Board

2012

Business Outlook

Managed sector set for new look In a year where the Punch de-merger of its managed houses to Spirit dominated, managed pubs largely outperformed their leased business contemporaries. One interesting development was the new approach to ‘management’ being adopted by some companies. Amber Taverns, for one, developed a new quasi-managed/franchised operator agreement – one where operators are responsible for the licensed elements of the business and not the property itself. Marston’s has adopted a similar approach which is proving very popular. These models, one assumes, were developed in response to the return to the sector of entrepreneurs, whose flair for the business is being maximised by the new model agreement and not diverted from the primary purpose of the business. Elsewhere, buoyed by reasonable trading performance, managed pub companies, either owned or with the backing of private equity, sought to expand their estates. This is a trend we expect to continue into 2012. Late-night sector hit while high street bars thrive As banks and major pubcos sought to dispose of toxic lease sites in 2011, and the administration of Luminar and its subsidiaries hit the headlines, the late-night sector took a bit of a beating. There were encouraging signs for the high street bar sector, however. Christie + Co’s experience with the likes of the former Barracuda, Cougar Leisure, Walkabout, Yates’s, and Ivory Lounge bars appeared to demonstrate the potential for good businesses being realised under new ownership and management. And this seemed to be mirrored up and down the country. The nature of the traditional high street has changed in recent years as retail moves increasingly to edge-of-town or out-of-town locations, leaving opportunities available for bars to be established. Meanwhile, there appears to be a genuine appetite from both experienced and new local operators. Operators are also using their experience and expertise to renegotiate on leases and rents with the landlords. Many bars can be picked up at nil premium, others will have leases that can be torn up, redrawn or renegotiated. In order to further safeguard their investments, many landlords will also be

prepared to renegotiate on rents, or even offer good, long, rent-free periods, leaving well-advised operators with room to invest in improving the quality of the bar and, by extension, the customer experience. All of which makes for a good deal for landlords, operators and tenants alike. Administrators busy A number of regional pub companies fell by the wayside during the year but the biggest administration was that of Robert Tchenguiz’s R&L Properties portfolio. Christie + Co was instructed to sell almost 200 R&L pubs by the administrators and was immediately met with a genuine appetite from potential investors. Our feeling is that this mirrors the migration towards quality that the sector is undertaking. This example is largely symptomatic of the administrations we saw in 2011 – based less on the trading outlook but more on the way the businesses were geared. Food overtakes wet-led for first time The year was also marked by a major shift in the trade which saw food-led overtaking wet-led pubs in the marketplace. It is surely symptomatic of our economy- dominated times that pub-dining is proving a viable alternative to restaurant dining for consumers and more cost-effective for operators. It’s not a seismic shift, but one worth monitoring as 2012 develops. M&B is leading the way thanks to its powerful brands like Toby Carvery and Harvester. However, Christie + Co is working with The Restaurant Group’s Brunning & Price pub brand to find suitable, characterful properties to extend their brand across the UK from their current north-west-focused operation. In the Budget, apart from the de rigueur tax on strong beers, the Government continued to pursue its local community agenda by offering opportunities and tax breaks for small and start-up businesses. The availability of good quality pub opportunities, along with the tax advantages afforded small businesses, may well encourage yet more local entrepreneurs to see the value in pub businesses – as well as entice more tenants to make the step-up to ownership. Encouragement needs further funding

Much, as always, depends on the lenders to see whether this confidence is misplaced. Early in 2011 the Government announced a deal it struck with big banks – Project Merlin – under which £76 billion was made available to small businesses. Reports of how this pot has been distributed have been confusing and contradictory. And being a target-driven exercise may have meant it missed the point somewhat. Funding remains a big question. Traditional high street lenders have their own damning experiences with ‘toxic’ property, so it is not surprising that they remain somewhat cautious about investment in the public house sector. But with the Project Merlin cash and optimistic noises from some new lenders, we and our sister company Christie Finance can hope that this will inspire a renewed vigour and vitality in the sector. We are, of course, at the mercy of the bigger global financial picture, so making more positive predictions on the availability of funding is going to be a risky business.

11.5%

Increase in the number of offers received for pub businesses in 2011 compared with the previous year

-13.8%

Decrease in the number of pub businesses Christie + Co was instructed to sell in 2011 compared with the previous year

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