Heart and soul

Local pubs offer far more to a community than a place to buy a refreshing pint. And with the right vision, a well-run pub can also turn a profit for its owner.

If you only read the headlines, you’d think that pubs were a bad business in Britain today. And while many have closed down (at least 10,000 since 2007 when the smoking ban was introduced), many have merely changed hands – often from the control of a large pubco into the hands of an enterprising individual.

The pubcos (the companies that own a group or chain of pubs) make their profit through the rent and a beer tie – profits from the sale of beer. "When the smoking ban came in, less people went to pubs just to drink and so the pubcos’ profits from beer fell dramatically, which led to many of the pub freeholds coming up for sale," explains Kevin Marsh of Savills Licensed Leisure.

"A large pubco with 3,000 pubs has to look at its businesses in very cold terms," he says. "When margins are small and profits are linked to the sale of beer, rural pubs that people need to travel to are often quite high risk.

However, an enterprising estate manager can take a much more subjective investment decision about how a pub could be developed to fit the estate’s vision and objectives."

The key is to know your market and find the right manager to deliver your vision. "Get it right, and you can have a hugely successful business," Kevin suggests. "I know a pub that only has about 30 or 40 homes within walking distance, but it has become such a destination pub now, that it turns over more than £1 million a year."

Changing a pub round will require an initial outlay, but Kevin believes it will quickly reap dividends. "If your estate runs a shoot, for example, it might cost you £400,000 to convert the upstairs of the pub or an old stable block into eight bedrooms, but you’ll make that back in a couple of years.You’ll also hugely increase the appeal of your shoot if guests can stay on site. And their food and drink spend will be added to your profit, rather than the pub down the road."

Adding an attractive pub to an area can have a positive knock-on effect in many different ways. "A rural pub often acts as a local hub and is a great asset to a village," says Rupert Clark of Savills Rural Estate Management.

"Retaining a pub that might otherwise close is a great benefit for the community, it doesn’t just offer local employment and a place to go, it makes a village an altogether more attractive place to live and so can have an impact on how easy it is to rent properties and even on how much rent people will pay."

John Longden recognises this more than most. Fifteen years ago he set up Pub is the Hub, a not-for-profit organisation that encourages pubs to diversify and offer additional services for the benefit of the local area. "The rural pub is essential in providing community cohesion," he says. "It’s the intangible glue of an area."

Over the years he has worked with pubs to help them provide cafés, cinemas, village shops, wifi access, children’s play areas, heritage centres – all elements that add to the appeal of a village. "Different services bring in a different range of users," he says. "I often tell licensees, don’t expect to make a great profit out of your shop or cinema or whatever, but those services will bring you new customers that will add to your pub turnover."

Many of these services also have an impact on local employment levels. John estimates that a community café will support between 13 and 19 local suppliers. In addition, social services run from a pub are disregarded by the Valuation Office Agency when it comes to calculating business rates. "You’re not penalised for having a go and trying to provide a service," says John.

"The important thing is to stick to the vision and the brand of the estate," says Rupert. "And find the right people for the job whether you’re running it in hand or selecting a tenant for the lease. If you are running it in hand, be sure to build a detailed business plan and assess the risks before you start." He also stresses the importance of hiring an experienced pub manager, too. "Someone who can typify the heart of the estate and is committed to the local community – and knows how to handle chefs."

With cereal and livestock prices making farm revenues less predictable, it makes sense to find ways of diversifying. "Diversification spreads your risk," says Rupert. "And if you need finance to kickstart a project, interest rates are at historic low levels now, so it’s a good time to consider borrowing money."

Although the sale of pubs has slowed down since the clamour of 2007, freeholds are still being sold off. "They just don’t come to market in a traditional fashion, it’s more about making enquiries," says Kevin. They’re enquiries that are well worth making though: "The trend of people going out to eat isn’t going to change any time soon. Just look at the hundreds and hundreds of restaurants that are opening every year."

 

 
 

Key contacts

Philip Gready

Philip Gready

Executive Director
Rural, Energy & Projects Division

Savills Margaret Street

+44 (0) 20 3107 5470

+44 (0) 20 3107 5470

 
 

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