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Saving the corner pub

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LONDON -- Noah Bulkin is not the man you'd expect to be pouring your next pint of ale.

The Oxford-educated Bulkin, 37, spent 15 years cutting deals as a mergers and acquisitions banker for Merrill Lynch and Lazard Ltd. before leaving last year to start his own pub company, Hawthorn Leisure Ltd. He's acquired hundreds of struggling pubs and plans to turn them around by tracking everything from the price charged for beer to daily sales fluctuations to customers' drink preferences.

"Understanding pricing and the mix of drinks is incredibly important," Bulkin says in an office overlooking Hyde Park in London's upscale Mayfair district. "A lot of pubs don't have that data. If you can make them the core of your business, there's a fantastic opportunity."

Over the past decade, Britain's 70 billion-pound (C$129 billion) pub industry has fallen on hard times. About 10,000 outlets have closed since 2004, according to the British Beer & Pub Association, hit by the recession, a 2007 smoking ban and cheaper supermarket booze. The volume of beer imbibed in British bars has declined 45 per cent since 2000, leaving companies such as Punch Taverns Plc and Enterprise Inns Plc weighed down with debt after years of rapid expansion.

The industry is fighting back, thanks in part to investors like Bulkin. After years of declines, sales at pubs open at least a year have grown for 14 consecutive months, according to pub industry data provider CGA Strategy. Pub deals valued at C$786 million have been announced in the past year, more than in the prior two combined. Shares of pub companies JD Wetherspoon, Spirit Pub Co. and Fuller Smith & Turner have all bested the FTSE All-Share Index over the past 12 months.

Britain's 50,000 pubs are split into three parts: managed outlets, controlled by companies like Wetherspoon; tenanted or "tied" pubs, where the property is run by individual tenants who pay rent and buy their beer from a corporate landlord such as Punch Taverns; and free houses, which operate independently.

The tenanted industry has suffered most, due to what a parliamentary committee has called "downright bullying" of tenants by the pub companies, who it said often kept them in the dark about how rents were calculated. Flying in the face of conventional wisdom, this is where Bulkin is focusing.

So far this year, the entrepreneur has bought 363 pubs in two separate deals and he says there are over a thousand more on his radar. To boost sales, he'll add food, repair tattered pool tables, and widen the beer selection -- offering popular ales like Doom Bar. A former Lazard colleague has built analytical models for each pub, estimating potential sales and earnings.

"Applying some granular analysis of what a person might drink and what they will pay is an incredibly important element," Bulkin says. "This hasn't been done in the bottom end of the sector."

For example, two beers that are identical in price per pint and taste similar could deliver as much as an 80 percent difference in profit per keg to the pub, Bulkin says. Area managers will check in on tenants more often, discussing which drinks to offer and at what price. There's a risk, though: replacing, or changing the price of, a popular ale can send customers fleeing across the street to a rival establishment.

-- Bloomberg News

Republished from the Winnipeg Free Press print edition July 19, 2014 D6

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