Tuesday, 12 July 2016

Property boom

Last week, there were two somewhat similar news stories, with St Austell Brewery buying Bath Ales, and Camerons buying the pub estate of Leeds Brewery. The two deals were not exactly the same, as St Austell also bought the brewery, while Camerons didn’t, but both involved acquiring pub estates of 11 and 7 pubs respectively, mostly high-quality venues on prime sites.

Leeds Brewery's Duke of York in York
I’m confident St Austell intend to retain the Bath Ales brewery, and indeed to extend the distribution of their beers, as it will add another string to their bow, so it’s certainly not just an old-fashioned tied estate grab. But a strong portfolio of pub property is certainly a desirable asset in today’s market.

For anyone who sets up a microbrewery and grows beyond a certain size, there’s always a siren voice saying “why not buy a pub to give you a guaranteed market for some of your production?” There’s an argument for it, but you have to remember that you’re getting into an entirely different kind of business. You’re entering into a whole new world of loans and mortgages, and you have to remember that most of the sales won’t be your own production. You may also deter competing pubs from buying your product.

If a brewery wants to expand, it seems to me that there’s a clear choice between becoming primarily a free trade brewery, as opposed to a tied estate brewery. There’s a case for each strategy, but, if you try to ride both horses at the same time, you’re likely to come a cropper. Locally we have Fool Hardy, who started off as a brewpub operation in the Hope, and have now expanded to a second pub, the Spring Gardens in Compstall, but don’t really sell into the free trade. And on a larger scale, Joules have built up a substantial tied estate of maybe twenty or so pubs now, but do little free trade business.

On the other hand, the recent crop of highly-regarded local craft breweries haven’t shown much interest in acquiring pubs and bars. It must also be remembered that the financial risks associated with building up a pub portfolio have over the past few decades caused a number of breweries to come to grief for reasons unrelated to brewing performance, such as Trough, Smiles, Archers and Copper Dragon.

I’m not that familiar with Leeds Brewery’s tied estate, but on the face of it, the deal seems to make sense, to cash in to concentrate on brewery expansion. Richard Coldwell, on the other hand, is a touch sceptical. By all means, once you’ve reached a certain size, buy a bar, or even two, to serve as a brewery tap and a showcase for your products. But any new brewery needs to recognise that, in acquiring a tied estate, they’re venturing into a very different business from brewing.

I’m also rather doubtful whether, in the current marketplace, the tied estate route is really the best path to expansion. Yes, it seems to work for Joules, but, much as I like their pubs and their general approach, I continue to harbour doubts as to whether it’s really a sustainable long-term business model. In general, customer demand is ever more for choice, choice, choice. If you do want to concentrate on tied houses, you need to establish a clear concept, identify the kind of location where it’s likely to work, and maximise the amount of your own production sold through the pumps.

12 comments:

  1. Obviously you have Marble owning 3 pubs/bars - two in the centre, one in Chorlton, and Blackjack have the Smithfield in the centre and one on Altrincham market (which is at least an expansion of their estate).

    There is also the inverse; those companies that were initially a restaurant and have either started their own brewery (Alphabet) or are expanding into the brewpub market.

    But with the price of property, this of itself explains the rise of the Brewery Tap.

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  2. It will all end in tears before becoming a block of flats.

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  3. Blackjack only rent, they don't own the property, which is a much less risky path to tread.

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  4. There are a number of ways of looking at this. If you rent, then you can get a lot of the advantages while minimising risk and you get the showcases for your beer. I think in the case of Joules, they pick their venues carefully and the kind of customers they aim at are not concerned about ever increasing choice. On a diagonal argument, your "law" of choice would mean that breweries such as Lees and Sam's who do not retail other brewer's beers, would have no future. Clearly that isn't so. Equally and on the same scale as those recently sold, neither would Holdens or Bathams.

    Now of course they have built their estates up over the year and new breweries aren't quite the same, but I chosen well and done well, it can work. I'd suggest the idea is not to get overambitious, though there is little to suggest that in the cases of Bath and Leeds, their estate was dragging the company down.

    What adds more weight to that argument is that you mention high quality estates being sold. That might suggest cashing in of viable assets for whatever reason, rather than getting out of a failing business model.

    Other arguments are available.

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    1. No, I'm certainly not claiming that tied houses are a poor business model - indeed I'd say in the case of established breweries it adds something distinctive that you don't get elsewhere.

      But if you're a new brewery, you need to proceed very carefully and I'd say being a tied house brewer rather than a free trade brewer is the less likely road to success. Horses for courses, though.

      I still don't see that the Joules business model quite adds up, though.

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    2. I agree with you about Joules. Most of their pubs are filled with TV's showing Sky Sports and tend to attract the type of punter who has been drinking the same thing for 20 years, and has no intention of changing. They also seem to acquire pubs which have either closed down, or which the general consensus is are very quiet and struggling. My guess would be they get them at a cheap rate, and then their strategy of offering beer at lower than average prices (for the area) then gets punters in. Whatever they are doing, it seems to be working as the number of Joules pubs in this area is ever increasing.

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    3. Hmm, that doesn't remotely tally with my experience of Joules. I've probably visited about eight of their pubs, and would say that typically they are smartly and expensively reburbished, with much use of polished wood and mirrors, and have beer prices typical of the locality. They may have TV screens, but they're certainly not filled with them. Are you sure we're talking about the same company?

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    4. I only really know one Joules pub, the Royal Oak in Wrexham. It used to be a Bass pub back in the day and then struggled for a few years before closing. As you say above Joules refurbed it smartly with panelling, mirrors etc and it's now probably the best pub in the town centre. It does have a telly but that's not intrusive. No food but they will provide plates and cutlery if you want to bring your own in. Beer prices not out of the ordinary. Works for me.

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  5. I really don't recognise that description of Joules. I've never noticed presence of TV at all in the dozen or so I've been to.

    Yes, they take on struggling pubs but always high quality buildings they then apply their ethos to. Plenty of drinkers, a more upmarket Sam Smiths (nothing against Sams). Not bargain beer at all in my experience.

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  6. What seems interesting to me about this is that it is the family brewers who are building up their estates. I guess it's easier and probably less risky to buy an existing successful trading estate that you can subtly tweak a bit (mainly by putting more of your own beers on). Okells did it a few years ago with Market Town Taverns in the Leeds area too. Having a geographical focus no doubt helps.

    Any other similar pub groups that could be up for grabs? I can't really think of many, not that are primarily wet led (there seem to be lots of mini pubcos which are pretty much restaurants).

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    1. Titanic and Wye Valley both have small tied estates of about 8/9 pubs, but in both cases I'd say that if you take away the beer you take away much of the distinctive appeal of the pubs.

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    2. Castle Rock is another new brewery that is building up a significant tied estate, but again I'm not sure how appealing it is to a potential predator.

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