Why 4,000 pubs in the UK will close in the next year
By Ignazio CabrasIgnazio Cabras is a lecturer in economics, business, and management at York University.
Breweries might give UK pubs a fighting chance. AP Photo/Luca Bruno
The latest issue of the Good Pub Guide warns that 4,000 pubs will close their doors over the next year because they serve indifferent food and drink and are “stuck in the 1980s.” This is a problem—not just for beer drinkers (although there are a lot of us in the UK) but because beer and pubs are so important for the British economy.
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According to the British Beer and Pubs Association (BBPA), they account for almost 949,000 jobs, with £12.9 billion ($20.5 billion) of wages and £19.5 billion ($31 billion) of gross value added. In an era of high youth unemployment, the sector employs about 300,000 workers under the age of 25.
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Strangely, while the number of pubs has declined, the number of breweries has increased exponentially. This is due to the separation between pubs and breweries which traditionally owned them. In the 1980s, about 80% of British pubs were owned by the six big breweries. But in 1989 parliament issued the “Beer Orders” (pdf) after recommendations made by the Monopolies and Mergers Commission.
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These orders forced large brewers to either sell their brewery business or free from their ties half of more than 2,000 the pubs they owned. Breweries were forced to sell their pubs at very attractive prices, leading to the rise of the chains—the “pubcos”—dedicated to retail. What this meant was that the industry started to become dominated by companies whose imperative wasn’t necessarily to make and sell beer, but companies dedicated to making a profit for their shareholders—and the two aren’t necessarily the same thing.
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Research data from 2011 indicated that of about 51,000 pubs open in the UK, 55% were owned by pubcos. About 25% were working as independently owned businesses and the remaining were owned and managed by breweries.
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Pubcos tend to invest in urban and town centers, where pubs can guarantee higher margins of income. This is one of the things that has caused the steep rates of decline in rural areas, where tenants and lessees have been squeezed between increasing rents and a declining customer base (due to drink-drive laws amongst other things). The imperative of attracting new customers, especially non-locals, by turning pubs into gastropubs has frequently created friction between pub managers and their local customers. Freeholders may do better in rural areas, probably because they aren’t subject to the ties and prescriptive company policies that tend to dog-tied pubs.
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The greediness of pubcos is not the only factor explaining the decline of pubs. The higher levels of tax payable by on-license retailers compared to off-license, the rise and rise of home-entertainment and the appearance and growth of European-style cafes and theme-bars, especially in urban and town areas, have progressively made traditional pub-nights less attractive.
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The closure of so many pubs has had significant repercussions on employment, particularly for students and single parents, are attracted to the part-time jobs and flexible hours the industry offers. And when you think that according to the Institute of Public Policy and Research (IPPR) each pub injects an average of £80,000 ($127,192) into its local economy, then the closure of a local pub can be devastating in some rural areas.
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Social capital
The disappearance of the British pub is also destructive to communities. In rural areas, pubs are frequently the only places of aggregation for local residents, and work as village hubs, the center for charitable and sporting ventures. Rural pubs rarely experience problems associated with binge-drinking and antisocial behavior (pdf), contrarily to pubs located in urban and town centers. The coalition government made the “Big Society” its political manifesto. It should then probably do more to preserve those places, which foster engagement among individuals and build and enhance community networks.
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The good news is that some communities are starting to react to pub closures by creating cooperative pubs. Locals form a cooperative by raising the money to buy their pub, which is usually leased out to a manager (also local) afterwards. The same locals then become shareholders and customers at the same time, creating a virtuous circle, which can provide a sustainable pattern of growth for local community pubs. This started out in rural areas, but interestingly, cooperative pubs are starting to appear also in town centers, supporting the idea that pubs work as centers of aggregation for entire communities.
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Breweries flourish
Good news for pubs may arrive also from the brewing sector. The number of breweries has increased impressively in the past 20 years, mainly due to the Progressive Beer Duty which has favored the proliferation of small and micro-breweries.
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This has given Britain an impressive choice in terms of ales, but now the market seems close to reach a tipping point. With more than 1,100 breweries operating in the UK today, the question is how the demand will be able to absorb the supply, rather than which fiscal policy will best support this growth.
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This is why breweries have started to buy pubs and use them as outlets. In addition, small breweries tend to compete and cooperate among each other—so outlet pubs can sell casks swapped with other breweries on weekly basis. Pubs may become valuable commercial spots for breweries once again, reversing somehow the side effect generated by the Beer Orders. This situation could give pubs some more chances to halt their decline.
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In Britain, pubs are not just businesses, they are assets for their communities. While fiscal policies and other supportive campaigns can help to preserve their existence and make them sustainable businesses, their survival—especially in remote areas—is simply a matter of use it or lose it.
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This post originally appeared at The Conversation.
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