Pub closures continue as brewers lose out out to stay-at-home drinkers

PUB closures are continuing to rise across the UK as drinkers shun their favourite watering holes in favour of drinking at home. New research has shown.

CAMRA, the Campaign for Real Ale, said 2013 had seen an average of 26 pubs close each week.

Advisory and investment banking firm, Duff & Phelps, said the trend was re-shaping an industry that formed an important part of the West Midlands economy given the number of pubcos based in the region.

Peter Cooper, partner, Duff & Phelps, said: “Over the past decade, a series of legislative, social, economic and climatic trends have conspired to squeeze industry revenues and margins. The ban on smoking in public places and the beer duty escalator, which has increased the tax payable on a pint of beer by 42% since 2008, have hurt patronage.

“Pub beer sales fell 1.2% in Q3 2013, as pubs have been unable to compete with supermarkets, which have exploited their rising market power to discount alcohol and introduce cheap multi-buy offers.”

Pubs and bars have also been hit hard by the economic downturn, which led to a rise in unemployment and a fall in disposable income levels. Cutbacks by consumers on entertainment spending were natural by-products of the economy, said Cooper.

He said the market continued to be dominated by the big players as the sector reacted to increased legislative and taxation pressures.

“We are currently awaiting, for example, details on Punch Tavern’s restructuring proposals in December with regard to its ‘A’ and ‘B’ securitisations, which will no doubt facilitate more churn of pub units,” he said.

“In addition, the government is currently consulting with the beer tie and pubcos on their relationships with lessees and tenants in its attempt to introduce a pub industry standard code.

“The industry, in turn, is lobbying the government to reduce VAT from 20% to 5% for the hospitality sector.”

He said a range of trade associations had also joined together to launch a campaign on business rates called “Better Rates for Pubs” – calling for an extension of Small Business Rate Relief beyond April 2014.

“With all that is going on, it is easy to label the traditional local ’boozer‘ as a nostalgic element of our social fabric. To do so, however, would be a hasty conclusion when you consider that this is an industry that has been around since time began.  The need for the general public to congregate at a social meeting point remains strong,” said Cooper.

He said there were over 550,000 staff serving more than 14m customers who drink in one of the nation’s 53,000 pubs at least once a week.

“Clearly, the industry remains a significant influence on both the individual and the nation.”

He said the general theory, as evidenced by the continued budgetary over inflationary price increases, was that demand for alcohol is price inelastic.

“This is easier seen in the major city centres, particularly London, which accounts for approximately 23.5% of the total UK pub industry revenue.  City centre workers generally represent the UK’s highest disposable income per head. Therefore they are well used to above-inflationary tax rises on beer duty, which have not affected drinking habits in any material way,” he said.

“Location remains a key factor for winners in the pub industry. Being in the right demographic area, offering the right product and service at the right price, and optimising margin returns are the ultimate challenges facing pub operators.”

High Street operators are typically said to attempt to boost footfall through promotional offers in a competitive environment, where brand loyalty and retention are harder to achieve. This is a different market proposition than more rural “gastro” style offerings.

Conversely, rural establishments focus much more on achieving a recurring level of custom from their more resilient loyal customer following. Quality of food and other entertainment themed activities play a more important role for these operators.

“Ultimately, despite the challenges facing the industry, the British pub will survive. To do so, it must continually evolve as quickly as its customers and markets dictate,” said Cooper.