Page last updated at 17:59 GMT, Thursday, 11 December 2008

Last orders: calling time on pubs?

By Hamo Forsyth
BBC Money Programme

Many pub landlords are crying into their beers

Pubs have played an important role in British life over the centuries. So much so that Britain without its public houses is hard to imagine.

But the local boozer is under attack from all sides with five closing every day.

By 2012, it is estimated that one in eight of our licensed premises will have gone under, and that and more than 4,000 will disappear in the next two years.

There is no one reason why times are tough for publicans.

The credit crunch is biting hard, while utility costs and the price of beer are up and consumer spending is down.

Supermarkets can sell alcohol at a fraction of the price of a pub, so increasingly people who traditionally used pubs are socialising at home.

Then there is the smoking ban, which has resulted in a dip in trade for many pubs, while the poor weather this summer also struck a blow to the business.

Taxing issues

Beer sales are down at an all time low across the country; some 161 million fewer pints were sold between July and September this year compared with the same period last year.

Pubs are closing at a rate of knots
Steve Godrich

Brewers are struggling with huge increases in the price of raw materials and this is reflected in the price of beer on the market.

Last month's pre-budget rise of 8% on alcohol duty adds to the existing pressure on the pub trade.

The combination of these issues is making life very difficult for the industry.

'Beer orders'

However, for many publicans it is not only these issues that are the problem.

There are problems closer to home between landlords and the companies that own their pubs.

Drinkers in a pub
Drinks are generally more expensive in pubs than in shops

More than half of Britain's 58,000 pubs are owned by pub companies.

These pubcos, as they are known, rent out their pubs with leases of up to 30 years.

They usually demand a substantial up-front fee for the lease and then charge a monthly rent.

These businesses are called leasehold or tenanted pubs.

In 1989 the so-called "Beer Orders" were introduced.

It was perceived that the big breweries owned too many pubs and that the structure of the industry restricted choice for the consumer.

The solution was to force all the big breweries to sell off the majority of their premises.

The large portfolios of pub properties were snapped up by the newly created pubcos.

No longer were the beer and pub industries tied together.

Instead there was a middleman, the pubco, answerable to the shareholder.

Little support

Most leased and tenanted pubs also have a "beer tie" with the pubco.

Consumer expectations these days mean that they expect ever improving standards for their hard earned cash
Mike Benner, Camra

This means they must buy their beer through the company rather than directly from the brewery.

These publicans therefore pay a higher price for their beer than all their rivals - and this has become one of the biggest issues for struggling pubs.

The other major issue facing landlords is that many feel that their rent is unsustainably high and that the pub companies do not do enough to support their businesses in difficult times.

Hamish Champ of The Publican newspaper explains how the relationship between pub companies and their publicans can be problematic.

"The pubs themselves are trying to work in an environment at the moment which is particularly tough," he says.

"And they don't see the level of support that they would like from their landlord and are quite vociferous in their criticism of the beer tie."

No force

The pubcos think that it's unfair to lay the blame at their doorstep.

Two very drunk young women in Bristol
Britain's pub culture has changed dramatically

Mark Hastings of the British Beer and Pub Association gives their side of the story.

"None of this is to do with pub companies as an entity because of course successful pub companies are built on the back of having and running successful pubs," he says.

"If you were to buy a pub, the costs of furnishing that mortgage of buying a freehold property are huge.

"You don't have those costs in the tied pub model. Nobody forces any body to take on a pub lease."

Bed and breakfast

Though a lot of pubs are struggling at the moment, some are still doing well.

Lucy Townsend and Andy Clark have opened two pubs in the last two years and a third is on the way.

They have a business formula that is working well.

The Peat Spade in Longstock, Hampshire and The Anchor Inn are both free houses.

This means they are owned outright by the publican. Both pubs are in prime country sport locations.

There is a large emphasis on food in Ms Townsend and Mr Clark's business plan.

So much so that they anticipate the business would not survive on alcohol sales alone.

The pubs also benefits from a lucrative bed and breakfast element.

Food reliance

Mike Benner of Camra sees a future in such diversification.

"Consumer expectations these days mean that they expect ever improving standards for their hard earned cash," he says.

"Pubs have had to diversify. For many pubs food is now a bigger part of their business than the drink sales. It is a changing climate."

There are two other successful pub business models in Cumbria.

One is The Old Crown at Hesket Newmarket. It's a co-operative pub owned by 148 locals.

Each of them paid 1,500 for a share in the pub, which is run on a day to day basis by a professional landlord.

About 40 miles away in Ravenstonedale, the Black Swan has increased trade by opening a shop within the pub.

The shop sells essentials, saving the locals a 12-mile trip to the nearest town.

The shop also supports local initiatives by selling gifts.

It is the first in the village for 20 years.

A recent survey by financial experts advised investors to avoid pub company stocks.

It said the beer tie looks increasingly archaic, and a sizeable proportion of pubs are paying too much rent.

And with a gloomy outlook for the foreseeable economic future, the next chapter will be a crucial one for the British pub's survival.

"Last orders: calling time on pubs?" BBC 2 at 7pm on the 12th December 2008

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