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Are pub closures signalling last orders for the UK pub sector?

06 November 2014 #Real Estate


Clarkslegal, specialist Real Estate lawyers in London, Reading and throughout the Thames Valley.

Public Houses have been closing at an increasing level in recent years. In August this year the Campaign for Real Ale (Camra) reported that pubs were closing at a rate of 31 a week with fewer than 55,000 British pubs in operation.

Is this an indication that the sector is struggling?

The large brewers and pub groups would probably argue the sector is simply adjusting to a shift in consumer trends and for their businesses to continue to thrive then they must cut the weaker performing pubs from their portfolios.

These larger operators are also foreseeing the benefit of merging with like minded competitors. For example Greene King operates around 1,900 pubs, restaurants and hotels in Britain and for the last financial year its revenue was £1.3 billion. They are currently seeking to finalise a takeover of the Spirit Pub Company, who in 2011 were spun off from Punch Taverns and currently operate about 1,200 pubs in Britain.

How is the consumer affecting the pub sector?

In recent years pub customers have been increasingly in search of a different pub experience. Although there are still those who enjoy eating a packet of dry roasted peanuts and playing darts surrounded by old fashioned pub decor the majority of pub goers now want something more. They are looking for good quality food offerings, in a comfortable environment, with high standard furnishings.

The modern consumer also tends to be more health conscious and this has been reflected in a change in pub menus. This more health aware populous are also likely to be cutting back on their weekday visits to their local pub adding to the woes of the poorest performing pubs.

Consumers also want more choice when it comes to the drinks on offer. For example, there has been a recent boom in the popularity of craft beers produced by small independent brewers. This means that the traditional pub tie-ins with a sole brewer are less popular because the customer is now craving a greater variety of beverages.

Despite some consumers wishing to have more independent retailers on their high streets there is still a desire to have convenience supermarkets on our doorsteps. This has led, in recent years to an increase in the number of old pubs becoming supermarkets. This trend is also supported by how easy it is to change the use of the pub from use class A4 (pubs) to A1 (shops) of the Schedule to the Town and Country Planning (Use Classes) Order 1987. Under the 1995 permitted development rights no planning permission is required to change the use of a pub to that of a shop.

The shortage of homes and the strong housing market (particularly in London) have also seen an increased number of pubs being converted into houses or flats, although in this case planning consent would be required to change the use from A4 to C3.

Have changes to licensing laws allowing 24 hour drinking made any difference?

On 24 November 2005 the Licensing Act 2003 came into force. This allowed pubs and other licensed premises to extend their drinking hours and even enabled them to apply for 24 hour licenses.

On the whole it seems that a relatively low number of pubs actually saw any benefit to opening all day. A Government report from 2013 suggests that only 12% off all 24 hour licenses in England and Wales were held by pubs, bars or nightclubs.

It seems that many pubs saw the benefit of additional takings outweighed by the additional cost of their overheads, such as employing their staff for longer hours. Local communities also aired their concerns that all night drinking would adversely impact their neighbourhoods and would often strongly oppose any requests for all day licenses.  

Despite this, many pub owners have seen some benefit in extending their hours (often only by one or two hours and usually later in the week) however, on the whole the changes in the licensing laws has had minimal impact on the success or failure of our local hostelries.

Can the smaller pub groups survive?

It seems they can as long as they listen closely to customer demands and choose wisely when expanding their portfolios.

An example of a success story would be Red Mist Leisure. Red Mist operate 5 pubs across Surrey and Hampshire. They took advantage of the financial crisis in 2006/2007 and bought some of their assets direct from the big pub companies who were keen to sell off their underperforming properties whilst shoring up their balance sheets. Owning the pubs outright meant Red Mist were not tied to any brewers or licence arrangements giving them more flexibility to mould the business into something more profitable. Red Mist listened to what the consumers wanted and went about refurbishing the pubs to a high specification. They also thought carefully about the food and drinks they were to offer and focussed heavily on good quality. The strategy worked and their turnover is set to hit £4.5 million this year.

Adapt and evolve or die seems to be the message and the smaller pub groups have also realised that they need to make full use of their space and entice customers in during quieter periods of the day.

Some pubs are noticing that young mums want somewhere to go during the day where they can meet up with friends and bring their children and so certain pubs have been putting on events targeting this market. To fully take advantage of this daytime trade the pubs have realised the importance of being able to source and serve good quality soft drinks, especially coffee.

Many pubs have additional space they do not use and a growing trend is to allow up and coming chefs to set up a pop-up restaurant in them. The Young Turks is an excellent example of this. The Ten Bells pub in Spitalfields, London (infamous for its close association with two of Jack the Ripper’s victims) had a spare room upstairs above the main bar area and they decided to let a group of young chefs have a 3 month residency there in late 2011. It was a huge success and the room is now used to host a permanent fine dining chef.

How are people protecting their local pub?

A pub can be registered as an Asset of Community Value with the relevant local Council. Camra announced earlier in the year that close to 300 pubs had already been listed and they are campaigning to make this 500 by the end of 2014.

Under the Localism Act 2011 people living in England can nominate a pub to be listed as an Asset of Community Value. This then means that if the owner of the pub wishes to sell it they need to inform the Local Authority and the local community can trigger a moratorium of six months in which time they can seek to prepare a bid to buy the pub. The owner is not obliged to sell the pub to the group but it is prevented from selling it during that six months period, which can frustrate any potential sale the owner might have negotiated with a third party.

Communities can also go further and lobby their Local planning authorities to issue an Article 4 Direction in accordance with the Town and Country Planning (General Permitted Development) Order 1995. The Article 4 Direction, if issued, prevents the pub owner from having automatic rights to change the use of the pub to a shop, without first obtaining planning permission. This tactic was successfully adopted by campaigners in Lewisham who prevented the Catford Bridge Tavern from being converted into a Tesco supermarket.

Evolution. Not the end.

The UK pub sector is in a period of transformation. Consumer trends and shifts in the structure of the big corporate pub owners are leading to more pubs closing and despite the community fighting for them to stay open the reality is that we will see many of them transforming into residential homes, supermarkets or other retail operators. However, these changes are simply part of a natural evolution and although it may be in a different guise, the British pub looks set to remain a fundamental part of our society.

For further information about this or any other Real Estate matter please contact Clarkslegal's real estate team by email at realestate@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.

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Simon Ralphs

Simon Ralphs
Partner

E: SRalphs@clarkslegal.com
T: 020 7539 8049
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