Monday, 23 November 2015

PubCo Pantomime

Pub Campaigner and LibDem MP Greg Mulholland, has got himself into hot water by going along to the Tenanted Pub Company Summit, a £600 a head do, and proceeding from his guest speaker's vantage point, to piss on all their chips.  He didn't as expected take the chance to say that with a victory in the House of Commons over Market Rent Option for PubCos, the slate has all been wiped clean now and all will be sweetness and light in the tenanted pub sector, as the audience apparently hoped.  Instead he tore into them as dedicated recidivists (my interpretation) who still wanted the lion's share of everything happening in the trade - in other words, they wished to carry on as before wherever they could.  The Morning Advertiser didn't like what he said one little bit and perhaps being a little less than even handed, lashed Mr M as "a self appointed Pubs Champion" and, in an opinion piece by the Deputy Editor Mike Berry, called him out for "overstepping the mark."

To the MA's credit though they have given Greg a right of reply, which our Pub Champion has put to good use, berating Mr Berry as "never overstepping the mark in his professional life" - translation - a bit of a wimp - and countering with Berry being more interested in having his back slapped - translation - being a bit of a toady.

Of course I'm no fan of the pub companies, so tend to side with Greg Mulholland. He adds in his right of reply, that at this £600 a head thrash that tenant profitability wasn't mentioned once by the panel that was discussing the various subjects and that it was doubtful if anyone that is a pub tenant was likely to be there given the cost. Both are telling points.  The whole background to why the PubCos failed the industry lies in overweening ambition, saddling pubs with immense debt, wiping out shareholder value and squeezing the tenants until their pips squeaked.  No wonder they want to say "Let's start again with a clean sheet."

They would wouldn't they?  Tell it like it is Greg.  More power to your elbow.

You can read both Morning Advertiser articles, here and here. They are brilliant knockabout pieces which makes you wonder how they read before they were (presumably) toned down.


Curmudgeon said...

Greg Mulholland and his fellow campaigners are unwilling to recognise that companies have every right to take steps to protect their business if legislation threatens to undermine it.

They also never seem able to put across a clear vision of what the trade would look like after their desired reforms. As many people, well beyond the pubcos themselves, have pointed out, there's huge scope for unintended consequences.

If you make it less attractive to run leased pubs as a business, then inevitably you will end up with fewer leased pubs. The best ones will be converted to management, and many of these left will be sold, when they will be much more likely to end up as flats than in the hands of entrepreneurial freetraders.

Tandleman said...

Mudgie. I don't agree. The mess made of our pubs by the PubCos was little to do with looking after their business interests and lot to do with recklessness.

There is no doubt that without tenants or lessees there will be less pubs of that nature. You can't expect people to throw money down the drain when they can't make a living.

It is the past that has got us where we are and I'm quite sure that Greg understands that both parties have to make money out of pubs.

Closing pubs for other use is a fact of life. I don't see free of tie as a panacea but a little bit of re balancing will help.

RedNev said...

It's obvious that capitalist companies will do all they can to protect what they see as their own best interests, but that doesn't absolve them from scrutiny and criticism. The present situation is a fine example of unintended consequences: the pubcos took the risk that there wouldn't be a financial collapse; then one happened that actually converted their already huge debts into unscaleable mountains. They'd have been even more irresponsible if they had never recognised the existence of the risk. A serious business error, or the height of complacent stupidity?

I'm not entirely sure, but I've not ruled out the latter.

Curmudgeon said...

I'm certainly not saying that the pub companies have been examples of good business practice or that they should be immune from scrutiny.

But we have to accept that we are where we are and, if the government makes running an estate of leased pubs markedly less attractive, it will lead to further closures.

It's just like Beer Orders Mark 2.

RedNev said...

I see your point. Pubcos are in an impossible position, but as it's entirely of their own making, I've no sympathy. I reserve that for the licensees who are currently being screwed into the ground so that a bunch of business failures (which is what they are) can stave off well-deserved bankruptcy. That won't happen because their debts are so huge, they hold the whip - declaring pubcos bankrupt would be considerably more damaging financially to the creditors than letting them continue as they are, not forgetting the knock-on damage to to the pubs and licensees that they control.

Any changes will have unexpected consequences. If only we could foresee them ...

Cooking Lager said...

Interesting you guys still think the capital structure was a problem of the pub co model.

The cheapest form of capital is debt. Gordon Brown made it the most tax efficient. All businesses have a cost of capital which needs to be serviced. Debt interest tends to be lower than expected returns on equity.

The pub co's suffered because of their core business of running pubs wasn't very good. Limited product choice, high consumer prices and not keeping the pub stock smart. Punters went elsewhere. If I go out for a drink I don't go in the Enterprise pub. Not out of any principle. It's just an overpriced spoons. I can get better and cheaper at other pubs. Many of the independent freehouses are better and cheaper. The pub co's didn't have their eye on the ball of running pubs. Others do.

Had these pub co's been financed through a greater portion of equity, the poor performance would be the same. Low returns to equity holders shows the assets are underutilized and the equity markets would have responded with asset stripping takeovers. More pubs would have been divested and more turned to other use.

You can moan about capitalism all you like, but most people prefer it to the alternative.

Tandleman said...

Well I don't and I don't blame debt ad such but a business model based on cheap debt is no use of you fuck the business up continually. Debt is fine if you use it to grow the business sustainablely. Not what was done.

Wrong assumptions, takeovers that were reckless and costly etc. Not the debt that was wrong but the business plan.

Still the up side is that those that caused most of the problems have long since taken the money and ran before it all went tits up

That's true capitalism.