Monday, 13 March 2017

Community challenge

Congratulations to the George & Dragon at Hudswell in North Yorkshire on being chosen as CAMRA’s National Pub of the Year for 2017. A significant point about this pub is that it was saved from closure a few years ago through being bought by the local community. As commercial operators continue to shed what they view as “marginal” pubs, this is a model of ownership that is going to become ever more common in the future.

However, no community group should assume that their troubles are over once they have bought their pub – indeed, the challenge is only just beginning. Obviously a community pub doesn’t have to pay rent or interest charges, so may not need to make the same margin as a commercial operation, but will still need to be run as a profitable business. The owners are unlikely to want to stump up more money every year to subsidise losses.

There’s always the risk of ending up with a “horse designed by a committee” if the owners are allowed too much say in the details of day-to-day operations. There may be a conflict of interest between those who want to turn it into some kind of community centre, as opposed to a more conventional pub operation. There could, for example, be a difference of opinion about the admission of children.

Does the community group actually want to run the pub business on their own account, or let it out to a tenant? And should the pub be run on a low-key basis as a “local pub for local people”, maybe with limited hours, or should it be more ambitious and do more to attract trade from other areas, which carries more potential reward, but also more risk? The licensee at the George & Dragon is described as “manager” – does that mean he is a salaried employee?

And, the most thorny question of all, what is going to happen if community owners reluctantly conclude that, at the end of the day, there is no way that their pub can be made viable? This is inevitably going to happen somewhere, at some time, and there could be heated debate about who stands to benefit.

This is not to say that most community-owned pubs don’t have a promising future, but nobody should delude themselves that everything will be plain sailing.

Incidentally, it’s good to see that, despite being in a small village, the George & Dragon manages to open at lunchtimes seven days a week.

I will declare an interest here, as I have a small stake in Ye Olde Vic in Stockport, which is owned by a community group. However, the situation here is untypical, as the problem was that the previous owner wished to dispose of the freehold. The pub continues in business with the same tenant and the same business model as before. I don’t, to be honest, expect any return on my contribution, but it does raise the issue of whether my heirs will inherit my stake. And, if it was CPO’d by the local council, would I stand to benefit?

20 comments:

  1. If your community venture owns the freehold as an investment held by a company then your heirs can inherit your shareholding and in the event of a CPO then the company will receive the value of the freehold with the tenant being compensated for the value of its business and the company can distribute the proceeds to its shareholders.
    By the way,the Vic is a nice pub its not in danger of being CPO'd is it?

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    1. I don't see any prospect of the Vic being CPO'd, but the Midland on the A6 was threatened with it last year, so it can happen.

      Delete
  2. The Blocked Dwarf14 March 2017 at 09:40

    I was brought up to believe that you shouldn't go to someone's funeral if you couldn't have made the effort to visit with them when they were still alive. Used to piss me off when I worked at a Geriatric Hospital- all the relations would turn up to the funeral but none of them had felt able to visit Old Aunt Erika when she was still alive and filling her nappy.

    I have the same feeling about 'Community' Pubs (excepting Mudgie's model). IF the 'community' had been prepared to support that pub before it closed then there would be no need for 'community' pubs. The way to stop your local going to the wall is actually go there and drink some beer. Buy a pack of Wife Beater a week less at tesco, pop in for a pint when you're out of an evening walking the dog. Bring your kids up to behave in public so you take the family for Sunday Lunch. Cancel your Sky Sports subscription and watch the Big Match on the Wide Screen.
    Of course all the above don't apply if you're a smoker, because you were 'de-community-ized by the pubs and they can all go to the wall for all you care, nor would you want to fund any 'community pub' from the pittance the government leaves you after paying Brit prices for smokes.
    Even the most ardent Anti-smoker publican must by now begin to wonder if 'de-community-izing' a third of their clients was really such a good idea.

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    1. Becoming a community pub gives the 'community' more ways to support the pub. In a small village the 'community' might not be large enough to keep a pub viable just by drinking beer and eating Sunday lunch. Increasing its scope to include a Post Office and small shop gives the 'community' more opportunities to support the enterprise.

      And most funerals would be very sparse affairs if the only mourners were people who had visited the deceased every week.

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    2. The Blocked Dwarf14 March 2017 at 10:21

      In a small village the 'community' might not be large enough to keep a pub viable just by drinking beer

      True...up to a point...in a very small village without internet access to Tesco Online.

      And most funerals would be very sparse affairs if the only mourners were people who had visited the deceased every week. and that would be a bad thing because?

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    3. and that would be a bad thing because?

      because funerals are wonderful social affairs where you get to meet people you have lost touch with or not been able to see for some time. And the relatives of the deceased take comfort from knowing how many people cared enough about him to take the time and effort to attend the funeral.

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    4. The Blocked Dwarf14 March 2017 at 18:42

      but who obviously didn't care enough about him to take the time and effort to visit the old sod while he was alive?

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    5. The fact that they didn't visit didn't mean they didn't care. The distances involved might prohibit visiting whilst they maintained an vigorous correspondence.

      I haven't seen my son, who lives in Seattle, for three months but I know from his frequent emails and his Facebook postings that he cares about me. And I wouldn't consider it hypocritical of him attending my funeral. Indeed my shade would be most annoyed if he didn't.

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    6. This is all a bit off-topic, but surely people will often travel long distances to attend funerals, plus the fact that it's not uncommon for people to die suddenly rather than experiencing a protracted illness.

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    7. I think TBD started it ;-)

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    8. The Blocked Dwarf15 March 2017 at 11:47

      I usually do, sorry.

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    9. A pub may have been run in a way that wasn't appealing to the local community, of course.

      And, if you strip out costs for rent or interest, a pub deemed unviable by a commercial operator may well be able to wash its face financially in community ownership.

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  3. Are you saying you did not read the prospectus of an enterprise you have purchased a stake in and have no idea what ownership rights you possess? Do you make a habit of investing this way? Allow me to interest you in an exciting venture in boring brown bitter, cats and dumpy old man pubs..........

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    1. "Allow me to interest you in an exciting venture in boring brown bitter, cats and dumpy old man pubs..."

      Where? Where?

      Checks financial reserves...

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  4. What effect do you think it will have on their weekly take?

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  5. A lot of good points.

    Not sure how common a form of ownership it will become. Out of 50,000 pubs in UK I believe only 70 are community owned.
    They are often only viable as businesses if a large chunk of their expenditure (rent) is taken out of the equation which would make many businesses viable. If they going to be a local pub for local people then they might be more likely to fail. They failed because of a lack of custom and they could drive away more customers than they attract.

    The big question is why do people invest in a community pub that they don’t use that much. A lot will think it worthwhile and the right thing to do but others have been scared into thinking that the value of their houses will go down in a village with no pub, which may be true. This was what was said in an actual case in Bedfordshire. It was backed up by some dodgy figures on £/sq ft basis of properties in villages with and without pubs but that is not how residential properties are valued. I got the impression that a small clique wanted the pub open and wanted others to pay so I don’t think that would work out long term. They even talked about having Sky Sports which I thought was likely to be much too expensive.

    PS I think most set ups would be transferable, at least on death, and should the pub close you would get a return pro rata on your initial investment.

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    1. In terms of how common it will become depends on how many people care about pubs.

      This model is an acceptance that the pub does not function in purely commercial terms. Either through low usage or property being more valuable used as something else. The market determining through pricing that people want flats more than pubs.

      However not all things are run commercially. We have civic parks and libraries we all pay for through local taxation. Providing pubs this way is unlikely to pass an electoral test, therefore a coalition of the willing would be equitable. That that care about pubs can put their money where their mouth is and buy a commercial asset at a commercial price and run it not commercially.

      It's a great use of Mudgies money and yours. Not a great use of mine, though, which is put to better use on cheap cans of lager.

      Oh and if transferable on death, why not in life? Mudgies heirs may not care about a dumpy pub in Stockport and want to sell to some sad case that would love a share in one.

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    2. It's the National Trust. It's preserved railways. it's what the British do best.

      And I'm sure that 70 community-owned pubs is a considerable underestimate.

      Not sure whether a 0.5% stake in Ye Olde Vic can be regarded as a saleable asset, though.

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    3. Around 70 is the figure given on the CAMRA website.

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