Beyond Beer And Peanuts in Britain

Industry consolidation has brought better grub -- and higher profits -- to the pub

For years, the pub at the corner of Pimlico Road and Ranelagh Grove in Southwest London was a dingy, dark watering hole serving little more than warm beer and peanuts. Thanks to a new tenant and a $1.3 million renovation, the Ebury now offers sleek seating, martinis, and posh fare such as wild halibut with king prawns and champagne-poached peaches. In its old life, the pub brought in $7,000 a week. Now it makes ten times that much. "The old boozer has been transformed," says Tom Etridge, who has run the pub since 2003.

The makeover is the latest sign of a major shift in the $36 billion pub industry. Most of Britain's 60,000 drinking establishments are now owned by big chains, thanks to a wave of consolidation that began five years ago. Enterprise Inns PLC, which owns the Ebury, boosted its holdings to nearly 9,000 pubs last year when it paid $4 billion for 4,000 taverns from Unique Pubs Ltd. These new owners are spending big money sprucing up their holdings and are changing the very definition of what a pub is in Britain. "Gone are the days when pubs were dominated by men drinking beer," says James Ainley, director at Dresdner Kleinwort Wasserstein in London. "Now pubs offer a much more attractive format for men and women, young and old."

A key part of the new format is food. This year, according to market researcher Mintel International Group Ltd. in London, food sales at pubs will soar to $11.52 billion, a 30% jump from 2000. Pubs still make most of their money from selling drinks. But serving food has become so popular that more than 80% of pubs now do it, says the British Beer & Pub Assn. And the fare is more upscale. "A pint of dodgy old beer in a dirty glass just doesn't do it," says Enterprise CEO Ted Tuppen.

The move toward higher-quality food is fattening profits and boosting share prices. Enterprise and another big chain, Punch Taverns PLC, both of which make money by leasing out their refurbished pubs to individual tenants and then selling them beer, had record results last year. Pretax profit at Enterprise jumped 23% to $380 million on the back of a 48% jump in revenues, to $1.3 billion. Punch's profit rose 38%, to $280 million, as sales rose 49%, to $1.1 billion. Smaller concerns, like Mitchells & Butlers PLC and Greene King, have had a good run, too. Even the recent economic slowdown hasn't hurt. "When the economy slows, people tend not to go on holiday, but they will spend more on small-ticket items like eating out," says Charles Wilson, equity analyst at stockbroker Bridgewell Securities Ltd. in London. In addition, analysts expect that the change in regulations allowing pubs to stay open longer, effective November, will help profits at the margin.


That's why efforts to upgrade even the smaller taverns can pay off. Take the Landseer, a North London pub owned by Punch. When restaurateur Tom Crown took over the lease nearly two years ago, he oversaw an $80,000 remodeling and hired a new chef. Sales have risen by 30% a year, to about $16,200 a week this year. Similarly, a renovation at the Wells, a pub in the upscale London neighborhood of Hampstead, turned it from a musty bar to a swanky establishment. "Now we go to the pub for food -- and it's quite good," says Hardie Peter, a retired British engineer who frequents the Wells.

Pub owners can't afford to be complacent. The government is threatening to impose a smoking ban in pubs that sell food by 2008. But such a ban in Ireland had a minimal impact on sales, so executives say they aren't worried. Says Francis Patton, Punch's customer services director: "Boom or bust, pubs go on."

By Laura Cohn in London

    Before it's here, it's on the Bloomberg Terminal.