Consolidation of the High Street

A Big Idea is back in circulation. It’s called Consolidation of the High Street. It was back in 2005 that Mark Jones, then running the Yates’s wine lodge business, suggested publicly that the smaller high street pub companies should be merged. Someone was listening as it turned out. Property entrepreneur Robbie Tchenguiz loved the idea and set about using Icelandic cash to lump the Yates’s business, the still-breathing remnants of SFI Group and the Laurel high street segment together under the Laurel banner. We know what the outcome was – administration for Laurel Pub Company a few years later. It’s tricky to claim the idea was definitively a stinker from the start. Tchenguiz divided up the freehold property and operating company interests in an edgy and then-fashionable business model known as propco/opco. The outcome was that the operating company quickly came to creak like a ship caught in the vice-like grip of a Artic ice sheet as winter approaches. It found its rents ratcheting up year-by-year – only turbo-charged sales growth and profit conversion would have kept the ship moving forward. The subsequent performance of Town & City Pub Company – containing Yates’s and a host of unbranded sites – since it emerged from the Laurel administration shows it’s perfectly possible to out-perform on the high street given good-quality management and an even keel on the rent regime. But the story at Town & City has been about operational focus rather than large-scale mergers and integration. Now Town & City chairman Ian Payne is suggesting that Mitchells & Butlers 333 wet-led pubs, recently acquired by private equity firm TDR Capital, would make an excellent fit with Town & City in what amounts to Consolidation of the High Street Part Two. Some will argue that this could be totally different to the Laurel debacle. There’s much more freehold property in the M&B wet-led estate (and TDR Capital are likely to be advised that opco/propco is an idea that has just not worked in the pub sector), average sales are a healthy £14,000 per week per pub, and there’s a host of still-strong brands in the M&B cast-offs (Goose, It’s a Scream) that could drive the larger estate post-merger. This argument is also underpinned by the simple fact that high street investment is at an all-time low – and it’s now the suburban food market that is seeing the over-investment of capital that resulted in casualties on the circuit a decade ago. Thing is, I don’t buy it. For starters, throwing two estates together causes 18 months of integration indigestion where too much management time is taken up on stuff like integrating IT systems. Over and above this, I think there are some common sense arguments against the idea. The history of sustainable growth on the high street is a slim tome with the letters JDW down the spine – there are only two chapters and they are headed Organic Growth and Hand-picking Sites. Paul Charity is editor of the Morning Advertiser Taxing times Pub industry leaders could be forgiven for feeling slightly fatigued in the campaign to ensure that the arguments about the increasingly stifling UK tax regime falls on anything other than deaf ears (writes Mark Stretton). Not Tim Martin. The chairman of JD Wetherspoon again took the opportunity of last Friday’s preliminary results to raise the issue of taxation and legislation, and its debilitating effect on the pub industry. Almost a full page in the company’s stock market announcement was devoted to the issue. Martin said that in the past year £400m of its nigh £1bn sales had been forwarded to the government in some shape in the way of taxes, be it VAT, excise duty on alcohol, or taxes relating to employment and property. It’s a big number. Surely spelling out the contribution to the public purse is something that every public company in the sector should start doing at annual results time? Martin said the legacy of the previous government was the closure of many pubs, often in rural areas and villages, with consequent “damaging effects on the social life of these communities”. The key thrust of Martin’s argument is that there needs to be a fundamental reassessment of the tax burden placed upon the industry. He used the example of France where pubs and restaurants pay 5.5% Vat on food, with the argument that early evidence suggests more tax has been levied from the sector by the French government as a result of job creation, income tax, increased salaries for employees and increased corporation tax. Martin concluded: “Serious UK governmental thought is required to reverse the trend towards job and social destruction resulting from a continuation of the policies of the previous government. “In particular, if the UK government wishes to maximise jobs and tax from the pub and restaurant industry, the tax paid by pubs and restaurants should be more fairly equated with the tax paid by supermarkets.” Asking government to lower taxes on the pub sector may be unrealistic, but Martin is fighting the good fight – and other sector figureheads should follow his lead by using every possible opportunity to throw a spotlight on the tax take. If nothing else, perhaps it will help stem the flow of increasingly prohibitive tax and legislative burden.