Well, the long-awaited Pubs Code has finally come into effect, including the Market Rent Option (MRO) for tied tenants. To listen to some, this represents the salvation of the pub trade, but of course it does nothing to address the overall lack of demand which is its most fundamental problem.
Morning Advertiser editor Ed Bedington is right to sound a note of caution. MRO may be a golden opportunity for some enterprising licensees, but it isn’t going to suit everyone, and you have to consider very carefully whether you want to take the risk of cutting yourself off from the pub company’s support system. I can also see many MRO licensees ending up sourcing the bulk of their supplies from a single wholesaler rather than shopping around for the best deal on everything.
I’ve also asked the question in the past, and never received a satisfactory answer, as to exactly what benefit there is to a pubco in owning pubs where MRO applies. The whole point of pubcos was to, in a sense, replicate the tied house model operated by the big breweries. Take away the supply of drinks, and you’re left with a pure property business, which is something entirely different. Yes, the pubcos may receive a healthy rental income but, in the long term, do they want to be in that business? We may well see MRO pubs being hived off to dedicated property companies.
I can see pubcos doing everything they can to avoid their pubs going over to MRO, for example by converting them to management, franchise agreements, or other kinds of hybrid arrangement. And, if the only revenue stream from a pub is rent, then any incentive to retain it as a pub rather than converting it to something else is removed.
As I’ve said in the past – be careful what you wish for.