The Ties That Bind (Pubs).

An overlooked story of 2014, overlooked by me at least, is the decision by MPs to partially untie pub landlords from the pub companies. This will allow landlords to buy beer at the market rate and to have their rents assessed independently. It seems like a good idea but there are more fundamental problems for the pub industry, namely:

• The smoking ban- it won't be reversed and it hasn't been bad for all pubs but for the spit & sawdust type backstreet boozer it remains a problem.
• The pubcos overinvestment in property. When property prices were shooting up from the 1990s to the 2008 crash it didn't matter too much whether pubs were profitable because the value of the properties was rising fast enough to ensure that on paper the pub companies were loaded. After the crash they realised the flaw in that plan.
• The quality of people becoming landlords is not great, mostly because hardly anyone who understands what's involved would want to to do it. It's almost impossible to make money as a tenant so only fools rush in to take them over. Also going to the pub a lot does not mean you are well suited to running one.
• The quality of people running pubcos isn't great- the firms aren't rapacious capitalist exploiters, but edifices that are teetering on the brink of collapse who can't afford to take long term decisions without having serious cash flow problems today.
• Tax on beer, even during the midst of the great recession the tax on beer has reason inexorably.

Until all that is sorted out then it will remain a very risky business to get involved in.