It took Mitchells & Butlers three years to find a suitable home for the proceeds of its sale of 333 wet-let pubs to Stonegate Pub Company. This week’s acquisition of the majority of Orchid Pub Company, its best 173 sites, all turning a profit, has all the hallmarks of traditional estate expansion. Underpinned by 155 or so freeholds, a solid 50% food trade, sites already trading as carveries, and acquired for less, I understand, than its third party valuation, it is difficult to see how far wrong M&B can go with this deal, given the splash of £35m additional investment. The deal will have won the ready backing of M&B’s influential shareholder Joe Lewis, who likes freehold property – he pulled the plug on M&B’s sale of its franchised estate very late in the day a few years back, not least because he felt freehold assets were worth hanging on to.

   

The Orchid estate is, in fact, the last opportunity for a bulk freehold deal above 100 pubs in the sector, as far as I can see, and the largest since the M&B/Stonegate deal. Greene King’s chief executive, Rooney Anand, has never been afraid to pay a full price for good quality assets and has made a very good point to me in the past: new-build freehold pubs may produce a 16% return on investment but there is a lot of cash to be spent that earns no return during the 12 to 18 months it takes before the doors can be opened.

   

There are, of course, pub and bar estates with fewer than 100 sites still owned by private equity companies, and they have many outstanding sites. New Inventive Bar Company, TCG and Novus Leisure all come to mind. But I suspect we are now entering a new phase, where the big-boy corporate acquisitions activity will tend to have a different complexion, and often involve ingenuity. For sure, there will be fierce competition for good quality single sites. We are seeing this already in the London market, where McMullen & Sons and Fuller Smith & Turner have competed twice now for central London plums, with the score currently one-all. I hear the freehold of the Harp in Covent Garden, currently owned by its licensee, has come to market with a price-tag well into the high single digit millions.

   

But it was actually Fuller’s who sign-posted the way forward last week, with its 51% acquisition of the artisan cider and pizza concept The Stable. Chief executive Simon Emeny declined to provide me with any metrics on how the existing sites are performing although, to be fair, four have been open less than a year. The deal reminds me a little of the way sector investor Luke Johnson operates. Patisserie Valerie was acquired at a stage when it had half a dozen sites and, as Johnson tells it, accounts that made little sense. It was a gut-instinct bet on the potential of Patisserie Valerie. Likewise, Fuller’s is backing itself and The Stable’s founders to develop the brand’s distinctive points-of-difference into a scalable brand. The opportunity with The Stable is to create a very large amount of value organically. And, by definition, Fuller’s will, in all, likelihood, be taking a more relaxed approach to leasehold sites, building on its willingness to take turnover leases at transport hub sites.

   

The day that Fuller’s unveiled its acquisition of a stake in The Stable, a senior executive at a well-known mid-sized south of England operator complained to me that The Stable’s founders had not come and spoken to his company. His comments missed the point. The future for big companies will often be about relationships, spotting talent and then thinking of ways it can be harnessed for mutual benefit. (Fuller’s spent many months creating a relationship of mutual respect with The Stable’s owners). Again, it will involve large companies acting in the style of private equity, providing investment to allow entrepreneurs to grow the pie and accepting that at some stage their entrepreneurial partners will move on, having made considerable sums. It was the approach that M&B pioneered successfully with Lovely Pubs owners Paul Salisbury and Paul Hales as it grew the Premium Country Dining Group, and The Restaurant Group has managed a small miracle in relationship management to have Graham Price still injecting his passion into Brunning & Price, when he could be off making another large fortune. So, nothing entirely new with Fuller’s acquisition of The Stable, but there will, I suspect, be a lot more of it.

   

Expect, too, to see some left-field thinking on how the acquisitions net should be spread. Greene King met City analysts last month to tell them that it saw an urgent need to evolve and/or buy businesses that will allow a better coverage of the day-parts. This does, of course, bring into play a far wider range of potential acquisition targets. Interesting times.

   

Perhaps the most significant story of the week was the news that Tesco is objecting to KFC’s plans to open a drive-through restaurant in the suburbs of Leicester. The reason is less, as you might think, the perceived threat from Zinger Burgers and Popcorn Chicken to Tesco’s grocery sales, but rather the fact that Tesco has put in plans itself for a drive-through takeaway restaurant at its store in nearby Hamilton, less than two miles from KFC’s proposed site – and not just a drive-through, but a second restaurant and a pub with pub garden, too.

   

The idea that Tesco, which has been closing pubs at the rate of more than one a week to convert them into “Metro” mini-supermarkets (the company made 110 pub-to-supermarket conversions in 2012-13, almost four times as many as its nearest rival, J Sainsbury) should now be championing the pub will doubtless boggle the minds at, among other places, the Campaign for Real Ale, which has been trying to persuade the government to close the loophole that allows pubs to be turned into supermarkets without the conversion having to go before local planners.

   

Why does Tesco want to build a pub, when it has been so happy to take advantage of their closure? The answer, of course, is the internet. That is to say, the impact that the internet has had on grocery shopping habits, and the threat that impact poses to the out-of-town superstore. The out-of-town superstore is now 50 years old in the UK, the first one having been opened by the American company GEM (later taken over by Asda) in West Bridgford, Nottinghamshire in 1964. At that time more than half of all households in the UK did not own a car: as car ownership rose, to past 70% of households in the early 1990s, so the big out-of-town, drive-to stores got bigger, and increased in numbers. Tesco opened its first hypermarket in 1997, is now up to almost 250 and is set on opening another 20 a year, either new-builds or conversions of smaller supermarkets.

   

At the same time, however, the whole hypermarket, destination grocery shop phenomenon is being increasingly undermined. Sanjeev Sanyal, the Indian economist and urban theorist who is currently Deutsche Bank’s Global Strategist, believes that “the hypermarket model is under serious threat everywhere from online shopping. Consumers worldwide are finding that they can access virtually unlimited choice on the internet – including customised goods and services that big retailers simply cannot deliver.”

   

The value of the UK food and grocery market is predicted to climb by a fifth to a record £206bn by 2018, according to research released by the IGD last September. But within that, while online sales, currently worth £6.5bn, will increase by 124% to nearly £15bn (having grown by 90% between 2008 and 2012), superstores and hypermarkets, which currently account for sales of £74.1bn, are predicted to grow by just 8.2%, to £80.1bn. Britons seem increasingly to feel that driving to the hypermarket, roaming round a crowded car park trying to find a space, spending an hour pushing a trolley with a wonky wheel round packed aisles while trying to find where, for example, the tomato puree has been hidden, spending 20 minutes queuing to pay and then roaming around the car park again trying to remember where they left the car is an increasingly unattractive pastime. Much better to log onto the supermarket website in your lunch hour and spend five minutes checking off the shopping list, and arranging for it to be delivered. And if you forget anything, you can always pop down the road and top up at what used to be the Dog and Duck but is now a Tesco Metro …

   

However, that leaves Tesco with a problem. It has invested huge amounts of money building all those hypermarkets, but if online grocery shopping really does more than double every four years while supermarket/hypermarket shopping only creeps up, some time in the mid to late 2020s, the online side will overtake the superstore side. That has all sorts of implications, from ROI to margins. Clearly, what Tesco has been thinking for some time is, if people are increasingly unwilling to drive out to their local superstore or hypermarket to shop, it has to find some other attraction to encourage them to come to the vicinity of the store, with the hope being that, while they are there, with the car, they will do some grocery shopping as well. That “other attraction” to bring people in is starting to take the form of restaurants, such as Giraffe, acquired last year, and Decks, thought up in-house – and now, judging by the Hamilton proposals, pubs.

   

Tesco doesn’t, it appears, intend running the Hamilton pub itself, instead letting it to one of the big pub-restaurant operators, such as Marston’s, Greene King or Mitchells & Butlers. Nor do there appear, currently, to be plans to put any more pubs next to other Tesco supermarkets in an attempt to make them more of a “destination”: the Hamilton site, it seems, has the room, but not many other places do. In its planning application to Leicester Council, Tesco says that the proposals for a pub and two restaurants at the supermarket site “seek to enhance the vitality and viability of Hamilton District Centre through the introduction of additional uses which will lead to … increase[d] activity during the day and into the evenings … making it a more attractive place to visit.” Indeed. But it still shows what an entirely unpredictable world we live in, when the rise of the internet has the unforeseen consequence of making a supermarket chain want to open a pub.

   

I can’t be the only person to be have been astonished at the following piece in Propel yesterday, can I? “University of Leicester to study disappearance of pubs: The disappearance of pubs in England is to become the focus of a new research project led by the University of Leicester. Academics from the University of Leicester are now looking into pubs in Leeds as part of a research project funded by English Heritage. A team from the University of Leicester will focus on 19th and 20th century pubs in Leeds with an aim to identify and highlight significant and threatened buildings and increase understanding and appreciation of urban and suburban pubs. Emma Dwyer, business development executive for Heritage at the University of Leicester, said: ‘This is a great opportunity to combine expertise from our School of Archaeology and Ancient History and our Department of History of Art and Film in a project that will have an impact on public understanding of how the pubs of Leeds have developed, and the risks they face from conversion and redevelopment’.”

   

Why are people from the Schools of Archaeology, Ancient History and History of Art and Film from Leicester University being funded by English Heritage to look at the closure of pubs in Leeds? What on earth are they going to find and prove that those in the sector don’t know already?

   

They could save a lot of time and money sitting around a table in a pub with a group of successful entrepreneurs from the sector and asking them about the market place. I would talk to Tim Foster from Yummy Pubs, Jonathan Downey, Nick Pring, ex-Realpubs, the team at Renaissance, Clive Watson at City Pub Company, Tim Bird at Cheshire Cat, Mary Willcock at Brunning and Price, Jo and Steve Haslam at TLC Inns, David and Becky Salisbury at Salisbury Pub Company, to name but a few.

   

And I would definitely sit down with Tim Bacon at Living Ventures and ask why his bars and pubs are so extraordinarily successful in Manchester, Leeds and Liverpool, and how they have taken some of those 19th and 20th century pubs (probably tenancies) out of the marketplace. I took my whole team to Manchester last week (report to come) and thought his venues, including his pub, the Oast House, were simply awesome.

   

These entrepreneurs would say, I think (but I may be wrong):

   

● We put customers first and we take responsibility for their whole experience

● We hire and train fantastic people

● We demand high attention to detail and are fanatical about it

● We are totally consistent in the standards we deliver across every bit of the business

● We put cash back into our businesses.

   

I know it’s a generalisation, but the reason that 20-plus pubs close a week is that they are not good enough for today’s customers. They deserved to close. This was a view echoed by Ian Edwards in this week’s excellent Finance Conference, held by Peter Martin. It was also confirmed by a presentation from CGA talking about the increase in managed pub numbers and the decrease in free trade and leased pub numbers. The former are providing customers with what they want. Many of the latter are not.

   

I have seen countless licensees blame everyone but themselves for the slow decline in their sales: the government, the smoking ban, AWP machine income, VAT, pub company rents (with some justification), Sky, their customers – and then they leave, carrying all their baggage to the next pub company that gives them a home, only for the whole sorry story to repeat itself. Successful operators, of which there are also many, take responsibility for their own success and follow the principles above.

   

It really doesn’t need an academic team to point out the blindingly obvious, does it?