Recently released data suggests that the much-discussed death of the Great British pub has been exaggerated—but that’s not to say that the market isn’t still in turmoil.
In a new report, the Office for National Statistics (ONS) shows the number of pubs in the U.K. grew by 315 in 2019, the first annual increase in a decade. More surprising: small pubs, defined as those with fewer than 10 employees, account for 85 of those new establishments following 15 years of decline for that size segment. Those increases may seem modest, but given the nearly 10,000 closures in the past 12 years, it’s news that should excite the industry.
Except it isn’t necessarily good news for beer producers.
While spending in pubs also increased by 3.8% to £2.32 billion in 2019 ($3.03 million), the same report showed that pub-goers have been spending less on alcohol. Instead, most sales growth came from food, which increased from 2.7% of household expenditure to 3.2% since 2013. At the same time, spending on alcohol in pubs has dropped from 2.2% to 1.4%.
These latest stats back up data from from food-and-drink insight firm CGA that shows drinkers are choosing well-known national brands over small-batch beers when drinking at on-trade locations. Organizations such as the Society of Independent Brewers (SIBA) say that beer lovers are instead drinking specialty (and expensive) beers at home, but household expenditure for drinking at home remained flat at 2.5%.
WHY IT MATTERS
Even if pubs have reversed their decline by adapting to the changing market, it’s been to the detriment of the craft brewing industry. The number of pubs may be growing again, and spending is up across the sector, but that’s based on business models that shift the focus away from beer.
Shane Swindells is founder of The Cheshire Brewhouse in Congleton and a local director of the Society of Independent Brewers (SIBA). He doesn’t see the growth in pub numbers as an opportunity at all.
“The bigger pubs are offering high-volume, shit food,” says Swindells. “You can just go in and fill your face for next to nothing. You might drink one or two pints, but the beers that are on sale are high-volume, national products too. Pile it high, sell it cheap. It’s no benefit to us at all.”
That fact is borne out in a recent announcement from pub company Wetherspoon, which intends to invest £80 million ($104 million) in new locations and extensions. The chain is known for its low prices, long licensing hours, and fast food, with an almost identical offering found across roughly 900 locations. While Wetherspoon buys from hundreds of British breweries, its buying power means it can dictate price, and the chain is frequently criticized for how little it pays breweries for their beers. Swindells no longer sells to Wetherspoon as he believes their pricing structure damages the whole market.
“Wetherspoon come to us and tell us what the price is,” says Swindells. “They have a formula and buy it at that price from the globals, so they want to buy it from you at that price too. And the whole industry is distorted by that.”
In September, founder Tim Martin announced an estate-wide drop of 20p on one of its bestselling beers, Greene King’s Ruddles Best, to just £1.69 ($2.21) for a pint.
In an open letter to Martin, SIBA chief executive James Calder said the move was “dangerous” for the British brewing industry and caused “serious concern” among smaller producers. The new price, Calder said, sent the wrong message about the cost of producing beer.
“Moves like this signal a race to the bottom to the brewers who supply your pubs,” Calder wrote.
Wetherspoon is not alone in looking to expand. As the CKA purchase of Greene King proved, Brexit and the low value of the pound have made the U.K. attractive to foreign investors. Pub companies are at the forefront of that trend because of the high and stable value of their estates. And while these acquisitions may be financially beneficial for the companies behind them, an emphasis on expansion and the degree of new foreign investment signal a cause for concern—particularly as pubs are part of a unique and historic sector of U.K. industry and culture.
The Competition and Markets Authority was called in to investigate a deal to sell one of the U.K.’s biggest pub-owners, Ei, to Stonegate Pub Company—a deal that would hand about 10% of the U.K.’s pubs over to an investment firm based in the Cayman Islands. The purchase has been given de facto approval this month, so long as the company agrees to sell 42 pubs in areas where it will have a high concentration. Stonegate operates several budget bar chains, including Walkabout, Slug & Lettuce, and Be At One, and will likely look to bring some of that approach to its new estate of 4,000 sites.
Opportunities will even be limited in sites that focus on beer. Brewery-based pub companies have been attempting to tighten their hold on taps at tied pubs and freehouses, effectively shutting out independent breweries without the money to invest in draft-line installs or a route to market that gives them access to larger pub chains. Breweries like Heineken, which owns Star Pubs & Bars, are finding more intricate ways to ensure their beers dominate the bar. While the law requires pub owners to allow tenants to apply to go free of tie, Heineken has been exploiting vague wording in the legislation to slow down talks and demand some taps remain tied.
The result is that larger, food-based pubs are close to making up the majority of British pubs. They are often strategically situated in cities, towns, and roadside locations to focus on visitor and tourist foot traffic, while smaller village pubs that serve local populations are closing. From a business standpoint, operators with hundreds of sites can offer better pricing, which has attracted customers, but they are less flexible and less likely to cater to the wider community, and can lead to homogenization.
It’s also worth noting that the churn of pubs is still continuing quickly. Large estates such as Marston’s are still offloading pubs at the rate of around £60 million ($78.4 million) a year, some of which are being bought by smaller pub companies or individual tenants. Still, many are being redeveloped into offices and apartments or demolished completely, a practice so common the government had to step in to demand formal planning permission before any changes are made to a building or its use.
Even so, some developers have flouted the rules, most famously in Kilburn, North London, where a developer was ordered to rebuild a pub brick-by-brick after demolishing it without permission. Such disposals account for much of the decline in pub numbers over the last decade—rather than being unprofitable they are simply sold to service the high debt that breweries like Marston’s have accrued.
The varying fortunes of pub operators also mean that, while pub statistics show signs of improvement, the story doesn’t apply equally across the country. Outer London boroughs and commuter towns have been hardest hit by closures, with Barking and Dagenham losing 67% of its pubs since 2001.
The situation is made more stark by the demographic changes in the area: over 60,000 people have moved to the borough in the same period, and developers are targeting Central London commuters, much to the anger of local residents. As rents for small businesses go up, the pub numbers in Barking—and similar places such as Newham (57%) and Luton (53%)—are showing little sign of recovery.
“These are the kinds of places where ‘development’ has seen real estate prices shoot through the roof, and chains displacing small, independent businesses,” beer writer Pete Brown shared in a blog post discussing the ONS data. “Economic boom and economic slump: both have been bad news for pubs over the last twenty years.”
The introduction of the Pub’s Code in 2016 was supposed to give tied tenants the chance to break free of their tie, allowing them to buy their own beer and take advantage of a growing number of craft breweries. However, most of the applications for a “market-rent only” deal are stuck in arbitration. According to the Beer & Pub Association, just 72 of the 936 petitions have resulted in a pub going free of tie.
The upshot is that with small pubs limited in what they can buy, the majority of the sector’s growth is bound to come from bigger sites with the ability to offset that with food. Neither factor will help a craft brewing scene struggling for volume.
Words by Jonny Garrett