Pubs have had a rough ride over the last couple of decades.
Alongside dealing with obstacles such as the recession and alcohol tax, competition has grown strong in the form of off-licences and the coffee shop revolution.
But this should not deter those dreaming of running a pub; while it will be hard work, the tide is turning in the sector. Ask yourself these five questions before you decide to invest…
1) Is it really a good time to buy a pub?
Considered an ‘institution under threat’ due to rising beer duty, declining alcohol consumption and increasing competition, is now really the right time to buy into the pub sector?
There have been 21,000 pub closures in the UK since 1980, with over half taking place post-2006, according to a study conducted by Christopher Snowdon and published by the Institute of Economic Affairs.
Despite such gloomy statistics, some aspects of the industry are actually pretty positive.
Findings by Zurich’s SME Risk Index have found that there has been a rise in turnover in the UK pub industry over the last three years. Moreover, during this time it has also been reported that just under half of these pub businesses were established – with a large proportion by younger landlords.
The number of pub owners aged 25 to 34 was found to have increased by 25 per cent over the last three years. And the findings revealed that a significant number of women under the age of 35 are part of this ‘younger pub owner boom’ at 32 per cent.
This reveals a certian rennaisance within the pub sector, despite the negative headliness. Times are shifting in the pub industry and there is potential to make the most of them - if you have the energy, creativity and drive.
2) Am I the right kind of person to run a pub?
Experience, as parroted by many professionals to the entry-level candidates of any sector, really is most important. You should have some experience of working in a bar or pub before buying one. After all, you’ll be competing with other publicans who have a wealth of knowledge and experience.
Debbie D’Abreu, a pub buyer, found that her hands-on experience in the pub trade enabled her pub’s success. ‘I was in the trade for eight years," she says. ‘That was almost 10 years ago now. My ex-husband's father was a partner in a pub chain. I started out as a barmaid, worked my way through the ranks and ended up as a manager.’
You could also buy a pub as an investment, and have a manager run it for you. However, it would still be preferable to know the ins and outs of the business, including the everyday running of a pub – even if you won’t necessarily be behind the bar.
You will need to be organised, on top of your finances and willing to work long, unsociable hours. Additionally, with a pub you’re providing a service – so while you may feel rundown and tired, you’ll need to continue being upbeat and friendly to encourage repeat custom.
Ideally, the right person to run a pub, as successful pub franchise, Marstons, claim is someone with ‘real commitment and determination’ – and, above all, enthusiasm.
3) How should I run my pub?
Generally, there are three main ways to run a pub: via a tenancy, leasehold or freehold.
If you decide to enter into a pub tenancy, you will rent the pub for an agreed rent usually on a three-year rolling contract, enabling a rent review every three years. This review would be agreed with the pubco or brewery and if you wanted out, you would have to give notice.
With a leasehold, you would either purchase it from an outgoing leaseholder or for a specific amount of time from a pubco or brewery if it’s a new lease. If you wanted to leave, you can do so after two years as they’re usually non-assignable for the first two.
If you do decide to put the leasehold up for sale, and a purchaser is found, the pubco or brewery must agree before the sale can go ahead. There can’t be any reason for not agreeing, however the potential buyer must fit the ‘criteria’ to enable their acceptance.
There is much more freedom when purchasing a pub on a freehold basis – after all, when you buy it you own it as much as you would a residential property. Buying a pub this way will also ensure that you will receive a greater slice of the turnover, as there is no pubco or brewery to take part of it through the rent.
However, it can be very difficult to buy a pub outright, as a freehold pub usually costs between two and three times more than its turnover. You would also need around a third of total price to buy.
4) What licences do you need to buy and run a pub?
Unsurprisingly, you will need a licence in order to sell alcohol for consumption on a premises.
Under the Licencing Act of 2003, you will need to hold a personal licence to sell alcohol from a pub. In order to gain this you will need to attend a training course for one day on England and Wales licensing laws. If you’re looking to own a pub in Scotland, you will need to do the Scottish equivalent.
At the end of the course there will be a 40 question multiple choice exam based on either the Scottish Licensing Act 2005 or the Licensing Act 2003.
You will also need a premises licence. In order to apply you will need to contact your local council. However, to do so you will need to be, or appoint someone to be, a designated premises supervisor (DPS) with a personal licence (as seen above). You must also be 18 years old or above.
To apply, you will need: your personal details, details of the DPS, a detailed plan of the premises and an operating schedule. The day after the application is submitted you will need to display your ‘application notice’ on the premises for 28 days.
Application fees for the licence are based on the rateable value of the property and range from £100 to £1,905 depending on the fee band. If there is no rateable value for the premises it will fall into the lowest fee band. Premises licences will generally have an unlimited duration, however most will have to pay an annual fee.
5) What type of pub could I own?
The demographic of the location where you hope to own a pub should largely impact its style. For instance, is it really a good idea to create a high-end gastro pub in a working class suburb? Or a grungy dive in Moorgate?
Research the area and the people in it: who are they? Families, elderly, young couples, business owners, holidaymakers? What types of pubs are there in the area? What type of pub would they like to see in the area? What’s the average price for a pint? Are there any gaps to be filled in the local market?
Your pub could be anything from a traditional country bolthole to an alternative live music venue or a chic gastro pub. Just take note of what works in the area and/or what your potential customers want.