pubs with absolutely no redeemable features whatsoever.

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  17. The strange bit of this codswallop isn’t that dear old Mudge likes a swally but somehow thinks that’s more respectable in a Victorian/Edwardian pub with bench seating and no pork pies in the ploughman’s. Lots of people have that delusion. Without that delusion there would be no beard club.

    The strange bit of this codswallop is its focus on death and decline rather than birth and renewal. For every closed pub, something else replaces it. The new flats, the new convenience store bring benefits and happiness to some. The new box bars with uncomfortable seating, piss poor service, sky high prices, and undrinkable gaggable craft beer are even loved by some people. A new Spoons brings a smile to the retired chap with a love of £1.99 Ruddles and microwave food. A special off in Tesco brings a smile to the lout enthusiast. All of this to the good.

    One can either look to christenings of life and celebrate, or look to the funerals and mourn.

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  18. As ever an interesting discussion.

    Cooky is correct about asset value suppression etc, however, pubs have an economic value beyond their bricks and mortar ... the so called societal benefits of social cohesion and controlled environments for the consumption of alcohol.

    There is plenty of research out there showing the benefits to local communities of having local businesses as opposed to (multi)national businesses.

    The "traditional" pub, the Moons Under Water etc, are by and large a myth and a hankering after to long gone Betchaminesque era of spinsters on bicycles and warm beer by the village green.

    Pubs fail for a variety of reasons, many of which have been iterated above, however, one factor not mentioned is the competition for consumers' leisure hours that the rise of TV/the t'internet pubs face.

    The more entrepreneurial in the pub trade have learned to diversify (be it the provision of entertainment or a more sophisticated food offering) and they will continue to adapt demand as appropriate.

    Pubs closing is a sad thing, but if their closure is due to such things as the systematic asset stripping carried out by some pubcos or the lunatic duty regimes of successive cash-strapped Chancellors then this should be "mourned".

    The disastrous unintended consequences of the Beer Orders can now be seen to full effect with a sectoral decline of some 30% since 1982. Would so many pubs have closed over the same period without the orders? No one can say, however, what can be said about any business (pubs included)is that if it is well run and meets consumer demand (whether inherent or manufactured) then chances are it will succeed.

    Too many pubs churn due to the appalling "lifestyle choice" some would be publicans make and as BIS quite rightly highlighted the high levels of illiteracy & innumeracy amongst those entering a highly competitive market.

    Sadly for purists and nostalgiasts the likes of Spoons have to be admired for their model, even if it is the lowest common denominator or the "pile it high & sell it cheap" model.

    Maybe the 50,000 pubs level we are at is what the country can support, maybe it's a lot less ... but having planning guidelines such as the 'Cambridge' model are a sensible brake on developers when a community asset is identified and permitted an appropriate level of protection ... such as other assets ... you know, like those other Victorian institutions the public parks, which, no one else would like to lose to the likes of a mega-supermarket or more "ticky tacky box" housing developments.

    Just a thought ...

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  19. "one factor not mentioned is the competition for consumers' leisure hours that the rise of TV/the t'internet pubs face. "

    This is certainly a point I have made in the past when I listed the reasons for the decline of the on-trade vis-a-vis the off-trade.

    "Would so many pubs have closed over the same period without the orders? "

    Interesting question - certainly a brewery has a vested interest in keeping pubs open as sales channels for their products which a pubco doesn't. Tied house owning breweries in general seem to have made more of an effort to keep pubs going than pubcos, but on the other hand Robinson's have had quite a clearout recently including some once-thriving establishments.

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  20. We clearly need a reality tv show where we follow an expert landlord who goes into failing pubs and turns them around with a careful assessment of what the local market is missing.

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  21. Well I'm ready for my close-up Mr deMille ...

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  22. Professor Pie-Tin15 May 2013 at 11:54



    Yup, people's social activities have change with the advent of the internet and social media.

    But it still never ceases to amaze how many pubs don't have free wi-fi and those that do don't advertise the fact.

    " Why would I want a load of kids in here on them I-tablet thingies - I want old men nusring a pint for hours. "

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  23. A fascinating contribution from PS

    You are aware fella, that “assets of community value” is just another bit of language for nationalising part of the owners’ rights of private assets. That as an asset of community value, the owner is restricted by the community in regard to what they do with the asset.

    Don’t be moaning when the community extend their new rights in regard to community (no longer private) assets.

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  24. I think he means that pubs provide positive externalities and as such a free market allocation will only ever be Pareto inefficient Cookie.

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  25. Cooky ... fair point ... but unless unbridled corporate greed is reined in at some point not only pubs will disappear in certain areas but also the likes of parks, swimming pools, libraries ... after all they are "privately owned" (albeit in the public trust) by local councils

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  26. My point, PS, that in a public park I can use the public convenience and no grumpy landord expects me to buy a 99 from the shop.

    A protected pub of community value is a different beast from you being in charge of your own gaff. It's one where the community are in charge.

    But feel free to hand over your boozer to the public trust alongside the parks, I'm sure the council will run it for the benefit of all. I'll vote for the councillor offering cheaper lager.

    @Pyo, if social cohesion is a benefit of pubs worth socialised support, how come they only provide it when they are successful and don't need support? When they are empty they are not providing much by way of social cohesion. As for a controlled environment for boozing. Are we adults?

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  27. The point is, the best short term business decision may well be to close an unsuccessful pub flog the land to developers and pocket the cash. But a better option for the community would be for the pub to be run correctly instead. The social incentive differs from the private incentive, and thus the socially inefficient decision is taken. Its a perfectly valid aim of the state to use Pigovian incentives to ensure the private and social responses are more closely aligned.

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  28. One would expect the state, in that circumstance to be able to measure the social cost or benefit of a pub in order to determine the level of Pigovian incentive (-VE TAX) or tax to apply.

    I would not expect the government to start applying them from a fuzzy warm feeling regarding pubs.

    The social cost is measurable. The number of late night boozers in A&E, the number of coppers required to police friday night.

    Where's me pound/pence figure on social benefit?

    On smoking, the costs are apparent, the benefits elude me, so more pigovian taxes then?

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  29. Social benefits and costs are not necessarily easy to measure in monetary terms or even particularly distinguishable from the kind of warm fuzzy feelings expressed by Mudgie. But that doesn't mean they don't exist or can justifiably be ignored.

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  30. "My point, PS, that in a public park I can use the public convenience"

    Public convenience in a park? When did you last see one of those? Go behind a bush, mate :p

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  31. I've been park surveying for the campaign for tramps piss. We are publishing the Good Tramps Piss Guide which has all the public parks, where us spesh drinkers are, whether the rozzers move us along, where to piss, puke & sleep and whether people offer you cans of spesh for cottaging. Get yourself a can of spesh, some dirty clobber, and you can join us, if you like, scaring people in parks by shouting "they're here already, you know". Thing is parks don't have WiFi so we sometimes also go in Spoons.

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  32. @pyo weve already had one it was called "Save our Boozer" with Jay Smith,made few years back but its still relevant, and on permanent repeat on satellite channels like Blighty (next episode is Monday)

    the premise is each week a pub often in a picturesque village location about to shut is given a last chance for the community to all pull together, save it and run the place as a community pub.

    and is the usual reality show mix of disasters,last minute hitches, will they make it etc etc.though surprisingly perhaps (or not) the type of beer and choice of beer was by far and away the least important factor governing the success or otherwise of their efforts.

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  33. This is a classic example of the "evil pubcos are killing our pubs" mindset.

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