Monday, 29 October 2012

A picture paints a thousand words ...

Another in my series of a picture paints a thousand words ...

*Living Wage currently £8.55 an hour in London, and £7.45 outside the capital

Wednesday, 24 October 2012

More tales from the crypt ...

Roger Whiteside - CEO Punch Taverns plc ?
As Hallowe'en approaches I thought I'd bring you some spine-chilling tales from zombie pubco Punch Taverns, but first let me remind you of the dictionary definition of a zombie: 
“the body of a dead person given the semblance of life, but mute and will-less, by a supernatural force, usually for some evil purpose”

I use the word zombie because this behemoth of the pub trade is currently in debt to the tune of £3,665,800,000 or to use the far less visually impressive common parlance £3.665 billons. ( Source Punch Prelimiary Results for the 52 weeks to August 18th 2012 ) Which is 76 times their annual profit ... which is an impressive profit to debt ratio by any reckoning! Scared yet? As an investor I would be, especially with today's share price. If you bought shares in January 2008 at about £1.25 a share they would be worth 6.55p each today, where as if you'd invested elsewhere in the "Travel & Leisure" sector your initial share value would have stayed just about the same. Surely you must be a little frit by now?

Punch Share Performance (Source

OK then let's look at in terms of the tenants of this debt-whale ... Punch is proud to say that it is going to divest itself of 1,595 pubs in the staggeringly misnamed "Turnaround Division" ... the strategy for which is quite blatant in its remit ...
    "Maximising short-term returns: While these non-core pubs remain in our portfolio, we remain committed to driving operating performance and maximising the profits from these outlets."
Anybody else think the only thing missing is the corollary of "... by all means possible and at whatever cost to the tenant"?

The time scale for disposing of these "non-core" assets? For the "sell now/sell later" category (1,029 pubs) it's 1 to 3 years until it's 'goodnight Vienna' and for the "protect and grow" segment if you're in one of these 566, congratulations you're not scheduled for the garbage chute for 3 to 5 years. Either way don't make any long-term plans ...

Ready for some really shocking reading? Then if you're sitting comfortably ...

Number of pubs in turnaround: 1,595, gross margin on drinks revenue totals £34,639,072 or £51,598 per pub, which on drinks sales to you tenants of £82,300,000 equates to 42% gross margin. Not bad for just placing a few telephone calls and taking your orders, no deliveries to be seen in or pipes to be cleaned either!

Which leads neatly on to the total gross margin (drinks, rent and machines) they make on turnaround pubs which is £67,058,686 or £42,043 per pub ...

Now how about you 2,934 tenants in the core estate ... how's it looking for you? Well Punch sold you a whopping £269,100,000 worth of drinks from which it derived it's customary 42% profit of £113,260,928 ... which on average is £91,717 per pub. The total gross margin they achieved was £220,141,313 or £75,031 per pub.
The really scary language though is saved for the creditors ... 

"Both securitisations are over levered and unsustainable in their current form; Significant amendments to each of the Punch A and Punch B securitisation structures are necessary, including one or more of a material reduction in debt, an increase in the maturities of the debt and changes to the financial covenants; "
Or put in lay terms "We can't pay what we owe you, it's impossible, can you let me off some of the debt or change my credit terms?" ... something many of you may have asked Punch for ... no need to take a poll on what their probable response was.

Tuesday, 23 October 2012

Time for all good (wo)men to come to the aid of the party ...

So Parliament is to debate scrapping the Beer Duty Escalator on November 1st...

So if you ...

a) drink in a pub
b) drink at home
c) brew beer or work for a brewery
d) manage a pub, work in a pub
e) are the tenant at a pub
f) own a freehold pub
g) own a pubco, work for a pubco
h) work in the logistics chain that supplies pubs and breweries
i) work in any ancillary industry servicing the pub trade

... contact your MP and tell them you expect them to support any motion to scrap the duty escalator.

If you don't know how to contact your MP go to They Work For You where you'll find an easy postcode search facility.

And more is less ...

Just an adjunct to yesterday's post, as the British Beer and Pub Association announced that UK beer sales fell by 4.8% in the last quarter compared to the same quarter last year. This drop on top of falling beer sales in the previous quarter of 5.3%.

In six months that means a total 166,000,000 less pints sold,

... the message sinks in?
which, using CAMRA's estimate of £1 per pint (on average) means
£166,000,000 less tax paid,

so my question to this economically illiterate Chancellor is

 which bit don't you understand?

Monday, 22 October 2012

Less is more ...

No chance of that with the current administration ... minimum pricing, late night levies, duty escalator, business rates revaluation freeze ... and a Chancellor that does not appear to understand the basic economic principles of 'inelastic demand' and the law of diminishing returns as demonstrated in The Laffer Curve.

Apart from fascinating research by those interested in the societal impact of alcohol consumption, such as the University of Sheffield, little seems to have influenced the political debate, however, a new report by the Institute of Economic Affairs, Drinking in the Shadow Economy, may change that. 

Perhaps a helpful civil servant will slip it into Georgie Porgie's red box ... and maybe he will then take notice of what many of us in the hospitality and brewing industries have been saying for sometime. That the third highest rate of duty (let alone other direct, indirect, and pseudo-taxation) is counter-productive:
"How do we explain the apparent lack of association between affordability and consumption? Demand for alcohol is relatively inelastic and drinkers have a series of options in front of them when real prices increase. They can do as the government hopes and drink less, but they can also do any of the following: (1) make savings elsewhere in the household budget, (2) switch from the on-trade to the off-trade, (3) downshift to cheaper drinks, (4) shop abroad, (5) brew or distil their own alcohol, (6) buy counterfeit or smuggled alcohol, and finally (7) buy surrogate alcohol (e.g. methanol, antifreeze, aftershave). The extent to which consumption patterns change depends on personal income and the price of drink. There is little doubt that financial considerations have helped shift drinking from the pub to the home in countries such as Britain,"
(above from the IAE's report)

 ... in short we Brits like a tipple and 'nudge economics' or crippling taxation won't curb that desire.

How much will the cost be of this country's punitive alcohol taxation regime?
"Contrary to temperance rhetoric, high alcohol taxes are not necessarily good for public health
because, although excessive alcohol consumption undoubtedly carries risks to health, so too
does moonshine. Counterfeit spirits and surrogate alcohol frequently contain dangerous levels of
methanol, isopropanol and other chemicals which cause toxic hepatitis, blindness and death. These are the unintended consequences one associates with prohibition, albeit at a less intense level than was seen in America in the 1920s.
It scarcely matters to the politician whether unrecorded alcohol comes from legal or illegal sources.In either case, the treasury loses out on revenue. In Britain, HMRC estimates that the alcohol tax gapcould be as much as £1.2 billion per annum, plus the costs of enforcement, and that this is largely because ‘duty rates on alcohol are far higher in the UK than in mainland Europe’ (National Audit Office, 2012: 2, 10). This is the price the state must pay for excessive taxation, but the politician is also aware that these high alcohol taxes raise £9 billion a year (Collis, 2010: 3). Being in possession of these facts he may conclude that reducing the illicit alcohol supply through tax cuts will probably reduce net alcohol tax revenues.
We argue that such a focus on maximising tax revenues is short-sighted and carries significant risks. Failing to deal with alcohol’s shadow economy threatens not only the public finances, but also public health and public order. Unrecorded alcohol has, as( Nordlund and Österberg note, ‘the potential to lead to political, social and economic problems’ (Nordlund, 2000: S562). In addition to the health hazards presented by unregulated spirits, alcohol fraud in the UK is, according to the HMRC, ‘perpetrated by organised criminal gangs smuggling alcohol into the UK in large commercial quantities’ (HMRC, 2012: 8). Alcohol smuggling and counterfeiting is linked to other illegal activities, including drug smuggling, prostitution, violence, money-laundering and - in a few instances -terrorism."
(ibid - my highlights)

How about that then? Is this litany of criminality a "price worth paying"? The IEA certainly don't think so ...
 "It is too early to say whether the recent well-publicised cases of large-scale illegal alcohol production in the UK represent a lasting shift towards a Moonshine Britain, but it may not be a coincidence that they have come to light at a time when regulated alcohol has become less affordable as a result of successive tax rises and a major recession. Policy-makers should take the threat of illicit production seriously when considering alcohol pricing in the future."
 (ibid - my highlights)

But then again when has reason & research ever been so outweighed by rhetoric and dogma than with the current government?  Perhaps a little less demonisation of the ordinary drinker might lead to more positive results than a temporarily bulging Treasury ... it would appear (from this, albeit somewhat subjective discussion document) that more taxation will lead to more unintended consequences both in terms of public health and public order. I know which I would prefer ...

Thursday, 18 October 2012

WTF? Is Jo Swinson Out Of Her Mind?

I was totally gobsmacked to read in the Publicans' Morning advertiser that Jo Swinson MP the minister responsible for monitoring the self-regulation deal for the pub industry has decided that all the commitments "have now been achieved".

I have taken the time to prepare an email template for those interested to know how she came to this conclusion and might wish to ask the minister WTF?

You can access the document here ...

I urge you to send her this enquiry ... or one of your own wording

Wednesday, 17 October 2012

One rule for them ...

The ever informative Propel.Info Newsletter contains a fascinating little snippet this morning, that bears sharing to a wider audience and certainly got me thinking ...

Mike Tye and Spirit Pub Company
" Spirit aims to raise £2.1m by selling three freeholds let to Tesco Express at auction today: Three Spirit Pub Company freeholds let to Tesco convenience stores will be auctioned by CBRE today. The three sites are: Tesco Express in Orton Wistow, Peterborough, with a guide price of £750,000 to £760,000 (rent is £56,000 per annum); a Tesco Express in Burley Road, Leeds, with a guide price of £600,000 to £610,000 (rent is £45,000 per annum); and a Tesco Express in Gracemount Drive, Edinburgh, with a guide price of £720,000 to £730,000 (rent is £50,000 per annum). "

The first thing that stuck me was how little the rent being charged on these buildings is. One can assume that the other income streams that pubcos usually derive from their tenants (principally discount income from tied product purchases by the tenant and gaming machine income) are not flowing in from Tesco, so the total income stream is limited to the rent paid by Tesco. 

Which beggars the question of what is a fair market rent in the eyes of pubcos such as Spirit or its step-sister company Punch Taverns? If there are no ties for wet products or gaming machines in these supermarket leases aren't they, in effect,  the equivalent to a free of tie lease, and therefore a free of tie rent? (I know, somewhat simplistic but many tied tenants of these rapacious companies might easily come to the same conclusion). 

Using historic multipliers (such as those used on the How To Run A Pub freehold calculator) to determine an approximate level of trade, would mean that the Peterborough site would trade at 200 barrels; the Leeds site 150 barrels, and the Edinburgh site 210 barrels (all with a nominal £2,000 gaming machine income p.a.) So Spirit have been forgoing £52,000, £41,000 and £54,000 respectively in terms of discount and other income from Tesco and still managed to satisfy their internal profit requirements every year on all these sites.

Which brings me on to the second thought that sizzled through my noggin ... and all this to one of the most irresponsible retailers of alcohol in the UK marketplace ... Tesco ... a supermarket, that along with its competitors, is widely accepted as having had a hugely deleterious effect on the UK pub trade. 

What a signal message this is to its tied tenants ... "we'll not only screw you with unsustainable levels of rent and eye-watering levels of tied product pricing, but we'll also subsidise your most voracious competitors until we can sell your pub to them at auction" ... bloody nice business model! No wonder Spirit is so desperate to bring in new 'business models' such as the three tiered franchise system they are peddling presently.

I wonder how many Spirit (and other pubco tenants) are thinking ... "fool me once, shame on you ... fool me twice, shame on me..." ? 

Well to them I say ... "SHAME ON SPIRIT , NOT YOU ! " ... and all this before breakfast and my morning meds ...

Sunday, 14 October 2012

Alcohol To Be Means Tested

Yet again the 'dead-hand' of unintended consequences may be at the helm of Britain's ship of state. In a piece in the Telegraph this week, a worrying example of upperclasshole thinking has surfaced.

Iain Duncan Smith (IDS)has asked his officials to see if so-called ‘problem’ families should receive their welfare payments on smart cards, rather than in cash.
The cards would only be able to pay for “priority” items such as food, housing, clothing, education and health care.
The Work and Pensions secretary wants to stop parents who are alcoholics or who are on drugs from using welfare payments to fuel their addictions.
The team of civil servants in his department have been asked to come up with proposals by the end of this month.
However the Government cannot currently stipulate how people spend their benefits money and the law would need to be changed to do so for certain groups.
He (IDS)said: “I am looking at the moment at ways in which we could ensure that money we give them to support their lives is not used to support a certain lifestyle."
It's not for me to say whether the '(un)deserving poor' deserve a drink or not, one may see this as a totally benign measure to protect the children of disadvantaged "problem families" … but what it is for me to say is that this is just the latest salvo in the "war on alcohol" that is being waged in this country through alcohol's continued demonisation by the 'worthy few'.

At which point does the policy stop? Will the next step be for anyone receiving any state benefit be subject to this form of creeping prohibition? Those in receipt of tax credits? After that, students, perhaps? After all they will be receiving the largesse of the state in the form of their student loan, that until they reach a certain level of salary remains unpaid. Will graduates only be able to consume alcohol when they have paid their loans off? How about pensioners?

What about all those pesky public servants … such as the nuMPties themselves? Will they be forced to give up alcohol as they are paid from the public purse? (I feel sure it would stop just short of them somehow …)

If ever there was a better example of the disjointed thinking of this administration then I am temporarily at a loss to find one … as if those affected by this measure couldn't find a way to get round the system … or perhaps IDS (Irritating Dickhead Syndrome) thinks that they are as stupid as him?

I suspect that even "Conservative Home" didn't bank on this gem of a "bold step"...

Ho hum off for a pint, whilst it's still legal …

Updated, 19/12/12 ... is the idea gaining traction with Alec Shelbrooke, who has drafted a Bill that would change the law to allow welfare payments to be made on a new “welfare cash card” whose use could be restricted by the Government:
"Introducing a welfare cash card on which benefits will be paid, claimants will only be able to make priority payments such as food, clothing, energy, travel and housing. The purchase of luxury goods such as cigarettes, alcohol, Sky television and gambling will be prohibited”
 Just one more arrow in the quiver of those who continue to demonise alcohol ... just call me Cassandra ...

Friday, 12 October 2012

Shock Horror - Students Talk Sense!

Hope pub
Hope for us all?  (this one in Smithfield)
Hat's off and a resounding three cheers to the group of Kingston University architecture students who have submitted a proposal to UNESCO to grant World Heritage status for the London Public House as a "type".

"When you talk about a special pub and what's unique about it, it suddenly seems a bit futile to only protect the physical elements of the building, without thinking of who uses it and for what," says tutor David Knight, who oversaw an army of 435 students compiling a survey of 87 distinctive or typical London pubs, including one-minute Lumière-style films.

 "Hopefully our survey can start to describe more than just the physical things, or rather understand how they relate to occupation and the needs of the pub's community," he says.
"For example, it could be that the loss of an upstairs function room has a catastrophic effect on a pub which is used by community groups for meetings, wedding receptions, and so on. Accordingly, our research captures extraordinary examples but it also aims to try and describe the typical, or generic qualities of 'London pub-ness' which might influence policy."

The London pub, and I would venture a good many in the rest of the country are deeply embedded in this country's cultural identity and of immense social and economic value. What a shame that so many are still closing on a permanent basis to be replaced with convenience stores and residential developments.

To make it on to such an august list, the heritage subject must meet a range or criteria in the assessment of Outstanding Universal Value, which include "representing a masterpiece of human creative genius", "containing superlative natural phenomena", "exhibiting an important interchange of human values", and "bearing a unique or at least exceptional testimony to a cultural tradition".

There is no doubt that the great British pub, whether in the capital or not, is a work of genius, exhibits an invaluable medium for the "interchange of human values" and undoubtedly provides "exceptional testimony" to our rich "cultural tradition". The 350 page submission has been sent to the Department for Culture Media and Science and I sincerely hope it is taken up … maybe one government department at least will formally recognise what the rest of the country do, that pubs in all their guises and locations are an integral part of UK life, UK culture, UK plc … and then, just maybe, other departments such as the Treasury will take note and start giving our much benighted industry a break.

With thanks to Oliver Wainwright in the Guardian for bringing this to my attention, as he says " If Viennese coffee house culture has made the list, surely our humble London pub can too."

Monday, 1 October 2012

Beer, beer, lovely beer ... well some of it ...

It's that time of year again when The Cask Report (now in its 6th year) is published and our collective thanks should go to the redoubtable Pete Brown, for his sterling work in authoring this 'state of the nation' address.

Required reading for any publican its comprehensive view of cask ale, how it's perceived and how it's developing can be downloaded here.

There's a wealth of statistics based upon market research and if you are selling (or considering selling) cask ale the section on perfect mix of ales is invaluable.

On a slightly dissident note, however, I would once again reiterate that the brewing industry in all its myriad forms from domestic brewers, to micro-brewers, to town brewers, through to the regional and national brewers is continuing a great tradition of brewing in this country and that no matter the medium of delivery, all beer should be celebrated ... be that cask, keg or bottled.

So perhaps next year the report will simply be re-titled to be The UK Ale Report, or some-such, and Mr Brown will further amaze us with insights into all forms of beer brewed in the UK ... as the report in its current form doesn't really encompass or inform us of the total picture of the British beer market ... just a thought ... as if the manufacturers of the recyclable 'Pertainer Keg' gain purchase as reported by Tandleman then maybe artisan or craft beer or real ale or whatever we call them will evolve in a way that makes the word 'cask' somewhat redundant.