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Morning Briefing for pub, restaurant and food wervice operators

Fri 21st Mar 2014 - Friday Opinion
Subjects: Micropubs, the things that were missing from the Budget and the growth of Cumulative Impact Policies
Authors: Martyn Cornell, Kate Nicholls and Paul Chase

Micropubs – revolution or fad? By Martyn Cornell

The micropub movement – numbers now past 40 and rising, with new examples seemingly opening every week – looks to have produced its first home-grown entrepreneur, with James Mansfield, owner of the Medieval Beers brewery in Colston Bassett, Nottinghamshire, due to open a third micropub under the name “Beer Shack”, in the town that shares his name, to follow the first two Beer Shacks in Hucknall and Burnley respectively.

Could this be the sign that micropubs are moving from what could once be dismissed as an eccentric hobby to the mainstream of British hospitality? There are, apparently, so many people now looking to open a micropub themselves that the Micropub Association has declared that “the micropub revolution is going bonkers”, and put a warning on its website that “due to the sheer numbers of enquiries we get from potential micropub owners, we are unable to give you any individual advice [or] enter into individual email discussions regarding the viability of the setting up of your micropub.”

Is the micropub as a route to running your own pub business a threat to the traditional pubco tenancy? As the Micropub Association’s website points out, the would-be micropub landlord has a fair number of advantages over those looking to start up a “traditional” pub. The small size of a micropub means low costs and maximum use of space; no music means no costly music licences and no expensive sound system to pay for; no food means less work, fewer skills required, less space needed, no hygiene exams to pass, no additional costs because of the potentially expensive oversight by environmental health officials, and no “scores on the doors” rigmarole to deal with; no keg lagers or other keg beers means no complicated equipment and no need for bar space; the potential for low rates due to being rated as a shop rather than a pub; from that, low water rates, which are traditionally based on the rateable value; and if you keep turnover below £75,000 a year, the chance to save on 20% VAT. What’s not to like?

The Association has just restated its definition of what a micropub is, moving from a declaration that it had to be small, in size, a conversion of an existing premises, primarily selling real ale, with “NO lager whatsoever”, and filled with “lively banter and chat with no music”. Today the Association says that “a micropub is a small freehouse which listens to its customers, mainly serves cask ales, promotes conversation, shuns all forms of electronic entertainment and dabbles in traditional pub snacks.”

So far the micropub movement has avoided any sort of critical backlash – but I fear it won’t be long before another definition of “micropub” appears, based on a TripAdvisor review of the “original” micropub, The Butcher’s Arms in Herne, Kent: “Five grumpy old men in a 10ft square space”.

Indeed (and I say this as a card-carrying member of the Grumpy Old Man demographic myself), that is the surprising aspect of the micropub “mini-boom” – it turns on its head every received wisdom about the way forward for the British pub, about how the wet-led boozer is on its Last Orders, about how those pubs which fail to gastro-reinvent themselves are doomed to end up as supermarkets or blocks of flats. Suddenly, the cutting edge of the pub and bar scene appears not to be the craft beer outlet with a dozen keg taps dispensing American Double IPA sticking out of a tiled back wall and staff and customers all under 40 and all in hats and beards, but the sort of beer-only alehouse that was already disappearing before the Second World War, filled with unaccompanied men over 50.

We won’t, I don’t think, be able to tell if the micropub movement really is a revolution or a fad until micropub numbers get into at least low triple figures, and we don’t see a rash of closures. But the fact that the movement has gone from a very slow start – The Butcher’s Arms opened in 2005, there were no more micropubs until 2009 and still only a dozen by the end of 2012 – to what looks like a rocket surge suggests that something extremely interesting is happening.

How will it affect the rest of the pub business if micropubs really do become mainstream? Well, it could certainly cut back on the number of people looking to run a pubco tenanted pub, if they think they can start up a micropub all of their own for, probably, less money than acquiring a tenancy would cost. But a pub that takes in a year what the average JD Wetherspoon outlet takes in a fortnight is probably not going to worry too many big operators. And the big operators – and most other pubs – probably won’t be losing much business to the micropubs anyway, since the customers micropubs seem to be attracting look to be those who stopped going out to “ordinary” pubs 20 years ago, and stayed at home instead.

On the other hand, since the micropubs seem to be proving that there is a demographic out there which is not currently being served properly by the “mainstream” pub industry, and since new business is always welcome, it may be that big operators start to consider the advantages of running micropubs themselves. In just the way that Tesco, having captured the “big destination shop” supermarket sector, moved into town centres with smaller Tesco Metro stores to mop up what remained, could we see someone like Wetherspoon, having captured so many high streets, decide to move into the suburbs with a chain of “Spoons Local” micropubs?
Martyn Cornell is managing editor of Propel Info

What should have been in the Budget by Kate Nicholls

In case you missed it, Wednesday’s Budget Statement fired the starting pistol for the Election campaign. Not just the forthcoming local and European Elections, which will be seen as a key test for the government, but more importantly the General Election in May 2015 – this was the last Budget where measures could be implemented to take effect before polling.

And it was clear that the tone is one of class warfare. In the black and white world of Westminster it was either a budget for millionaires or hard pressed working families, the squeezed middle. I’ve also heard it described as a blue rinse or blue collar budget – actually, I think it quite cleverly and explicitly appealed to both and that is primarily why it was good for pubs.

If you look at the customer demographic of the major pub chains, you can see that it quite closely mirrors the shape of the population as a whole. Yes, the target market may well be young, but there is a large bulge of over 55s. The former have continued to eat and drink out throughout the recession, but it is the latter who have suffered a crisis of confidence and felt the full effects of the cost of living crisis. And it is the latter who, pre 2008 had been spending more and more often.

So, Osborne’s sleight of hand on Wednesday in painting a rosy economic picture and giving the blue rinse voters a reason to feel more positive about their savings and retirement income is welcome. Despite the fact that the economists and commentators are still warning about the biggest public spending cuts still to come, higher than expected debt and more sluggish growth than we might want, for the first time the public is receptive to and is believing that there is economic good news. And that is crucial to encouraging them back out and spending.

And the blue collar appeal of a penny off a pint, cheaper bingo, cuts in fuel and air passenger duty and tough talk on energy prices cannot be under-estimated either. With average earnings now rising faster than inflation, confidence will blossom when people can see changes in their immediate disposable income. An extra £500 of tax free income and help with childcare for the lower paid should also not be under-estimated.

The Chancellor may be chasing a blue collar vote, but these are our customers and, more importantly, our teams and what puts more money in their pocket will undoubtedly help retailers.

The trade press headlines may have been dominated by the good news for producers on alcohol excise duty, particularly beer, but this is dwarfed by the really good news underpinning capex – and this was a key measures on which the ALMR campaigned ahead of the Budget.

The doubling of the Annual Investment Allowance and its extension to the end of 2015 will allow operators to write down capex on refurbs, fit outs – which have in the past fallen way outside the threshold for 100% relief – as well as investment in kit and IT. Giving us 100% tax relief on these projects will boost investment, growth and jobs in local communities up and down the country. 

More importantly, the Budget also confirmed that the Chancellor will turn his attention to the other outstanding areas on the industry’s shopping list – the other significant and substantive taxes on business and employment where the pub sector pays a disproportionately higher burden than the supermarket.

The Chancellor confirmed his support for business rate reform and cuts on the job tax, measures already announced in the Autumn Statement – and measures which have been remain high on the ALMR agenda. What operators now need is a clear road map to deliver against those promises.

We continue to campaign for a free, fair and flexible market which rewards responsible retailing and which unlocks our potential to generate jobs and growth at the heart of local communities. That means:

• Root and branch reform of business rates: more than the promised administrative overhaul so as to ensure that the system does not continue to penalise success and favour supermarkets and online retailers. In the short term, it means caps on increased which are based on annualised CPI.

• Reduce the jobs tax: The new £2,000 Employment Allowance and cuts in NICs for under 21s are welcome first steps, but we need to do more to use the tax regime to reward employers directly for investment in training – not just apprenticeships but all accredited training – and to reduce the costs of employing young people. How about cutting NICs for under 25s and aligning PAYE and NIC regimes?

• Prioritise economic growth: If you really want to boost investment then you need to extend the requirement for regulators to have regard to economic growth to licensing and planning decisions and allow operators to appeal to the Local Government Ombudsman where local bureaucracy or process holds up capex.

And most importantly it means tackling VAT and the tax disparity we face with supermarkets who use their tax free status on food to subsidise pocket money prices on alcohol, undermining public health and licensing policy.

These the issues which matter most to operators and which the ALMR will continue to push on to ensure we build on the successes of Budget 2014.
Kate Nicholls is strategic affair director for the Association of Licensed Multiple Retailers

Alcohol policy and unintended consequences by Paul Chase

On Tuesday I attended a seminar in London entitled ‘Liquor Licensing Conference – All the Latest Developments’. Most of those attending were solicitors racking-up CPD hours and gaining valuable insights from the experience of the speakers – who were senior solicitors, star barristers and a QC. The way in which senior lawyers unpack issues has always fascinated me, and I was suitably impressed by the legal and intellectual erudition on display. I learnt a lot.

I think we’re lucky to have a cadre of lawyers capable of doing these things, not least because able lawyers are often the licensed trade’s last and best line of defence against ill-conceived government policy. We’ve seen this amply illustrated by the way in which the trade’s lawyers have dealt with Early Morning Alcohol Restriction Orders (EMAROs) and the Late Night Levy (LNL). So far no EMAROs have been granted and only three levies.

However, one of the aspects of alcohol policy which has received much less publicity is Cumulative Impact Policies – or ‘CIPs’. A CIP is part of a licensing authority’s armoury for dealing with areas in which the concentration of licensed premises is having a negative effect ‘cumulatively’ upon an area. These policies set out a licensing authority’s approach to designating such areas ‘cumulative impact zones’. The effect of such a designation is to place the onus on an operator who wants to licence premises in a zoned area to prove that the premises will not have a negative impact. Poppleston Allen’s Lisa Sharkey gave us an excellent insight into the impact of these policies, which have grown like Topsy since 2008:

Number of Cumulative Impact Policies

2008 → 112
2010 → 134
2012 → 160
2013 → 175

The above figures are based on a survey of licensing authorities conducted in 2013, to which 72% replied. Many authorities clearly have more than one such policy.

Unlike EMAROs and the LNL that were measures created by primary legislation, CIPs were not. The ability of a licensing authority to create cumulative impact zones arises out of government guidance on what licensing authorities can include in their licensing policies in order to promote the licensing objectives. This is reasonable enough in principle, but in practice it is leading to a return to ‘proof of need’ by the back door.

Kevin de Haan QC, who chaired the conference I attended, made a very valid point when he said that a high concentration of premises attracting young revellers was a legacy of the old licensing regime. Under the 1964 Act if you wanted to sell alcohol until 2 am you had to offer music and dancing and make food available, and this led to the city centre night-time economy becoming dominated by young persons’ venues. It is in these types of area that licensing authorities are most likely to have concerns about cumulative impact.

But the unintended consequence of CIPs is that they stop a problem getting any worse without making it any better. If we accept that most people behave better when they are in the company of people much younger or much older than themselves, then the long-term solution to the problems posed by areas with lots of young persons’ venues is to encourage a greater diversity of premises in such areas. But a cumulative impact zone prevents this because it pickles in aspic the problematic status quo.

Clearly, what would help is if licensing authorities that impose these policies would make clear what kind of premises they don’t want in the zoned area, and conversely what types of application they would welcome. Some authorities do, some don’t. If the purpose of a cumulative impact policy was to encourage a more diverse night-time economy, rather than acting as an absolute ban on new premises in a given area, then that would attract inward investment rather than driving it away. It would also be consistent with one of the aims of the government’s recently announced Local Authority Alcohol Action Areas – to improve diversification in the night-time economy.

It should be remembered that ‘proof of need’, under the old licensing regime, was also a matter of policy for local licensing justices – not a provision of the 1964 Licensing Act itself. But the impact it had on the ability of the sector to deliver expansion and new concepts was profound. So, at national government level we have recognition that increased diversity is part of the solution, but at local level councils are frustrating that solution though CIPs, albeit, I suspect, unwittingly.

Time for some joined-up thinking then? Don’t hold your breath.
Paul Chase is a director of CPL Training and a leading commentator on on-trade alcohol and health policy

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