Change heralds further pub consolidation
Consolidation and the collapse of weaker companies have been the prominent features of the UK pub industry over the past 12 months. Andrew Don examines the latest research and analysts' predictions for the coming year.
Activity over the past 12 months in the UK pub sector has set the scene for a further grab among the major players. Ongoing problems on the high street and the move to realise the value locked up in property have gone hand in hand with consolidation among the big boys and the disappearance of weaker players.
Enterprise Inns has finally got control of Unique, Spirit Group has landed Scottish & Newcastle Retail and Pubmaster has subsumed Punch Taverns. The latest research from Martin Information (MI) notes the profit warnings issued by Inventive Leisure and Regent Inns as high-street discounting has become rife and drinkers choose not to go out early in the week or early in the evening.
Numerous companies have fallen by the wayside, such as Porter Black, Branded Leisure, Pennant Inns, Front Room, Springwood, Balaclava, Corporate Catering Company, Valleyhill and First Leisure. Consolidation has continued since the MI report was published with the Wolverhampton and Dudley Breweries purchase of Wizard Inns for £89.9m.
September marked a flurry of activity: Laurel Pub Company's owner MidOcean Partners announced it was auctioning the group, comprising 177 high street outlets, hard on the heels of the sale of its 432-strong community pubs to Greene King in July. Meanwhile, Punch acquired InnSpired for £335m, adding 1,064 pubs to its 7,334-strong estate.
Punch agreed to sell on 88 pubs to Admiral Taverns for £22.6m, most from the InnSpired estate and the rest from its own, while Eldridge Pope agreed to a £42.3m buyout proposal from Michael Cannon.
In its recent report, Key Issues for the UK Pub Market 2004, research company, Martin Information, suggests that the City would like to see some of the middle-ranked players come together. This is not just because of the fees that would be generated but because of the savings that could be directly transmitted into dividends by consolidated managed pub operators. Further pressure for consolidation will also come from the final arrival of the new Licensing Act, which ought to be in operation by next autumn, it says.
The past 12 months have seen the environment toughen for managed houses. The MI report suggests managed pubs taking less than £500,000 a year, already a threatened species, now look to be heading for extinction over the next few years.
It notes how early last year, McMullen & Sons, the Hertford-based family brewer, announced it was converting 18 of its 98 managed pubs to tenancies, in a reversal of the company's previous policy of trying to have as many of its pubs under management as possible.
McMullen said: "It has become increasingly clear in recent years that the costs of running managed houses, particularly those costs resulting from government legislation, have risen at a rapid rate. This has made it more appropriate for some of the smaller houses to be moved from management to tenancy."
The biggest operators believe scale is now as important in the managed side of the business as it is in the tenanted and leased side. Tim Clarke, chief executive of Mitchells & Butlers (M&B), told the 2004 Key Issues for Licensed Retail conference in London that successful managed pubs were all about quality sites and targeted formats, which generate high sales volumes by attracting a broader base of customers.
Other key issues identified are the pressures on the industry created by public and political concern over binge-drinking and smoking, the Licensing Act measures, the deregulation of the gambling market and staff retention.
MI cites Henley Centre research which says gambling deregulation would force the closure of 1,000 pubs because of a rise in spending at larger, Las Vegas-style resort casinos. These would be at the expense of small pub and club operators, many of which are clustered in ailing seaside resorts around the UK.
A second report by MI, Guide to Pub, Bar & Nightclub Brands 2004, makes a number of short-term forecasts. It predicts that the end of 2004 will likely see Yates Group, Regent Inns and possibly Inventive Leisure leave the stock market and come into private equity ownership. A merger between two or all of them is even a possibility.
Building strong local markets will be the guiding principle for expanding chains, such as London-based Massive and Kro in Manchester, during the next year or two. It also predicts that regional brewers are well placed to challenge chains such as Mitchells & Butlers, Whitbread and Spirit in the the pub restaurant arena.
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