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Morning Briefing Strap Line
Fri 11th Jan 2013 - Friday Opinion
Subjects: Prohibition by stealth, the funding dilemma and the challenge of 2013
Authors: Paul Chase, Richard Hamlin and Paul Wells

Prohibition by stealth by Paul Chase

When challenged over a change of opinion, economist John Maynard Keynes famously remarked: “If the facts change, I change my opinion, what do you do sir?” If this question was asked of the health lobby the answer would probably be: “If a change to the facts is inconvenient for my opinion, I move the goalposts.”

I make this observation in light of the fact that the issue of ‘sensible drinking guidelines’ is back on the agenda. Dr Michael Mosley, who has looked into this matter for a three-part ‘You and Yours’ radio documentary into government guidelines on alcohol, diet and exercise, says in an interview with The Times that the government had “presented these guidelines as if they are about health, but they’re really not. They’re more about behaviour, trying to stop you going out and crashing the car, or fighting.” In similar vein, Dr Nick Sheron, a liver specialist at Southampton University, said: “The problem I have with the government advice is that it normalises the fact that it’s OK to have a drink on a daily basis, when that’s clearly not the case.”

The new recommended levels of sensible drinking limits, or as they have been renamed, “harm minimisation levels”, are likely to be around 50 ml of wine or a quarter of a pint of beer a day. I have to wonder whether it is merely a coincidence that the rush to change the advice comes in the wake of the fact that between 2004 and 2010 average annual per capita alcohol consumption fell by 11 per cent from 9.5 litres to 8.4 litres; the proportion of men drinking more than 21 units a week has fallen by 31 per cent, and now just 26 per cent do so; among 16-24 year-old men there has been 30 per cent fall in the numbers drinking above the guidelines and now just 21 per cent do so; and finally, just 18 per cent of women drink above 14 units a week – a drop of 20 per cent.

So, with all these numbers moving in the right direction, the ability of the health lobby to stoke the moral panic over alcohol is reduced, hence the need to move the goalposts. And they have form for doing so. Below is a brief history of BMA ‘sensible drinking limits’:

• 1960s – one bottle of wine a day
• 1979 – 56 units a week (approx four pints of beer a day)
• 1984 – reduced to 36 units
• 1987 (and currently) – reduced to three to four units a day and no more than 21 per week for men (approx 1.5 pints of beer or lager a day) and two to three units a day and no more than 14 units a week for women.

Thus in 20 years the limits were cut by two thirds for men and by a further third for women (14 units). New ‘research’ would suggest a safe drinking limit of a quarter of a pint of beer a day – approximately a quarter to a third of a unit of alcohol.

Once the goalposts are moved then all the good news about falling numbers engaging in binge drinking and chronic harmful drinking would be reversed – further fuelling the moral panic over alcohol.

The long term project of medical temperance is to achieve an ever-falling level of alcohol consumption so as to achieve prohibition by stealth. This is the logical conclusion of the ‘whole population’ approach to alcohol-harm reduction.

The basic idea of the whole population approach is that the total amount of alcohol consumed by a population determines the level of alcohol problems that population will suffer. Ergo, reduce consumption across the whole population, reduce alcohol problems. This approach is very recent in historical terms. Failure to find a ‘cure’ for alcoholism led to a small group of addiction specialists in the 1970s to resurrect a piece of half-forgotten research by French mathematician Sully Ledermann into deaths from liver cirrhosis in wartime Paris. Ledermann claimed that the figures proved that the decline in mortality matched a decline in the city’s alcohol consumption.

Fresh research was published in 1973 By Kettel Bruun in what came to be known as the ‘purple book’. Griffith Edwards popularised the idea with his book ‘Alcohol Policy and Public Good’ and then Thomas Babor published ‘Alcohol: No Ordinary Product’; this became the World Health Organisation’s bible for alcohol policy. Policy prescriptions, such as reducing availability and accessibility, minimum unit pricing, raising price via the alcohol duty escalator, all stem from this approach.

A comprehensive critique of the whole population approach and the deconstruction and demystification of the statistics and bogus science used to justify it is long overdue. A contest of meanings needs to take place. I hope to publish ideas about how this may be achieved in the near future.
Paul Chase is a director of CPL Training and a leading commentator on on-trade alcohol policy

The dilemma of funding by Richard Hamlin

This week the trade press has started to be positive. Reports have been hitting inboxes with the good news that leisure sector analysts expect 2013 to be a “year of growth”. In fact, many hospitality operators are anticipating a rise in the average spend that customers will make at their establishments for wet and for dry sales and entertainment. It’s looking promising.

So, as the economic climate turns a little more favourable, many successful operators will be turning their attention to acquiring new units.

How to fund the expansion of a successful hospitality business is a nice problem to have. Nevertheless, it is a problem and a major decision-point for the entrepreneur who has invested heart, soul and worldly wealth in his or her or the family’s business.

At the moment, there are only two realistic main “routes to cash” available for this purpose. These two routes are practically and psychologically opposed. The first is to approach lending sources that will grant a loan on a short or medium term basis. The second option involves giving away irretrievable equity to new investors in the business in order to progress.

This is the dilemma facing successful private owners of booming hospitality and leisure businesses. Let us examine the wisdom of taking either of these paths.

The argument in favour of equity is that various external sources or indeed the various government business investment schemes have deep pockets and the finance plans potentially on offer are devoid of monthly loan servicing worries. But they come at a price.

Professional investors or the government ultimately want a return on their money and this style of fund-raising means that the business owner will have to give away probably circa 30 per cent to 60 per cent of “equity” to what effectively will become a lifetime silent partner. It is indeed a decision not to be taken lightly.
Those who instinctively choose debt finance are usually attracted by the convenience of the method and the ability to retain all of their business. But who is actually lending in today’s marketplace?

High Street Bank Funding:
It must be remembered that pubs, bars, nightclubs and restaurants in central London often trade from short leasehold premises. A typical profile might be a lease with less than five years unexpired at a high rent. Landlords are aware, of course, of the huge profits these businesses make. Unfortunately, in many instances, no matter how strong the turnover, performance and competence of the management may be, the business will fail the dreaded security test. High street bank funding in the current climate may be hopeful at best.

Specialist Finance Houses:
There are a few specialist lenders in existence who are prepared to lend against this risk. They understand the mentality of entrepreneurs not wanting to give away a piece of their action. This kind of funding is expensive and interest rates range from 24 per cent up to 36 per cent APR but, provided the loan is structured carefully, this will be cheaper than giving away forever part of the company that you have built into a successful operation. An old-fashioned repayment loan borrowed over say 36 to 60 months will fund your expansion plans and still leave you holding 100 per cent of the equity in your company at redemption of the debt - if you can secure the funds in first place!

The crucial question for those thinking about business growth is not “what can I get?” but “what do I want out of a finance package?” Is it expansion at any cost? Am I prepared to give away part of my business in the process? Will I need to borrow again? Or would a premium style loan be preferable - getting me where I want to be, company intact, with a finite end? It is a decision that you simply cannot afford to get wrong.
Richard Hamlin is a director of First Merchant Finance

The challenge of 2013 by Paul Wells

Along with many others, I’ve spent some time over New Year to review what’s gone before and what lies ahead. It’s important that this period of reflection doesn’t become over complicated or stimulate making changes for changes sake, though; instead it should be a realistic assessment of what might be done better or differently.

Having examined our results in Charles Wells over the last year, my ambition for 2013 is to attract new business across all our trading divisions. The UK continues to be the most competitive beer market in Europe, at least, which makes it hard work and challenging, but great for beer lovers. As a result a huge amount of effort must go on listening to customers and understanding what they are looking for.

In the past we’ve shown that with innovative ideas we can create products that are well received when they’re targeted accurately, whether they’re beers, wines or the great English pub, and that’s why for 2013 the next stage of our development will come through new business.

In France, for example, earnings from our John Bull Pub Company managed house sites rose 26 per cent year on year in 2012. From a small group of four pubs at the beginning of 2009, we’ve invested in the estate and have just announced the purchase of our ninth pub, a second venue in Lyon. We’ve doubled the number of staff employed by the group and are planning to attract new business through further acquisitions to achieve our target of 16 pubs by 2016.

Expansion in France represents a good investment for us as theirs is a system that encourages the hospitality sector and offers incentives to companies to stimulate growth. Whilst VAT in the UK is 20 per cent, there’s a general rate of 19.6 per cent in France which is reduced to seven per cent on food, giving the hospitality sector a significant boost. With UK duty rates on beer coming in at around three times those in France, it’s no wonder that the structure in France is so much more appealing to do business in.

Performance in other international markets also demonstrates that there’s a thirst for our beers around the world and that new business and expansion is possible. In our financial year to September 2012 we recorded a second successive year of double digit sales growth. Although this is from a relatively low starting point, consistent growth at these levels soon represents a significant part of our business and we believe we’ve only just scratched the surface. 

Our overseas performance resulted in Charles Wells’ inclusion in The Sunday Times International Top Track of 200 private companies in respect of international sales growth. This has given us a great platform to develop overseas relationships and explore the undoubted potential that exists in these receptive markets. Having had the eyes of the world on us in 2012, there’s a renewed desire to connect with all things British – particularly in the United States – and what better way to connect than through traditional British ales? Last year, the USA was our largest volume market, growing at 21 per cent year-on-year and their interest in craft beer has stimulated growth in a number of beers that offer a point of difference. In our case this has largely been driven by Young’s Double Chocolate Stout and Banana Bread Beer, rising 13 per cent and 66 per cent respectively year-on-year in international sales which shows that new business is out there if you get the right product to market.

Within our wine company, Cockburn and Campbell, we’ve also extended our reach beyond the Charles Wells and Young’s pub estates and growth in this area has risen 2.8 per cent in an on trade market declining five per cent as a result. Again, a focus on offering a good quality range of wines and great customer service has proved that there is a demand that needs to be filled. So it’s imperative to listen to what the customer wants and remain open to discussing all new opportunities that open up.

Perhaps being faced with an £80m drop in turnover, as we were when we lost two big beer brands from our portfolio a couple of years ago, helps focus the mind more sharply than ever. The old saying remains true – that it’s easier to keep existing business than having to go looking for new but what happens when those existing markets are shrinking? You can’t be complacent and blind to new opportunities. We have developed a range of distinctive beers that are popular around the world; our wines are great quality; the pubs we’ve bought in the UK are better than any we’ve owned previously, coupled with some of the best licensees in the country and our French pub chain is growing month by month through offering a combination of two great exports – beer and pubs. So, bring on 2013 and the roller-coaster of the new business challenge.
Paul Wells is chief executive of Charles Wells

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