Pubs closing, left, right and centre

The early months of a new year are a particularly difficult time for pubs, especially leasehold pubs with brewery and pubco landlords, and is a prime time for pub closures.

It’s the season for it

After the Christmas holiday boom in business, the slack period of January and February must be endured. This applies to all pubs (and restaurants), unless they have a particularly loyal customer base for some reason – regular and popular quizzes; society meetings; etc

While freehold-owning publicans must pay interest on their mortgages – or expect a return on their own investment of capital – they are currently better off than leaseholders, as interest rates are so low. Unfortunately, lease rents do not track interest rates, and often reviews are upwards only, even when the economy – and therefore business – takes a dive

Private landlords tend to take a more patient view, and accept that in poor economic times, they cannot get blood out of a stone; they are better receiving a reduced or delayed rent from a good tenant, waiting for things to improve, rather than evicting the tenant and having no rental income while looking for a new tenant to take over.

Pubcos and breweries, in my experience, are less flexible. Partly, this is because they have an eye on their quoted share prices, and are keen not to see them dip. In addition, they have the resources to put in a temporary manager, so the pub need not be closed if a defaulting tenant is evicted – this not only preserves the cash flow, it also preserves the goodwill of the pub. A private landlord can rarely afford to incur the cost of a manager when suffering the loss of rental income, so the only alternative to flexibility is a closed pub, which can be disastrous for the long term.

Pubco and brewery tenants suffer further as a result of the drinks ties they take on: brewery tenants are usually required to buy from their brewer landlord – at a premium price, making it difficult to compete with free houses that are not subject to any tie. Pubco tenants are also tied to a particular range of suppliers, who pay a commission to the landlord – and increase their prices to the pubco’s tenants to cover this. Either way, the tenant has to pay higher supply costs while trying to stay price competitive with those who have lower costs – a circle that cannot easily be squared

At this time of year, in many cases, the arrival of the VAT payment day is what causes the fatal blow: VAT is payable quarterly, at the end of the month, so the payment day is the end of January, February or March – depending on when the individual pub’s VAT quarters fall. So, the publican is suffering a tighter cash flow, with no let up on having to pay routine bills (electricity, wages, etc) and, in the case of leasehold pubs, rent as well. For many who struggle through that grim period, the VAT bill is often the final straw: the money to pay the VAT has been spent on other expenses. If the publican has no other resources (savings, extra bank borrowing, support from family) the choice is often between doing a moonlit flit or waiting for the VAT man’s bailiffs to turn up

Local experience

Locally, all too soon after the reopening of the William Caxton in Tenterden, we have had a spate of closures:

• The Fat Ox in St Michaels – seems to be a classic victim of the financial problems referred to above, judging by the newspaper reports
• The Woolpack in Tenterden – seems to be a classic moonlit flit
• The Bull at Bethersden – thankfully, immediately reopened instantly, as it seems the brewery (Shepherd Neame) was able to find a new licensee from among the existing staff. Luckily, it seems that the problems that led to the William Caxton being closed for so long – electricity disconnected due to non-payment and the need to refurbish before reopening – did not apply to the Bull

The Fat Ox (another Shepherd Neame pub) is now under management, but there is no knowing how long it will be before a new tenant is found for the Woolpack (an Enterprise Inns pub) – meanwhile, it seems the roof needs thorough attention, which will delay its reopening anyway

A success story

Unseasonally, the William Caxton closed last July, when the then tenants disappeared. The pub was closed, giving rise to fears that it would stay closed, but the freeholder (Shepherd Neame) started refurbishing in August, and the pub eventually reopened, under management, in October.

At the beginning of December, Marcus and Debbie Fleet took over as new tenants, and the pub seems to be thriving, with food due to be served there from 1 March. We wish the Fleets all the best for the future – and will patronise the Caxton as much as we can

Avoiding the problem

With some exceptions (such as the Bull at Bethersden), the failure of the business is due to inexperience and over-ambition on the part of the tenant. So many see running a pub as their dream (the outgoing tenants of the Fat Ox and the new licensee at the Bull, for instance); I have to say that it can often turn into a nightmare, because of the tight margins and difficult cash flow

My advice to anyone taking on any business – but especially a leasehold pub – is to get an accountant (or, in the case of a pub, a specialist pub adviser) to go through the figures and make sure you can make the business work financially: don’t believe what the brewery or pubco landlord tells you, as they have their own interests at heart – check it for yourself, using an experienced adviser.

If the figures stack up, the business can be rewarding – but always hard work. If the figures do not stack up, all the inevitable hard work is for nothing – and possibly worse