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 4^th 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:

Detail	weekly		Annual		% of sales
Wet	£     4,219		£219,388		70.16%
Dry	£     1,319		£  68,605		21.94%
Accommodation	£        475		£  24,700		7.90%
Total	£     6,013		£312,693
Cost Wet Sales	£     1,715		£  89,162
Cost Dry Sales	£        535		£  27,812
Total Costs of Sales	£     2,249		£116,974
Gross Margin					Gross Margin %
GP Wet	£     2,504		£130,226		59.36%
GP Dry	£        784		£  40,794		59.46%
Total Margin	£     3,289		£171,019		59.38%
Gross Profit	£     3,764		£195,719		62.59%
Overheads					% of t/over
Rent	£        620		£  32,245		10.31%
Electric	£        123		£    6,420		2.05%
Gas	£         87		£    4,513		1.44%
Wages	£     1,051		£  54,667		17.48%
Other	£     1,219		£  63,404		20.28%
Total overhead	£     3,101		£161,248		51.57%
Profit/Loss	£        663		£  34,472		11.02%

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.

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

Listen to the pubco piggies squeal!

So Free of Tie would destroy the business model of most pubco's according to Punch? This tacit admission that their model is flawed is the most self-damning statement since Gerald Ratner trashed his own brand ... they cite such reasons as having to be a tied estate to get the level of discount they currently enjoy.

I, for one, would be extremely surprised if any supply contract was dependent upon the FOT/tied status of the estate being supplied. Supply contracts to pubcos are predicated upon one thing only - volume.

If a pubco has mixture of FOT/Tied pubs on its books it is for them to supply the FOT at sufficiently attractive rates that retain the barrelage - along with a reasonable credit stance - if they were to fail to provide what other suppliers to the free trade are offering then they would probably lose the business.

There is no doubt that a truly FOT model for the pubcos would result in the collapse of their business as they would be unable to generate sufficient income from beer discount and sustainable market rents to pay for their borrowings... hence the announcement that (for instance) Punch is to dispose of 2,300 sites that are uneconomic for them.

My guess is that many of these sites would be economic for their current tenants if realistic prices are achieved for the purchase of their respective freeholds as despite what others say I believe that the FOT model will always be inherently more beneficial to a tenant / freeholder than a tied one.

It has to be as there is one less mouth to feed from the pie!

In the words of one of my best mates "Boo Hoo Squish Squish" for Punch et al ...

Musings on March

Funny old month March isn’t it? One starts in the continuing gloom of winter, one looks forward to the warmth of spring, it’s just distant enough from Christmas and Easter to long for another bank holiday … the old adage of in like a lamb out like a lion one reserved for the climate can so easily be translated to our industry.

Yesterday’s budget has proved that winter is not yet over for the economy and more particularly pubs, another 7.5% increase in beer duty, another nail in our collective coffin. With inflation at 5.5% (RPI not CPI – see below) you could be mistaken for thinking that the chancellor might have thought that the 2% duty escalator would have been redundant. 

Fuel duty reduced, but windfall tax on the oil companies, has brought government doublethink to a new level that Labour has called “Del Boy Economics” (at least the Trotters were loveable – not something you can say of most politicians). You can guarantee, despite their “assurances” that prices at the pump will rise to claw back the estimated £2billion the oil companies will lose.

Amazing this doublethink stuff, it allows the chancellor use higher RPI to collect taxes yet use the lower CPI to dispense government largesse on such things as pensions and benefits … if only we didn’t need all those pesky hospitals and roads and schools!

Anyways suffice it to say the majority of our customers will not be better off as result of this budget or this government’s policies so Punch’s decision to demerge managed from leased businesses can more easily be understood. Just goes to prove that all corporations are psychotic … the only master they serve is the shareholder’s bottom line (and their own pay packets). The bondholders will be forced to accept a deal that is not necessarily in their interests whilst Punch will follow the managed route (probably to the expense of their own leased customers). The good news is that the planned disposal of 2,000 leased properties might help to bring freehouses back to historic price levels. It’s just a shame that so many good operators have been driven to the wall and won’t be there to take advantage of this situation.

I can feel a rant coming on about bank’s and bail-outs and lending to pubs but nurse has told me to take my meds and clam down … oh well at least there’s a royal wedding to look forward to.

That’s better … calm and collected now and able to think about spring and the skeins of geese honking their way across this lovely blue sky … must be spring 

One in the eye for Sky and the Premier League?

Today's formal opinion by the European Advocate General Julianne Kokott, in favour of Karen Murphy, the Hampshire licensee who has been battling the Premier League and Sky is a boost to struggling pubs.

Although not binding on the judges hearing Karen's case in the European Court of Justice, I certainly hope they follow the lead of the EU's foremost lawyer.

For too long Sky and Premier have ridden rough-shod over the UK pub industry whilst squeezing ever exorbitant fess from cash-strapped publicans.

I, for one, ditched Sky and bought a foreign system some 18 months ago and the savings were some £15,000 p.a. - with the added benefit that the matches we chose to show were unencumbered by the inane ramblings of "experts" and pundits.

Congratulations on this significant step toward clearing your name Karen, your fortitude and courage are an example to us all on not taking it up the a**e from big business anymore!

Thrive on 5

So, further to my last post, it would seem that along with other commentators we all feel the burden of duty and taxation visited on the pub industry is too big.

Accordingly, it is great to see the launch of the Morning Advertiser's campaign to get VAT reduced to 5% for the hospitality industry.

I, for one, will be writing to my MP to enlist his support for this campaign as our industry is surely one of the few that can help lead our economy out of the doldrums. You should do the same.

Nice one MA !

"There is no such thing as a good tax" - Winston Churchill

Fair enough - there will always be some who view tax, per se, as an evil, I for one realise that taxation (with representation) pays for all the social good a developed society offers (health, policing, education, care for the elderly etc) and as such is a "necessary evil". I partake of the benefits so should contribute my fair share for the costs thereof.


However, what Churchill also went on to say was “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”  Had he been around today his words would have fallen on deaf ears.


What the Coalitionistas (HMG) and their predecessors have done is to target alcohol, more specifically beer, as the cash-cow that will sustain their other policies. The great democratic drink, beer, that has been a part of this country's heritage and culture  (drunk when the water was too foul to consume and now as part of a developed social structure) and its brewers and drinkers have been continually abused by rapacious chancellors.


We now pay more than nine times the amount of duty than France and Germany for the "privilege" of supping our national tipple and contribute an estimated 40% of all duty collected within the EU - a staggering £3.1 billion.


When will this Tory led administration take heed of one of its greatest figures and realise that the common man and woman in this country who enjoy a few beers are fed up with being the ones to pay for their other priorities, such as protecting their political allies and financial backers from paying their fair share of tax ( to wit, off shore status and the ridiculous minimum pricing they propose for alcohol) or benefitting from the largesse of the tax purse with bail-outs to corrupt banking institutions?


"My rule of life prescribed as an absolutely sacred rite smoking cigars and also the drinking of alcohol before, after and if need be during all meals and in the intervals between them ..." it would appear that this was good enough for Winnie but not the proletariat ... nuff said!

BII Business Magazine

Just got my January 2011 edition ... as promised full of great stuff for the pub trade ... until you look at it in detail.


I shan't go into all the detail of the BII's work on codes of practice for pubcos, training etc.


What irks me is that for a professional body, the BII (or its copywriters/editor) gives some pretty rum advice ... or in the case of Phil Dixon, opinion. His 20 ways to improve trade are generally sound advice until you get to point 18.


Here he recommends that a drinks offer at the end of a match (25-50p off a pint) be run for 15 minutes after the final whistle, after a particular team loses ... the BBPA guidance on running responsible drinks promotions specifically indicates that one shouldn't run a promotion that is linked to unpredictable events - e.g. ‘Free drinks for five minutes after every England goal’ or are an incentive to speed drinking"


I would venture that the advice Mr Dixon is giving in his article is in direct conflict with this guidance. This is just symptomatic of the mixed message industry bodies give out and they really should get their act together.


My advice ... don't run this promotion (save your profit to reward customers in a more meaningful way, say, on some extra channel blocks for the urinals when all those footie fans take their half/full - time pees!)


And as for the article on The Martin's Arms in Colston Basset - what on earth is representative about that? 2 hunts meet for their stirrup cups, the Prince of Wales occasionally pops in for a pint and it has a Michelin Star - not exactly run of the mill is it? 


Spend more time on highlighting extraordinary pubs that real people frequent (not the "well heeled residents" featured in this Horse and Hound piece) ... the only good things about the article are the sound advice to spend some money on flowers (although who can afford £90 a week and £25 a week for a flower arranger?) and the advice on only putting prices up once (at budget time if you can afford to absorb the VAT and suppliers' price increases in the interim).


Oh, OK then .... they have been there 21 years and have undoubtedly worked their collective arses off to make the place a success and the industry needs to champion its best and brightest ... just feel this was a missed opportunity for the BII and the owners of the Martin's Arms to pass on some really useful hints, tips and advice to the less well placed.  


Rant over ... and as it's less than 15 miles from Nottingham might just have to save my pennies and pay it a visit and see if it's all it's cracked up to be ... good job I don't like Peroni (at £4.30 a pint before the VAT and budget!)

Alcohol Education and Research Council’s symposium on home drinking

It would appear that some discussion not motivated by political dogma of the issue of home drinking has been going on ... there are some great statistics from the symposium from a research report in Addiction journal, based on interviews with ‘ill drinkers’ in Edinburgh. As reported in the Morning Advertiser.

"The report’s aim is to support the case for minimum pricing by trying to demonstrate that it will have a significant effect among heavy drinkers in reducing their consumption. I’m not sure it succeeds — and neither, for that matter, are its authors — but some fascinating stuff is thrown up in the process.

The interviewees, patients at two hospitals in the city, were very heavy drinkers indeed, sinking an average of nearly 200 units a week, equivalent to 100 pints of cooking bitter or, more realistically but no less frighteningly, a bottle of vodka a day.

Quite a number exceeded 300 units. One managed 800 units. That’s what I call a drink problem. They were paying an average of 43p a unit, comfortably below the 50p a unit touted as a minimum – and that’s only the average. Cheapest unit price paid was 9p – for two-litre bottles of white cider in the supermarket.

Compared with the general Scottish population the patients were paying 29p less per unit and there was a clear inverse correlation between the amount consumed and the price paid for it, right down the line.

If it’s just the ethanol you’re after that’s rational behaviour, of course. And if the report demonstrates anything, it is that drinking at these undoubtedly dangerous levels is largely an off-trade issue.

Only a quarter of respondents bought any drink at all in the pub or club, and on-trade purchases account for a mere 7.4% of total units consumed.

“Our clinical experience,” say the researchers, “acquired unsystematically from drinkers’ self-reports, suggests that it is sometimes preferable for a dependent drinker to drink in a pub or club where there are external controls on the amount consumed and the level of intoxication and also possible mental health benefits of social interaction.”

Intuitively, this has to be correct, but you crave something more scientific to back it up and, as yet, it doesn’t seem to exist. Which is what makes the AERC symposium interesting, and I look forward to reading the briefing paper that comes out of it, to see what I missed.

As for whether minimum pricing, or any other price constraint, can reduce consumption, the report is honest enough to say that we can’t know until we try it. Charging 9p a unit can’t be right. But price is only one factor in a "multiplicity of determinants that cause people to drink like this."

How can HMG ignore such findings and refuse to do something about the reckless behaviour of supermarkets? Still an administration that keeps putting off scrapping Trident (cost estimated to be £25 billion) whilst imposing the biggest cuts in living history to other public services (if you can call Trident a public service) is hardly surprising!

And so this is Christmas ...

... and what have you done?

A question that many of us will be asking our "political masters" or the Coalitionistas as I like to call them.

So what has this unholy union of Liberals and Tories done for the much-beleaguered UK pub trade in their first six months in office?

Cast your mind back to the "bonfire of the quangoes" - in their unrelenting pursuit of deficit reduction (at all costs save those of their respective vested interests) - the axe was wielded on a couple of hospitality industry bodies - the Alcohol Education Research Council (AERC) and the Security Industry Authority (SIA).

The AERC’s main aims are to: “Generate and disseminate research based evidence to inform and influence policy and practice” and “to develop the capacity of people and organisations to address alcohol issues.”

Both worthy aims and the AERC has, during the last five years, concentrated on family interventions, community action programmes and screening plus brief interventions for alcohol misuse. They are a repository of a vast library of reports and research into the effects of alcohol that both government and industry readily draw upon.

The Coalition’s response to this sterling work? Cut its funding and turn it into a charitable trust – and we know how well charities do during hard times – especially if their not the cuddly / furry types. Good call Mssrs Clegg and Cameron; at least they’ll be able to use dogma and prejudice to determine their alcohol harm reduction policy without the inconvenience of a publicly funded body calling them to account. After all the AERC will just be another bleeding heart charity soon!

This as they do significant U-turns on combating below cost sales of alcohol by the off-trade (most notably the big supermarkets) which are widely accepted to be a major factor in alcohol abuse (from the health lobby to the police); at the same time the government has allowed back-door powers to ban such innocuous promotions such as pub loyalty cards. Could it be that the pub industry doesn’t contribute as much to party coffers as the supermarkets?

Talk about schizophrenic … this as we are all about to suffer an increase in VAT to 20% in the New Year. The supermarkets will undoubtedly swallow up the VAT increase and continue their irresponsible “deep discounting” whilst pubs won’t be in a position to do the same and their prices will inevitably have to rise. I would contend that this will drive more consumers from the safe and supervised environments of pubs into unregulated homes and street corners and the ensuing increase in anti-social behaviour will still be blamed on pubs!

Then there is the SIA – set up to regulate the security industry (including door-supervisors or “bouncers” as they are so charmingly referred to at times) when the industry was unable to “self-regulate” and was rife with thugs and criminals. The SIA has had two main duties: “The compulsory licensing of individuals undertaking certain designated activities” and “To manage the voluntary Approved Contractor Scheme”

These duties have been admirably fulfilled by the SIA since its inception in following the enactment of the Private Security Industry Act 2001. Is this wholly necessary public body to be applauded and receive continued public funding – no of course it’s not! No, the industry is to return to “self-regulation” after the Olympics in 2012 (we’ll need a credible vetting service for the industry for this international event) – shame we didn’t get the World Cup, then it might have survived until 2018! 

I could go on about the Coalitionistas much vaunted review and reform of the licensing regime, their U-turn on live music provision in pubs, the disproportionate burden their pension reforms will have on small businesses such as independent pubs … but I probably lost you way back.

If I didn’t lose you then think on about what sort of society you want to live in, because one without pubs in all their myriad incarnations will be much the poorer for their absence.

Anyway – Bah! Humbug! And All That To You All!

The Onward March Of The Undemocratic Beaurocracy

Isle of Wight Pubwatch has announced a partnership with the NHS in a bid to reduce alcohol-related disorder.

Representatives from the Isle of Wight NHS will attend meetings between the pubwatch, will speak on behalf of the HNS and nominate trouble makers for pub bans.

Whilst I appreciate the concerns of health service workers and the abuse and violence they suffer at the hands of drunks, I can't but help think that this amounts to little more than a kangaroo court. No evidentiary proof, no right of reply and the "court" imposes sentence without recourse.

I for one would not like to be on the end of the inevitable court cases that will flow from this ill-conceived initiative.

Far better for the police to secure prosecution with meaningful punishment and restoration than this vigilantism.

on trade to shrink to 30% of beer sales by 2018 ... SHOCK! HORROR!

So the head of Molson Coors, Mark Huner, predicts ... well no surprise there with all major brewers bending over and taking it like good 'uns for the supermarkets is it?


And whilst I'm on the subject, with news that Tesco is to slash the price of spirits in the run-up to Christmas — despite admitting "it is not necessary and is financially damaging". (Tesco spirits manager Mark Sudbery told the Metro) it's no wonder the British pub is buggered.

I am just amazed at the hypocrisy of these people, just goes to show that the never-ending pursuit of profit goes before all other considerations, including their duty to be responsible retailers.

Still time to go to local council licensing committees and report such irresponsible behaviour - if only we had a campaign to report these flagrant breaches of the responsible retailing guidelines (and if only the guidelines had some bite!) After all it is the British taxpayer that picks up the bill for these loss leading strategies and in these times of austerity surely this is irresponsible and reprehensible?

Seems to me that the predictions indicate a vast shrinkage in on-trade volumes and that can only mean one thing ... more pub closures.

I predict that the on-trade will have become polarised to an even greater extent by then with managed (food-led) operators leading the market at one end (with cheap on-sale pricing being a major factor in their alcohol sales) and at the other end highly skilled independent operators (probably mostly in the free of tie sector) succeeding with innovative offerings with unique points of difference.

The real losers will be run of the mill tied operators, who become increasingly cash starved by the rapacious activities of their landlords and the tax collectors who simply give up the ghost.

Remember Keynes said " the market can stay irrational longer than you can stay solvent"

He also said "The biggest problem is not to let people accept new ideas, but to let them forget the old ones." and "The difficulty lies not so much in developing new ideas as in escaping from old ones" - these statements are a quandary for the pub trade ... how can we evolve when the thing we most cherish lies in the past (the traditional pub) if only he were alive today to add some sage words.

Hobsons' Choice - be green and produce great beer

Shropshire-based Hobsons Brewery, founded by the Davis Family in 1993, scooped the awards for Best Overall Business and Best Green Business at the Society of Independent Brewers (SIBA) Brewing Business Awards yesterday.

Hobsons was praised by judges for its "exceptional attitude" towards quality and the culture of local brewing; to which can be added praise for employing 14 local people and producing the highest energy efficiency industrial building in Shropshire.

The brewery has reduced its carbon footprint by 17.5 tonnes over the past three years after designing its own solution to recover heat from its cold barrel store to heat its bottle conditioning room as well as installing a wind turbine and a rain harvesting system.

For more details on how Hobsons reduced its carbon footprint, see the video here:

http://www.youtube.com/watch?v=O4llYWGcf-w&feature=player_embedded

What a fantastic achievement for both their brewing and their commitment to the environment - small is beautiful after all! Their website is at:  

http://www.hobsons-brewery.co.uk/

Cask Marque - the true sign of success

"Pubs accredited for the quality of their beer, under the Cask Marque scheme, have grown by 13% over the past year.

Cask Marque estimates that 6,900 pubs will have achieved accreditation by the end of the year.

Around 90% of those who achieve Cask Marque accreditation renew their annual membership. A recent survey revealed that 46% of cask ales drinkers are aware of the Cask Marque plaque." - Morning Advertiser 17/11/10

This, along with CAMRA's unceasing efforts to champion the cause of small brewers and cask ale, is great news for an ailing trade. If one thing will help us to differentiate ourselves from the on-trade and justify the price premium we publicans have to charge it is the Cask Marque scheme. 


With such high brand recognition I am surprised that more licensees, who stock and serve quality ales, do not take up membership. Carry on CM - long may you continue.

Times gone by and times remembered ... The Licensed Victualler's Association

Back in the day when publicans were respected members of the community (you went to them for references, to get your passport photo endorsed etc) who had the active approval of magistrates and police (not the tacit approval of elected politicians under the 2003 licensing regime) and who were very much in touch with the communities they served things seemed a little surer and a lot more "civilised".


So news that the Federation Of Licensed Victuallers (even the name is redolent of a more pleasant era) has shown a recent resurgence is very welcome. This writer, at least, looks forward to their increased presence in the pub industry, they have the cultural and political heritage to go where some of the single issue groups purporting to represent this industry cannot venture.


The old associations, based locally with a national federation, did sterling work to represent their members' interests (both tied and free of tie) and their broad remit to see that all sectors of the pub industry worked together has been beyond groups such as Fair Pint, Justice For Licensees, Freedom To Choose. These latter day "campaigning" bodies have only succeeded in further fragmenting an already disjointed trade, who, once the Beer Orders disassembled the age old relationships between brewers and publicans, were left voiceless and leaderless.


As I have said here and elsewhere the trade needs a unified and cogent voice to lead us through these most difficult of times and the FLVA (although only 16 years old) and the local organisations it represents (going much longer) has the potential to fill that gaps.


visit their website for more information:  http://www.flva.co.uk/