Leasing a brewrey pub, Advice from people with experience

[nik82]

I recently got married and my wife and I are considering leasing a brewery pub.

My wife is General Manger for a large pub group, and has been working in this industry for over 7 years.

I come from a sales and marketing back round and have run a very successful retail businesses. I recently took leave from my job and started work for a large pub group to gain experience. I enjoy it and find it very rewarding despite the long hours.

Both of our skill sets combined could work well. We are both currently completing the PEAT course and both hold personal licences.

What is concerning to us is the amount of horror stories you hear about leasing from a brewery.

Does anyone have direct experience of these bad experiences which they would share, also any advice on how to avoid similar situations?

Also does anyone have any positive stories regarding leasing from a brewery?

My thinking is that surely their are successful business people working happily with breweries and that maybe some of the horror stories are from people that lacked real business acumen and went into something full of hope but ultimately blind..???

Any advice from people with actual experience would be greatly appreciated.

 

[businessfunding]

You have hit the nail on the head on several points.

Running a pub is very hard work - a point that is missed by many wannabe tenants who see it as pouring beer and cooking nice meals.

If you go in with real business accumen and see the pub as a business rather than a job or a lifestyle, you are well ahead of the majority.

the other key point - which might appear obvious - is read, understand, get legal advice & negotiate the contract; contrary to popular belief these contracts are negotiable and breweries actually want good tenants rather than a revolving door.

And look at as many premises as possible, don't fall in love with one.

I have known people get a good income on leased premises and get a healthy return on exit. I've known far more lose their life savings by rushing into a 'dream pub'

 

[nik82]

Yes my thoughts exactly, Surely the breweries would want tenants who they could work with successfully on a long term basis.

 

[The Byre]

As a close observer looking in from the outside, the only people I have ever found who managed to earn any real money from a pub or a bar was a group of friends who were able to rip-off a very large singles bar run directly by a hotel chain. They did the usual own-drinks, too much ice and phantom cash-roll thing and made thousands right under the noses of management, who even posted someone right next to the till!

They made thousands and the main waitress started her own business and the barkeeper bought out his father's chain of sex-shops with the money!

The impression I get is that pub landlords THINK that they are in business, when in reality they are glorified employees.

OK, so the brewery ties may soon be weakened or even abolished (and I'll believe that when I see it!) but then the breweries will just find another way to shackle the tenant. I would think long and hard about getting into bed with companies that are as rapacious as the breweries!

 

[businessfunding]

Yes my thoughts exactly, Surely the breweries would want tenants who they could work with successfully on a long term basis.

It is a fact, but keep it at the back of your mind when negotiating!

 

[nik82]

I agree with you to an extent regarding being glorified employees to the brewery, but that's not to say you cant have a very profitable business.

When I look at pubs that are doing poorly or just surviving i always look at the people running the place. They are in my opinion weak business people and weak managers. In my experience weak management leads to weak staff/service, and basically the pub ends up becoming another washed up pub serving mediocre pints.

Another thing I observe is what is the Pub doing to attract more customers or create an atmosphere or buzz around the place. Unfortunately more often than not there doing nothing more that just opening the doors and hoping for more business.

On the flip side to that I look at pubs that are doing well, and more often then not they are run by people who have some flair for what they are doing, they might not be ultra sharp but they certainly are not foolish, and they are constantly running events or reaching out to the community In some way to generate more business. Basically they are more proactive.

So I guess my question is do pubs not run because of weak owners or because of unfair terms from breweries?

Or is it a case of the weak got a bad deal because they're weak and the smart get a better deal because they're smart and therefore run a more successful business?

 

[The Byre]

It all depends on which brewery and what conditions. If they start insisting on minimum quantities and/or also want the wines, spirits and soft drinks and lay down other rules, then obviously they do not even want to have landlords with initiative!

In no special order, some of the (many!) reasons I have seen pubs and bars fail-

1. Beer too cheap. Cheap beer draws deadbeats.

2. Poor food.

3. Tied to a brewery for everything, from soft drinks to shorts.

4. Brewery insists on high minimum beer turnover.

5. Slot machine contracts.

6. Crap beer (Germany only - they insist on good beers!)

7. Po-faced staff.

As nearly all UK mass-produced beer tastes of absolutely nothing, the beer drinking public is unlikely to insist on a Bitburger Pils and shun your place if you don't have it.

But food would be right at the very top of my list. Good food at reasonable prices is where money can be earned. An onion soup costs pennies to produce and can be sold with a cheese topping and a slice of brown bread for a fiver or more.

So I think the answer is, by all means go with a tied house if those ties are reasonably loose. But the moment they start talking minimum order contracts and wine and soft drinks, tell them "Stuffed, get. Rearrange in a well known phrase or saying!"

Personally, if I were mad enough to want to open a pub, I would just buy a place and build a micro-brewery into it. Add to that very simple food (seven items at most) but of the very highest quality. Two soups, one fish, two meat-n-veg, home-made ice-cream or cheese plate for afters - done!

 

[The Byre]

Oops, double post.

 

[businessfunding]

As nearly all UK mass-produced beer tastes of absolutely nothing, the beer drinking public is unlikely to insist on a Bitburger Pils and shun your place if you don't have it.



!

I think you are refering mostly to lager - the UK ale market is alive and booming with variety - Greene King have recognised this and created their own craft brand.

There is still a lively market for 'Eurofiz' so I wouldn't reject it simply because it isn't to your taste

On the topic of food & kitchens, be aware that recruiting and keeping good chefs is an absolute nightmare!

 

[nik82]

Some good points made.

Regarding the SLOT MACHINES, what is considered as fair contract terms?

Also regarding not being tied for all drinks, how does this generally work? If we request not to be tied to wines and spirits will that effect the price of the rent?

Also how flexible are breweries when negotiating? For example are they likely to be more flexible with a potential tenant who can prove a solid business back round, present a solid business plan and can prove that ample capital is available to ensure business and marketing plan are put into action?

In my experience brewery sales people are just that.. Basically typical hungry sales guys. So my questions is, does anyone have any idea what type of limitations that have? or how flexible they can be?

Are the brewery sales guys, people to know??

 

[PaulThompson]

nik - have a look at Nigel Wakefield's site - How to run a pub, very useful
As stated above there are loads of horror stories but also plenty of people who get it right

If you are buying from the pub company (most of them are not breweries) then you are not going to see accounts for the unit because the previous tenant has most likely gone under, BEWARE!
You should be able to get some rent reductions based on this and with the MRO ruling last week I'd be insisting on free of tie

If you are looking to take a unit from someone, then you should get accounts, (last 3 years ideally) and confirm they are true before proceeding
You can get borrowing on a good lease, but prices are still pretty low so perhaps you won't need it?

Hope that helps

 

[nik82]

Thanks I've just had a quick look at the site. It has some good info, I will have a good read later tonight.

MRO ruling??? what is this?

 

[businessfunding]

I would mostly agree with Paul, but in this case I would suggest that past accounts are largely irrelevant since you should be viewing this as a clean slate enterprise (And paying accordingly)

MRO has ruled that Pubcos cannot dictate that you buy from them - it is yet to be seen how this will translate as there are likely to be concessions.

In terms of negotiation, I would get the ball rolling by approaching the some Pubcos and breweries and let them offer their T & Cs - take lots of time to negotiate, like I say most things are negotiable, but at the end of the day they are there to make money

 

[David Griffiths]

Don't do it.

I have seen too many people lease pubs from the large pubco chains and nearly all have failed, crippled by high rents (and therefore high rates) and the fact the you have to buy all of your supplies from them at prices well over the market price. That means that in addition to an already high rent you give them possibly 20-30% of your sales as well.

It's not that long ago that the tenant of what was then our local was complaining that he'd had to pay the pubco £110 for something that he could have got for £70.00 from the local wholesaler. A few months later the pubco caught them with stock purchased externally and fined them something like £4,000 which put them out of business. Many pubs now have meters on the beer lines which report back the sales and woe betide you if you are selling more than you buy off them.

All this of course also means that they know how much you are selling and the theoretical gross profit. They will use this to charge even more rent.

Of course plenty of people think that they can make it pay despite all of this, and nearly all of them are proved wrong. Those that stick it out often get much less than minimum wage for the 18 hour days they put in

If you can find a place which is free of tie at a reasonable rent, it is still possible to make a living. If you can create a destination for diners, you can make a good living. But I've never seen anybody do that with a pubco lease. They will extract every penny that they can, either on the price of beer or the rent increases - plus all the other charges that they load on to the monthly bill - buildings insurance, cellar cooling maintence, heating maintenance compliance testing (whatever that is , but it's £1000 a year) and whatever else they can come up with.

The pubco will screw you for every penny they can.

 

[nik82]

I've heard many similar horror stories about tenants getting charges and increased rents.

Would you consider the people you know who this has happened to as sound business people?

Also what could they have done to avoid being put in such a position?

For example do you think the people you know negotiated a good deal? or could they have got a better deal?

Were they experienced in this industry? or in business in general?

In my experience many tenants take over pubs for the wrong reasons and don't think it through properly, could the people you are referring to be guilty of this?

Or were they sound experienced business people who negotiated a fair deal which they could have made a good living from.. but then still got shafted!! ??

 

[tony84]

I seen someone word it like this - The best day of your life will be when you get a pub, the next best day you have will be the day you leave.

I dont think I could sum it up any better.

Dont get me wrong it wasnt all bad and in the good old days there was a lot of money in it but the breweries get too greedy. The hours are very very long and it is hard graft.

I would never do it again.

 

[AnneLou]

Hello Nik82 - I would say you are certainly showing due diligence in seeking advice for your new business venture.

I have two pub/hotels - one on lease with a massive well-known "pubco" and the other on tenancy with a smaller regional brewer. I have been operating for 10 years now and took my second site smack in the middle of the big recession! We're "making a do" as they say up north and its not all doom and gloom! Yes, it's tough, but I suspect you already know that. I actually don't find the "tie" situation the biggest hindrance to my business (after all, I knew what I was signing up for) - government policy and regulation wins that award hands down.

I am happy to help if I can with any questions you may have - feel free to pm if you need to.

 

[The Byre]

Firstly, some healthy words of warning have been sounded here. Being tied to a chain or brewery can wipe you out if you let them.

I would add to all that, you are newly married - opening a pub can place the most enormous stress on that marriage and at just the time when you need that stress the least!

Regarding the SLOT MACHINES, what is considered as fair contract terms?

Easy - none whatsoever! Gambling machines can draw the wrong type of customer. Add to that, a simple back of envelope will show that even if a slot earns just £10 a day, that comes to £3k a year at least.

If you absolutely have to have these things in there, get an old-fashioned pinball machine and make sure that it is properly serviced. They are immensely popular! You can buy them for £1k to £1.5k fully renovated and add another £500 a year in service, repairs and replacement costs (or do it yourself - they are simple enough!) and you will have made a thumping profit in year one already.

 

[nik82]

Thank you Annelou, I will certainly PM you today for some further advice.

You mentioned you have TWO pub/hotels. Am I right in assuming your initial one was running well and therefore you chose to expand further and get a second?

Are their many other publicans out their who have multiple establishments who could offer any advice? Or does anyone know of any?

What I'm trying to establish is: is it all doom and gloom for publicans? or will a busy well run pub make a good living despite the pre agreed rent and fees?

Some of the comments here suggest that regardless of how well your pub does you still wont make a good living due to the Pubco's fees, increased rents, minimum orders, charges etc.

Maybe I'm being a little naive and I certainly don't want to come across as if I know it all, however to me all of costs above would have to be pre agreed and therefore built in to my business plan.

Basically what I am saying is, if I am made fully aware of what I'm signing up to and my solicitor, accountant and I have all gone through and understand everything then its up to us to decide if we feel we can make money or not.

If we proceed then like any other business we've taken the risk and its up to us to make it pay.

What scares me if when you hear of stories from people who say the Pubco increased charges and rents etc, how can they do this if everything is in black and white???

 

[PaulThompson]

It certainly isn't doom and gloom - if you do your homework first

1. You need to go through the historic figures first, ensure that the unit is profitable - if the pubco provide figures (like barrelage) then ignore them, treat it as a start up
2. If you are taking a lease assignment then the rent and terms are already set, you need to understand what you are signing up to and your obligations - a 10 year lease at £50k per annum = a £500k liability, you could be chased for some or all of this amount even if you leave the pub.
3. If its a lease direct from the pub co then you won't have any evidence that the unit can pay the rent, try and find out some history as to why it's empty, get some BIG concessions and try to get in on a Tenancy at will until you KNOW the unit is profitable....
4. With the MRO ruling coming in (eventually) there will be fallout - PubCos will be pushing for increases in rent and will be selling some more units off - If you can negotiate a deal on the freehold that would be a win. We regularly fund sitting tenants buying their freeholds at between 90% and 100% of purchase price

Leases are a cheap way into the licensed sector and there are many which turn a good profit, there are also many horror stories. So long as you do your due diligence, have professional advice etc then you should be one of the former not the latter.

 

[Chris Ashdown]

Lots of talk about brewery ties but most leased pubs are nothing to do with Brewery's but a couple of large pub owners

Probably a big difference in attitudes to tenants especially the small local ones with just under the limit of pubs they can own

 

[The Byre]

1. With the MRO ruling coming in (eventually) there will be fallout - PubCos will be pushing for increases in rent and will be selling some more units off - If you can negotiate a deal on the freehold that would be a win.

Altogether, good advice there from Paul, but that bit in particular. That way, it really is YOUR business and not theirs!

 

[nik82]

The freehold option is certainly much more attractive, however would probably be quite a stretch for me right now.

I'm based just outside of London, property prices are high, commercial mortgage might be tricky, after the deposit would I have enough cash to launch the business as planed!!!

Probably too much for me just now.

The leased option is probably best suited for me right now.

 

[nik82]

We've all heard the horror stories about pubs going bad and leaving tenants out of pocket. I'm taking all these comments on board and will be investigating all mentioned issues thoroughly before considering a lease.

What I am very keen to do is hear from publicans who are doing very well? Does anyone know of people who have multiple establishments who are expanding and happily working with Pubco's or breweries?

I was recently introduced to a guy who owns 12 pubs in west London. I don't know if they are freehold or if he is a tenant..... yet!

Would be great to hear from or about publicans doing well and expanding?

 

[Chris Ashdown]

Have you enquired with a few pub owners to see what they would offer and also further out of london may give more scope for building up a business

 

[nik82]

No I haven't as of yet, and going further out of London is not really my preference.

However I was thinking that I could contact publicans who are selling their pubco establishment and see first hand what type of terms they have entered into and if they are able to make a living or not.

After viewing 5/10 establishments I should start to see a trend.

1. By looking at the owners, are they experienced in this industry or in business?
2. Location of the establishment?
3. Food offering and drinks selection?
4. Terms of the agreement?
5. What are they tied for?
6. Rent and rates?
7. Charges from Pubco?
8. Profit and loss?
9. Why they are selling?
10. Do I realistically feel that I would negotiate a better deal and could I run a better establishment?

Yes dissecting someone's business of my own gain is not 100% ethically correct. However I could potentially answer many of my questions. This research could confirm my thoughts that most will lose money but some will do very well.

And if that is correct then its no different to any other business. Most will fail some will succeed.

 

[nik82]

So I guess my question is how naughty is this idea?

Yes ill be wasting someone's time for my own personal gain? but is their any real harm being done?

Can I afford not to do this research?

 

[Chris Ashdown]

That's just called due diligence and nothing un-ethical or naughty about it, and any company up for sale should supply at least three years accounts and be able to explain both the good and the bad, but obviously that want to sell so information will be biased

 

[PaulThompson]

any company up for sale should supply at least three years accounts and be able to explain both the good and the bad, but obviously that want to sell so information will be biased

So Check, cross check and reference!

 

[nik82]

Yes my thoughts exactly.

 

[ThePublisher]

I'm surprised nobody has mentioned location as being a factor. I knew somebody who leased a country pub from a pubco. His whole family were involved in it. They got out at the first available opportunity having lost thousands they spent doing it up.

 

[PaulThompson]

Having funded hundreds of pubs I wouldn't say it has to be town or country, there are plenty of good and bad examples of each, and a previous failure doesn't mean you will fail, just means you need to be sure you understand what that unit needs to be successful

 

[nik82]

Location is obviously one of the keys factors and can make you or break you. I know a landlord who runs a beautiful gastro Pub in one of the most densely populated areas of London and he takes about 12k per week, however a pub literally about 100 meters from him does takes double that because people don't want to walk an extra 100 meters.

He's running film nights and wine/whiskey tasting ect to attract more people to him, its going well and he thinks the pub will reach 18k per week over the next 12 months.

He's very proactive and I think he'll succeed.

This is one question I have for failed pub owners, Did you really go above and beyond to make your pub become a destination? or did you just open the doors and hope for the best?

 

[PaulThompson]

£12k a week is good if the unit can support the rent and other costs
I see plenty of pubs taking £4,000 per week that are doing ok - its all down to the profit!

Oh - rule of thumb - tied rent wants to be around 10% - 12% of turnover, could be around 18% if free of tie

Of course thats based on fair maintainable trade... not necessarily what the numpty in there is currently doing! If you are not sure you can do that then walk!!

 

[nik82]

He has two in the kitchen and two full time bar staff/waiters and two part timers.
He's there about 60 hours a week himself.
He's tied for beers but not wines and spirits.
No live sports, pool or fruit machines.
Not sure of his rent but.... he's got to be netting a minimum of 50k per year.
If he hits 18k per week then I think he'll have a nice business on his hands as well as scope to expand into further establishments.

 

[Chris Ashdown]

Pubs are one of the few businesses that can have massive changes just due to a change of ownership or chef