Fresh strategies for a fresh air era

Jul 30, 2007

FOR AN industry already struggling with significant over-capacity, the smoking bans which came into force in pubs across England on July 1 look like a major challenge.

For under-performing establishments in unpromising locations, that may indeed be the case. But for the pub sector as a whole, Ireland’s experience since its 2004 ban suggests a less dramatic outcome – though Scotland’s first year suggests that the initial period may be fairly tough.

There is little doubt that operating conditions for some pubs are very challenging. The Campaign for Real Ale recently suggested that more than 50 UK pubs are currently closing each month. Furthermore, CAMRA has also declared that as many as another 1,300 pubs are vulnerable to closure.

This feeds into the increasing view in the sector that many urban pubs at the bottom end of the market are not viable in the longer term. Due to their locations, they do not have the option of opening an outdoor smoking area that could help retain customers who smoke.

Their scope for developing a secondary business selling food – replacing ‘wet’ sales with ‘dry’, in the jargon – is also limited: for example, hiring a chef would not be economic.

Accordingly, these kinds of pubs are likely to contribute to extra ‘churn’ in the sector as pub companies and other landlords look to tilt their portfolios in more promising directions.

Buyers could find the packages of pubs they are offered increasingly including down-market properties that will require very careful management. Indeed, some major owners are already pruning their estates of this kind of pub.

There is still talk of the brewer and landlord Marston’s reviewing some of its bottom-end properties. Meanwhile, the giant pubco Punch Taverns has recently offloaded more than 800 pubs from the lower reaches of its estate.

Even so, the overall story could well prove less dramatic than this activity suggests. While the ban in Ireland (which came into effect in March 2004) triggered an initial downturn in sales, experience shows that pubs stabilised subsequently. Smokers began to congregate in establishments that had found successful solutions to the ban – such as designated outdoor smoking areas – while non-smokers began to seek out smoke-free establishments.

Recent research by The Publican and Britvic suggests that the Irish experience should be repeated in the UK. A survey of 925 consumers shows that one-third of non-smokers and more than one-quarter (27 per cent) of women expect to visit pubs more often once the new bans are in place. A higher proportion of respondents (36pc) maintained that they will spend longer in the pub when they go.

Moreover, 29pc of irregular pub-goers (one visit per month or less) specify the atmosphere being too smoky as the reason they do not visit more often.

A total 44pc of smokers say that they will spend less time in the pub after the bans.

Although the sector should stabilise over time, the initial period may well be tough. Recent research from The Scottish Licensed Trade Association indicates that sales are yet to pick up in Scotland following its ban on March 26, 2006. Drinks sales are down 11pc since the legislation came into force and food sales down 3pc.

A number of key considerations for success in the new post-ban environment (which began in Wales on April 2, in Northern Ireland on April 30) can be identified. These include making provisions for smokers outside.

This may require planning permission and certainly calls for a licence that accommodates outside consumption – neighbourhood noise considerations may mean that outside consumption is only permitted during limited hours rather than the pub’s entire opening hours.

Again, providing food or placing greater emphasis on it may also be an important element of a pub’s strategy.

For small pubs with annual turnover of less than £150,000, a very successful shift to dry sales could have a negative VAT impact if they can then be classed by HM Revenue & Customs as a restaurant. Low-revenue pubs pay 5.5pc VAT (assuming they use the Flat Rate Scheme), compared to 12pc for restaurants.

In addition, refurbishment may be necessary. In particular, carpet and furnishings will probably need steam cleaning as smoking – a surprisingly good deodoriser – may have masked other smells.

For more information, telephone 01908 687800, e-mail graham.bushby@bakertilly.co.uk or visit visit www.bakertilly.co.uk

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