How much difference does it make if you are a freehold pub or tied lease holder to a pub company?  The British Beer and Pub Association (BBPA) a few weeks ago published their guide to how much it costs to run a pub.  They analysed 7 different types of pub, based on location, food / drink split and turnover and gave average figures for sales, costs and overheads before rent was payable.  Looking at the figures, you really can see that a couple running a pub on a tied lease basis really do not make a great deal when you break down what is left over and factor in the need to save for the future when your house is not supplied by your business.

I’ve taken their model of £5000 per week turnover local pub, the vast majority of which is wet sales (alcohol, soft drinks) and adjusted to approximate a number of local Calderdale pubs I know to show the difference it can make.  I have excluded things like Sky TV costs, Fruit Machine income etc to keep it simple.  The typical tied pub company tenant generally makes about a 100% markup on beer before overheads, so if you pay £3.00 for you pint of beer, it cost the landlord £1.45, it is slightly more on food with £5 spent on food generally costing £2.10 according to the BBPA figures.

So overall a £5,000 per week turnover pubs will turn a profit before costs of about £2,500, but then once you add the costs of running the business such as wages, insurance, building upkeep, utilities, fees and charges, waste etc, you have spent another £1600, leaving you with a total profit for the week of £900, but you will typically pay 50% of that as rent, leaving you with £450 per week or £1800 per month.  If you as a couple work a combined conservative effort of 100 hours per week, that equates to £4.50 per hour, more than £2 per hour below your minimum wage.  How are you meant to save for your post pub future when you are earning that amount, not very easily is the answer.

We all know that tied tenants pay over the odds for their beer, in some cases nearly 100% extra, however for the freehold example I’ll assume it is 30% over wholesale price and be kind to the pub companies, the only time you’ll see me type those words.  The business will generally have the same overheads as the tied tenant, so it all comes down to the cost of the product you are selling.  We’ll also assume a substantial commercial mortgage on the pub of £250,000 at typical rates.  The saving on alcohol is quite substantial, with £550 per week spent less on it wholesale.  That equates to £2200 per month, when you factor in the mortgage payments for the property of £400 per week, overall you come out with £1150 per week earnings, a total of £4600 per month.

This equates to a respectable £11.50 per hour for the same 100 hour joint effort for a couple and after 20 years you own a property worth £300,000 to £350,000 you can sell on the open market if you want to move on.  You have a living wage and future security, something the tied lessee probably does not.  If you have a quiet week, you make no money at all to live on and you are still expected to pay the £450 to the pub company.  If you stretch this to an extended period then you can see why people walk away from struggling pubs so often.

When you ask how much difference a Market Rent Only (MRO) lease and the choice of where to buy your beers wholesale, even if you are constrained in choice when it comes to core brands, this is the difference.  It is between living and having a chance to enjoy life and working all hours for very little reward as you may not be able to afford to hire all the staff you would like to, enabling you to have a break. You may not have a property at the end of it of your own, but you have a chance to save for your future.  Either way, Freehold or Tied, you’ll not be living the champagne lifestyle and you’ll work hard all your pub life, but security gives a degree of happiness and that can only help the business to operate, the opposite applies equally.  What would you rather your landlord be behind the bar.