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Fri 15th Aug 2014 - Friday Opinion
Authors: David McHattie, Martyn Cornell and Ann Elliott
Subjects: The property market’s double distortion, Camra’s property distortions and the benefits of a focused operation 

The property market is subject to the double distortion of over-heated rent and business rates, argues David McHattie

Much is made, quite rightly, of the market distortion that exists between licensed hospitality and supermarkets in terms of VAT, but we are also facing a property crisis which threatens to impinge on our sector’s ability to drive even more growth to support the UK’s escape from recession. Many business leaders cite property costs, and their inexorable rise, as the number one financial challenge facing the eating and drinking-out sector as a whole. Restrictive lease terms and use class orders, combined with ever-advancing rents fuelling unnecessarily high rates bills are distorting the market and holding back investment, limiting high street regenerations and inhibiting job creation. Unchallenged, these problems will only grow as the economy improves and the sector moves to adopt growth plans.

Local monopolies, property bubbles and off-market deals struck by eager new entrants into the market have the effect of distorting comparable rents, forcing prices up. It was recently reported that Russel Norman is facing an 80% rent increase in one site after a restaurateur paid over the odds locally. Landlords are always eager to benefit and each time a new rental benchmark is agreed this is used as evidence of demand and justification for increases. The market quickly becomes distorted. We have seen this happen before, notably when Starbucks entered the UK market.

Add to this that restrictive lease terms such as quarterly upfront payment obligations, upward-only rent review clauses, and the move to contracted-out limited-length leases can foster a short term mentality towards high street investment and drive a cash flow crisis. When availability of finance is still a challenge, we are in danger of further fuelling business closures.

Have you heard of the Business Leasing Code? The self-regulatory Business Leasing Code, which sets out minimum standards for landlords, was originally written in 2004 and has not been updated since 2007 despite significant changes to both the wider macro-economic context and the particular circumstances of high street businesses. Although few operators seem to be aware of its existence, we see this as a way forward and are pressing the government to use the High Street Forum to facilitate a pan-industry discussion between landlords, lessees, regulators and political audiences to review the Business Leasing Code and examine the role it can play in town centre regeneration. The provisions of the current code are not rigorously applied and enforcing them can be difficult. The Royal Institution of Chartered Surveyors (RICS) too often acts as judge and jury on assessments despite widespread misgivings about a conflict of interest, limiting the possibilities for redress if problems occur.

We are also fighting against a current use class restriction which inhibits flexibility for the sector which is best placed to inject jobs and investment into high streets and communities across the country. High streets in particular need us but planning constraints make it difficult for us to mirror the sort of successes we see at large shopping malls or in airports. 

This is all compounded by the fact that rents inform rates and worsened by an annualised RPI index and an appeal process that seems to move at glacial speed. No successful operator should find themselves penalised by a rates revaluation based on new levels of trade or inflated local rent negotiations. One operator reported that their rates rose from £30k to £130k in exactly these circumstances. It is simply illogical to penalise success in this way and out of tune with government ambitions of growth and prosperity. 

We are a responsible employer and an important community stakeholder, keen to play our part in resolving the challenges we all face as we grow our way out of recession. Regenerating high streets, delivering jobs and growth and addressing social harms are important to us too. It is vital that collectively we help government understand that: we already do much more than they thought, we could do more than they believed possible and we are eager to work with them to create a partnership which is mutually beneficial. We look forward to your support as we campaign together using a shared narrative, which aims to address the market distortions that inhibit our potential and shared objectives. Together we are stronger.
David McHattie is chief executive of the Association of Licensed Multiple Retailers

Why Camra is wrong on pub closures by Martyn Cornell

The Micropub Association should be absolutely raging with the Campaign for Real Ale. Because under the misguided idea that it is “saving” the British pub, Camra is trying hard to make sure no new pubs ever get opened again.

Once again this is a case of not properly thinking through the implications of a proposed policy. What Camra wants to do is to try to make it much more difficult to close pubs (more on why that’s a bad idea later). So why will making it more difficult to close pubs also make it much more difficult to open new pubs, in the way that the Micropub Association has been doing so successfully over the past few years, at a rate currently running at two a month?

The problem is that the restrictions Camra wants to put in the way of anyone trying to shut a pub means that landlords will be extremely reluctant to let their property be turned into a new pub. And similarly banks, building societies and other lenders will be deeply unwilling to give anyone a mortgage to buy a property they want to turn into a pub. Why? Because if the new pub business goes nipple-skywards after a year or three, the landlord now has a property that, under Camra’s proposed rules, needs planning permission to be turned back into something other than a pub. So instead of speedily being able to find another tenant, the landlord now has to go through the expensive and time-wasting procedure of getting the building “depubbed” again before it can once more become a coffee shop, an optician’s or whatever. Similarly the potential mortgage lender is not going to want to risk having to repossess the building that housed a failed new pub business, and, again, having to find the staff, time and money to put in a planning application for change of use so they can then flog the place to a non-pub user. So – finance for people wanting to open new pubs is going to dry right up, because Camra thinks it will help pubs stay open.

Indeed, the first move should anything like Camra’s “planning permission to close pubs” idea approach the statute books will be a rash of pub closures, as pub owners shut their marginal pubs before they have to seek local councillors’ permission to do so. But even if such a law did come in, does anyone seriously believe it would prevent a single pub from closing? Of course it wouldn’t. And trying to preserve failing pubs in aspic is a remarkably poor idea anyway, because the ultimate effect is to damage successful pubs by depriving them of business they deserve.

The whole idea that pubs need special protection is nonsense, anyway, as I have frequently argued. Pubs are not sacred. The rights of pubgoers do not trump the rights of property owners. The disappearance of any pub is not the same as, for example, the disappearance of a Saxon church. Pubs are, and have always been, “churned” all the time: one closes, another one opens. If a pub is making less money for its owner than it would under another use, the owner must have the right to maximise their income. If a pub closes, and a community feels it needs a pub, let someone open a new pub, in a more viable site with fewer overheads. Except that if Camra has its way, opening that new pub will be much more difficult.

Camra can’t even get its own arguments straight. It complains about pubs being turned into shops and then declares that “69% of all adults believe that a well-run community pub is as important to community life as a post office, local shop or community centre”. So – shops are important, too! Indeed, the reason why so many pubs are being turned into shops is because to many communities, local shops are MORE important than pubs, in the sense that more people use their local shop and spend more money in it, than use their local pub. I would guarantee you that any pub turned into a Tesco now has a wider selection of the community crossing its threshold, more frequently, than ever happened when it was the Duck and Dive. Most pubs have a remarkably low number of real regulars, and the importance to the community that Camra ascribes to them in the 21st century is a product of sepia-tinted nostalgia for the times before the last old maid bicycled to Holy Communion through the mists of the autumn morning (George Orwell).

If there is one single thing that would increase the chance of survival of the British pub – and I won’t yield to you, Camra or anyone in my desire to see our pubs strong and thriving – it would be a dramatic improvement in the standard of cask beer served in those pubs. Cask beer is (or should be) the unique selling point of our pubs, and Camra would do a far better job thinking up ways to improve the quality of our pints than inventing stupid tweaks to planning laws that won’t work, and will actually have a seriously detrimental effect on the efforts of people like the Micropubs Association trying to open pubs of just the sort Camra members approve.
Martyn Cornell is managing editor of Propel Info

The benefits of a focused operation by Ann Elliott

One thing that struck me last week when I was out and about was the utter simplicity and ease of operation of solo product/limited choice operations.

I visited Dean’s Diner last week (like Ed’s Easy Diner but a fuller menu) where the signature dish was the burger and the hero drink was the milk shake (the Nutella one was a bit of a hit). The operation was slick, the waiters were focussed and, as a customer, I knew what to expect. The non-burger products (apart from the full English breakfast) were less successful. Dean’s has less than ten sites but is one to watch. If I were them I would strip the menu down even further to really focus on serving an outstanding burger range (and milk shakes patently) – and be known for that.

Last Friday, I went to Birmingham and had lunch at Handmade Burger alongside the canal. The premise is much like Nando’s – order at the counter, help yourself to drinks and the team bring the food over. I ordered from the blackboard behind the tills but was told – ‘Sorry, that’s the old menu, you can’t order from that’. That obviously made me feel great as a customer. The water machine was out of order. The queue to order snaked around the restaurant despite the fact there were 26 empty covers and masses of staff wandering around looking for something to do (we had two check-backs in two minutes). But the burger! The burger was divine and made it all worthwhile. If only their ordering process was that awesome.

Of course the epitome of the success of a solo product offering has to be Burger and Lobster. I hadn’t been there for a while (hate queueing) but was really overwhelmed by the whole experience (again) last week. The fact that I could only order lobster, lobster roll or burger made the whole choice and decision-making process so much easier. It also felt as if everything (and everyone) was focussed on making the food presentation and delivery the best it could possibly be so that when the food arrived we all went ‘wow’ at the same time. The lobster roll was the tastiest ‘sandwich’ I have ever had.

On a different scale, I went on the Highgrove garden tour complete with afternoon tea and champagne (£75 per person so not cheap) last Sunday. The garden tour itself was fantastic (particularly if you are into gardens) but the whole champagne afternoon tea thing is so simple. One glass of champagne and the same (divine) afternoon tea served to everyone. No one could possibly get this wrong – just deliver the same food to everyone with a smile. There was a variety of teas on offer but a different teabag in every teapot doesn’t exactly make it too difficult for the kitchen to operate. All very simple and stylish.

Princi on Wardour Street is almost a solo offer operation focussing as it does on pastries and bakery products. Wisely, the old bakery itself has been converted into dining space though not quite as beautiful as the original room. The food premise is simple but attracting the attention of someone to take our order was tortuous – in the end I had to get up and ask a waiter, who was chatting to someone behind the counter, to come and serve us. One rule of simple food operations must be to provide exemplary service – they were not just with it at Princi. Really disappointing.

Graeme Smith from Zolfo Cooper asked me today if single food offering operations had passed their sell by date. I don’t think so. The continued success of Nando’s would point to that. If brands and concepts are to focus on one type of product offering only, though, then that product has to be brilliant, the service has to be exceptional and the environment needs to be memorable.
Ann Elliott is chief executive of leading sector marketing and public relations firm Elliotts – www.elliottsagency.comhttp://www.elliottsagency.com

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