Monday, 25 May 2015

The monkey’s paw strikes again

I’ve made the point in the past here and here that the pubcos are not going to adopt a supine response to any government-imposed change in their business model, and that the recent “Pubco reform” was essentially a Pyrrhic victory for CAMRA and Greg Mulholland.

Now Enterprise Inns have set out their strategy following these reforms, and it’s not remotely surprising. They are planning to convert 750-850 of their most profitable sites to direct management, sell off about 1,000 bottom-end pubs and convert another 1,000 to arm’s length commercial leases. The remaining 2,200 pubs will be subject to tied agreements of up to five years, where presumably they will seek to minimise the opportunities for licensees to take up the market rent option (MRO).

As I’ve said before, it’s hard to see why any pubco would be interested in owning pubs run on an MRO basis in the long term. Enterprise are going to transfer a lot more pubs to commercial leases where they no longer have any interest as to whether the business is run as a pub or a supermarket. If any licensee on a tied agreement goes for an MRO, they will not renew his agreement and will probably either transfer the pub to management or sell it off. It’s also very doubtful whether there’s enough liquidity in the market to take up the 1,000 pubs being sold off, and many will surely end up converted to alternative use.

No doubt Punch Taverns will come up with similar plans, and we will end up with yet another Beer Orders style upheaval of the pub trade. Maybe the trade does need a further culling, but it’s hard to see that that was the objective of the campaigners for pubco reform.

And, for those who didn’t get the reference, see here. It’s the classic cautionary tale of being careful what you wish for.

7 comments:

  1. You assume that those pushing MRO didn't think that something like this may happen. They may well have realised that there would be some fallout, but thought it was worth it. You never know, it might be the push that the mess of the pubcos needed. Mulholland in particular has often talked of them being zombie companies, staggering along but not able to escape the path they seem set on.

    Personally, I'm not convinced either way. I find the rhetoric on both sides often is unconvincing
    It will certainly be interesting to see the fallout.

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  2. @Rob I seriously doubt CAMRA lack the ability to think strategically on that level.

    Remember, the mess the British pub trade finds itself in today is largely of their making - they still proudly claim the Beer Orders as a campaigning success.

    Now, after the fallout from that particular 'success' returned to bite everyone in the business, they couldn't help themselves from interfering again, having failed to remember what happened the last time, with consequences that may have only accelerated the inevitable, but from legislation they supported.

    Let's face it, CAMRA, as a result of their support for two major pieces of legislation, is as culpable in the closure of thousands of pubs and several breweries as anyone else involved.

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  3. It is hard to believe that CAMRA and others didn't foresee something like this happening, but it was certainly presented without any hint of irony as a bright new dawn for the pub trade, when in reality it was nothing of the kind.

    I agree that the big pubcos are in effect zombie companies which got themselves into a parlous state by over-optimism and over-borrowing, but giving them a strong incentive to engage in large-scale disposals is not the best way to solve it.

    Many well-meaning people fail to appreciate that, however sensible particular regulations may seem, the more you regulate an industry the less of it you tend to end up with.

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  4. I'm more bothered about the pubcos making the more successful pubs managed houses.

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  5. CAMRA has never been about saving pubs. It's about the pubs CAMRA types like.

    If a thousand uninteresting boozers shut and 50 reopen as CAMRA pubs, they will be pleased. it's as much about abolishing what they don't like, as getting what they do.

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  6. Cooking Lager this is unfair and incorrect at least in the area where I am, Bristol. Some of the CAMRA activists attempt to save each and every pub that is under threat no matter how bad a pub it is because they understand that it is far easier to turn a shit pub into a decent drinking venue than it is to turn a defunct Tescos into any kind of drinking venue. A gentleman called Pete Bridle is at the forefront of this difficult work in the area.

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  7. But trying to save unprofitable shitholes of no architectural merit, against a background of declining demand, really is an exercise in flogging dead horses.

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