Friday, 8 July 2011

At which point does a groundswell become a tsunami?

The BISC inquiry into the pub trade has heard calls for a statutory control of the industry from the Independent Pub Confederation as the years of inaction by pubcos to put their own houses in order has resulted in the decimation of this vital social and economic institution … the great British pub.

Self regulation is like asking playground bullies to decide amongst themselves just how much lunch money they will extort from other children … it hasn’t worked in the press and it hasn’t worked in the pub industry.

No wonder Ms Simmonds of the BBPA (which as we all know really only represents brewers and pubcos not tenants or free-traders) would prefer that HMG “would concentrate on other things”. Let’s face it she and the BBPA would never bite the hands that feed them and her (and her organisation’s) entire raison d’etre is to spin and deflect attention away from the sharp practices of her paymasters.

With the professional bodies such as the BII and RICS prevaricating and vacillating for similar reasons as the BBPA it is no wonder that MPs are adopting a more strident tone with the likes of Enterprise and Punch.

It is becoming ever more apparent (even to Parliament) that the BBPA is a trade body for the brewers and the pubcos and that groups such as the Independent Pub Confederation are more likely to be the true representatives of publicans.

The outrageous behaviour of Peter Rachman (and his ilk) was curtailed by HMG in the 1965 Rent Act and legislation to control corporations that are causing as much, if not more, harm to its victims is long overdue.

It cannot just be about proscribing an effective code of practice though.

It must also enshrine elements of natural justice so that tenant and landlord share equally the risk and rewards of operating pubs. It must ensure the sustainability of tenant businesses (not to be confused with subsidising sub-standard operators) and end the indentured servitude of thousands of families in this country that would be deplored elsewhere in the world.

We all hate the Nanny State but at some point Nanny has to intervene when certain children resolutely refuse to play nicely.

Wednesday, 6 July 2011

Lies, damned lies and statistics ... Part 2

“Annual income twenty pounds, annual expenditure nineteen six, result happiness.
Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.”

Charles Dickens, in his 1849 novel David Copperfield, provides us all with an apt Profit and Loss Statement, income and expenditure recorded and the result analysed.

Your pub business is like any other it will make a profit or a loss depending on two factors – income and expenditure.

I have provided many examples on this website on how to improve sales and control costs (and many others will provide similar information) but for many pub businesses knowing what targets you should aim for in cost control is less clear.

On July 4th 2011 the Association of Licensed Multiple Retailers (ALMR) announced the publishing of its annual Benchmark Survey Report in which it details its findings on such things as sales, costs, capital expenditure etc amongst its members. The survey taken in October 2010 coincides quite nicely with a report from a well known licensed trade accountancy firm.

Between them they provide an insight into what pubs in certain sectors are achieving in terms of profitability based on the profit and loss information on a virtually identical number of sites so comparisons (whilst usually odious) should be valid.

The ALMR report suggests that the average cost of running a pub (out of the 699 pubs surveyed) is 47.1% of annual turnover in freeholds and 44.9% in tenancies and leasehold pubs (excluding rent and cost of sales). Add the 11.4% of turnover that represents rent and this means non-freehold pubs have to give over 55% of their turnover to running the pub (although this includes a figure of 7.2% for tenant’s drawings), which nets out to 47.8%.

The accountancy firm gives the following analysis of some 701 pubs (no detail is given of whether they are tied or free of tie) for three levels of trading, under £3,000 per week, £3,000 to £5,999 per week and those over £6,000 per week. Average cost of running these pubs is 46.8%, including rent at 9.22%.

Analysing their results using an average of all their averages (i.e. different levels of turnovers etc) the results would appear quite encouraging:



% of sales
 £     4,219


 £     1,319

 £  68,605

 £        475

 £  24,700

 £     6,013


Cost Wet Sales
 £     1,715

 £  89,162

Cost Dry Sales
 £        535

 £  27,812

Total Costs of Sales
 £     2,249


Gross Margin

Gross Margin %
GP Wet
 £     2,504


GP Dry
 £        784

 £  40,794

Total Margin
 £     3,289



Gross Profit
 £     3,764




% of t/over
 £        620

 £  32,245

 £        123

 £    6,420

 £         87

 £    4,513

 £     1,051

 £  54,667

 £     1,219

 £  63,404


Total overhead
 £     3,101



 £        663

 £  34,472


Assuming that the draught/bottled beers represent 70% of wet sales and an average price per pint of £2.70 this would be a MAT (Moving Annualised Total) barrelage of approximately 197.5.

Making the same assumptions as above the cost to tenant of a barrel of beer would be £338.60 or £206.92 for an 11 gallon keg.

Does any of this sound realistic, in terms of tied tenancies and leases? Is it really possible to make over £34,000 profit from a 200 barrel pub?

The answer is yes if the divisible profit is equitably split – the landlord charging rent at 10% and selling beer to tenants at £338 a barrel. This would mean somewhere in the region of £100 per barrel discount earned by the landlord being passed on to the tenant.

Yes, that is, if you also accept the premise that the provision of accommodation is akin to “getting money in for changing some sheets”. If this income is treated as “cost free” in these accounts then it accounts for 72% of the net profit of the business. For those pubs not able to provide this service it means net profit would be reduced to £9,772.

Put in the real price of beer, as evinced by contributors to the Publican’s Morning Advertiser forum, that beer is nearer £256 for a 22 gallon, this means the averaqe of all average pubs from these samples of the trade universe are making a loss of £6,735 a year … I bet that rings true!

Whilst these “benchmarks” may be of use in setting targets or as comparitors for your business you must remember that your business is unique and the trick is to closely examine all areas of income (to maximise them) and all areas of expenditure (to minimise them) in order to make the greatest profit from your endeavour.

Lies, damned lies and statistics ... Part 1

Tied pubs not more likely to fail than free of tie pubs … Greg Mullholland reinterprets pubco figures and  proves them wrong ...

Parliament as an institution is no fool, its constituent members is a different matter, let's hope that the continual misinformation (and in some cases according to Parliamentary reports outright falsehoods) put out by the pubcos and those with vested interests in them will prompt some action to end the rapacious activities of these companies.

Let's face it these corporations are not like the banks (absolutely integral to the general economic well being of society) these companies are not too big to be allowed to fall over. The countervailing benefit to society of safe and well run public houses as part of the social infrastructure of this country must far outweigh the interests of a few hundred pubco executives and managers.

Their respective shareholders and bond-holders will find a way to protect their interests (even if the value of those interests takes a temporary hit - such is the nature of free markets) especially if they are seen to be the saviour of the great British pub by ending the questionable business practices of the corporations they are funding.

Monday, 4 July 2011

NOISE! ...can't live with it, can't live without it ...

Having been rudely awakened by the cacophony of the dawn chorus - in particular a pair of warring blackbirds (whose territorial dispute seems to be centred around my bedroom window) - and then the arrival of roofing contractors to next door (complete with petrol driven roof tile cutting machine) I thought this a good time to release a new article on my website ... follow the link. below

How To Run A Pub - Noise Pollution