Drunk on success
The new pub millionaires are refreshing the drinkers that the big breweries want to reach
Sunday 30 June 1996
A casual observer would be hard-pressed to pick him out from the usual punters having a few jars on a hot weekday afternoon. But Sooty Corbett (who gets the nickname from his namesake, puppet master Harry Corbett) is no ordinary barfly. He owns this pub, and two others like it in London, and is part of the small but growing fraternity of entrepreneurs who have become multi-millionaires out of getting people drunk.
Over the past 15 years, Mr Corbett has started three chains of pubs in and around London. He sold the first, the Slug and Lettuce group, in 1989, and the second, Harvey Floorbangers, in 1992. In both cases the pubs were characterised by open space, wooden flooring and a young and irreverent atmosphere.
The sales netted him and his partner pounds 4.5m - not much compared to the tens of millions racked up by more high-profile entrepreneurs, perhaps, but not far from a lottery jackpot.
Mr Corbett's ability to turn regular profits from his ventures seems inexplicable. The pub market is saturated, and people are drinking less, not more. True, there are glimpses of a hard-nosed business attitude beneath his bonhomie, but that hardly explains anything given the thousands of talented people who have seen their savings, the second mortgage or the redundancy cheque evaporate in a failed business venture.
Making money is supposed to be hard work, not a laugh, and Mr Corbett seems to do far too much of the latter. His Tups pubs take their name from the frisky male sheep (rams) who are let loose once a year to mate with their female counterparts (ewes). The sign at the Fulham Tup is a rather graphic representation of a ram tupping a ewe and a few months ago Hammersmith and Fulham Council ordered Mr Corbett to take it down, though he hasn't quite got round to doing it. He is regularly found propping up the bar in his Tups pubs, buying rounds and worrying his staff. "I just tell them I'm the fat old git who owns the place, and we get on like a house on fire," he says.
Sooty is not alone. A whole crop of entrepreneurs have built pub businesses in recent years and pulled fortunes out of their beer pumps in the process. Some have created theme pub brands and sold out; others have built up portfolios of pubs with no overt theme and still run the show, and more often than not have a full stock market listing or at least a presence on the Alternative Investment Market (AIM).
The propensity of national chains to pay huge prices for theme bars was underlined on Friday with the sale of London's Pitcher and Piano chain to Marston's. The brewer paid pounds 20m for just pounds 5m of sales.
Until last week the best-known (though not the richest) pub entrepreneur was David Bruce, who opened the Phoenix and Firkin pub (pictured above) at a converted railway station in south London in 1979 "to get myself off the dole". Nine years later he sold the Firkins, which by then had multiplied to 12 pubs, for pounds 6.5m. Nowadays he is the largest individual shareholder in Grosvenor Inns, current owner of the Slug and Lettuce chain.
There are plenty more who have made much larger fortunes since. For instance, Tim Martin, chairman of JD Wetherspoon, owner of 110 large, upmarket pubs in London and the South-east, has a pounds 64m fortune tied up in his operations. Head and shoulders above them all at the moment, however, is David Cannon, who sold his 270-outlet Magic Pub group to the East Anglian brewer Greene King 10 days ago for a whopping pounds 197m, of which he personally pocketed pounds 70m. This is the second mega-deal for Mr Cannon, a former Berni Inn chef who went into the pub game in 1974 and made pounds 20m from selling his Devenish group to Green-alls in 1992.
The recent success of the independents, however, owes much to the partial dismantling of the tied pubs system as ordered by the Monopolies and Mergers Commission in 1989. Under the Commission's aptly named "Beer Orders", the large brewing groups were forced to divest 10,000 of their tied pubs. This allowed a generation of entrepreneurs like Mr Cannon, Mr Martin and Mr Corbett to cherry-pick hundreds of sites at bargain prices. They then used more sophisticated branding and retailing to revolutionise the way pubs sold food and drink.
The market was there for the taking. Pubs had suffered from years of neglectful management, largely because of the tie to the brewers, which charged very little rent to their tenants but made them pay over the odds for the beer. Publicans therefore didn't have any incentive to sell more beer - in fact if they did, the brewer might put the rent up too.
The pub entrepreneurs were under no such constraints. In locations of their own choosing - mostly urban sites - they invested in modern, spacious interior designs and tempted people out of restaurants with decent food.
So far, the revolution has confined itself to the upper end of the market - about 2 per cent of the 50,000 or so pubs in the UK. But investors have gone mad for the high margins commanded by these pub groups, thinking that there are plenty more pubs to revolutionise. To that end they have pushed up share prices in groups like Wetherspoon, Regent Inns and Yates to levels where they are commanding price/earnings ratios similar to the glamour technology stocks.
The large brewers, saddled with underperforming shares, have taken heed. Allied Domecq, which now owns the Firkin brand, has doubled the number of Firkin pubs in the past 18 months to 84, and expects to double that again by next year by redeveloping some of its existing pubs and acquiring non-pub buildings, such as banks and shops, to convert. In the same vein, Greene King has paid handsomely for Mr Cannon's Magic Pub group in the hope of tapping into the market.
Amid this frenzy of corporate dealing, Mr Corbett is an oasis of calm. Now on his fifth Pimms special (the usual ingredients plus a generous measure of gin), his demeanour does not suggest someone about to have his market assaulted by the giants of British business.
To him, pub economics are simple. First, find a poorly performing - but well located - site with revenues of say pounds 5,000 a week. Close it down for three months, spend about pounds 100,000 on redecorating the place to give it a more open and airy feel (he uses the same Somerset-based builder for every job), and reopen with a friendly atmosphere.
At the Marylebone Tup, which has only been open a few weeks, Mr Corbett claims his revenues are near pounds 10,000 a week already, even though it can't serve food until the kitchen is built. Instead, the pub has put a big sign outside encouraging customers to bring their sandwiches and their take-aways in with them. "Pubs are quite earthy and personal things, really," he says. "They don't come out just to drink - you can do that at home on a pounds 7 bottle of gin. They want to have a good time as well."
Here lies the rub. It is the upmarket pub trade's dependence on an indefinable "feelgood factor" among its consumers that perhaps explains the existence of Mr Corbett's millions and the fortunes of other entrepreneurial operators. For one thing, people spend a lower percentage of their household income on beer than they did 10 years ago, and only marginally more on wine and spirits, according to research by Mintel. A much higher proportion of this is now spent in the "take-home" market - ie at supermarkets and off licences. So when people do go out on the town, they expect much more from their local boozer - and the precipitous overall decline of pub drinking indicates that, on the whole, they still don't get what they pay for.
The arrival of the pub entrepreneurs has cast this equation into doubt. Far from being a simple business of buying beer for one price and selling it at another, higher price, the business needs to be treated in a much more hands-on way, according to Sheila McKenzie, managing director of Grosvenor Inns' Slug and Lettuce chain. Ms McKenzie uses customer surveys, undercover quality testers and even "frequent drinker" loyalty cards to improve customer service. Even then business doesn't always go to plan: the latest Slug and Lettuce to open, a pounds 650,000 development next to the Stringfellows night club in London's West End, failed to generate the expected revenues in its first three months in business.
The branding of pubs as part of themed chains can also bite back. Magic Pubs encountered resistance when it changed historically significant pub names to the "Rat and Carrot", and the discerning consumer's snobbishness about frequenting "themed" establishments could be dangerous if the pub brand starts appearing on every street corner. David Franks, managing director of Regent Inns, bristles at the suggestion that Regent's Harvey Floorbangers (a Corbett invention) and Outback pub brands are somehow part of a theme. "Each of our pubs has its own character," he says.
There is clearly an effort to maintain the distinction between the smaller pub groups like Wetherspoon, and the large brewers and their sprawling pub estates - particularly as the big boys are now encroaching on their territory. It could also be a sign that the party is over for the pub entrepreneur. For instance, analysts believe that Greene King's purchase of Magic Pub will not have the intended effect of boosting the brewer's share price. Instead, the deal has put an unwelcome spotlight on the sector's competition levels and profit margins; the days of stratospheric price/earnings ratios may be numbered.
In addition, the market for new sites is getting tight. Large brewers are making aggressive bids for good pub sites, or just sifting through their extensive portfolio of tied and tenanted pubs for suitable candidates for redevelopment. Having bought up pub brands or invented their own - like Bass's "All Bar One" pub concept or Allied's Scruffy Murphy Irish theme pubs - the big brewers are acquiring non-licensed sites like old high-street banks and using their political and financial muscle to get them licensed and refurbished. Small-scale entrepreneurs will be stuck with marginal sites, and will have to pay more for their beer than the larger, high-volume chains.
Independent observers of the catering and entertainment trade disagree. Certainly margins will be tighter, competition for sites fiercer, and only the most professional and innovative will survive - and that may mean problems for those pub entrepreneurs who are just drifting along. "But the big guys are taking the creativity out of the whole process," says one food and drink consultant. "The small guys are visiting their sites every day and adjusting what they do to fit the local tastes. They'll still do better."
But all this is getting far too serious for a warm evening. As Pimms special number six (or is it seven?) goes down the hatch, talk has turned to women and cars, the joys of sherry, how to avoid a hangover, and whether money can make you happy.
Sooty is philosophical. "I like money, but I can only drink one bottle of gin a day and two or three bottles of wine - though I did buy a suit the other day because I had to go and see some bigwigs about a deal. If nothing else, my money's good for buying other people drinks. Talking of which, how about another one?"
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