Punch drunk pub operator to split business

Punch Taverns will divide its business in two and flog about 3,000 pubs. But is it repeating the classic boozer's mistake of switching to halves too late?

by Dave Waller
Last Updated: 06 Nov 2012
Punch, the UK's biggest pubs group, has finally succumbed to the weight of its £3bn debt burden and decided to split its business in half. This will create two public companies: one of managed pubs (including brands like Fayre & Square and Bar 38), and one of leased pubs. The latter will then shed half its pubs over the next six years or so, leaving it with around 3,000.

Anyone who's been following the Punch story will feel this has a ring of the inevitable about it. Under former boss Giles Thorley, it became the biggest operator in the industry by borrowing a ton of money against its pub properties - all at top-of-the-market valuations - and using the cash to fund expansion. Pub tenants then had to pay Punch hefty rents, as well as buying their beer through their company.

This was all well and good when the property market was booming. But when the credit crunch hit - with the industry already suffering from the impact of the smoking ban and fierce competition from the supermarkets - it all went pear-shaped. Now, like many a regretful drinker, it's paying the price for past excess: it's lost 95% of its value over the past four years, while racking up a head-spinning debt pile of £3.3bn (at last count). That's more than six times what it's currently worth.

CEO Iain Dyson, who joined from M&S last year, admits this model is unsustainable (not before time, we'd argue). His theory is that a demerger will free up Spirit, the managed pubs arm, to cash in on the recent rise in eating out - without the Punch millstone around its neck. And he may be right.

The latter's prospects look much gloomier, though. More reliant on the traditional market for straight boozing, which continues to decline, it has suffered a double-digit decline in profits for the past two years. Punch has already been forced to offer product discounts and rent concessions worth £2m a month to help its tenants stay afloat - and it reckons this market will keep shrinking by about 3% a year over the next five years. Given the likely duty increases on booze, more purse-string-tightening by punters, and the ongoing challenge from the supermarkets, this may be a conservative estimate...

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Want to encourage more female leaders? Openly highlight their achievements

A study shows that publicly praising women not only increases their willingness to lead, their...

Message to Davos: Don't blame lack of trust on 'society'

The reason people don't trust you is probably much closer to home, says public relations...

Dame Cilla Snowball: Life after being CEO

One year on from stepping back as boss of Britain's largest advertising agency, Dame Cilla...

How to change people's minds when they refuse to listen

Research into climate change deniers shows how behavioural science can break down intransigence.

"Paying women equally would cripple our economy"

The brutal fact: underpaid women sustain British business, says HR chief Helen Jamieson.

Why you're terrible at recruitment (and can AI help?)

The short version is you're full of biases and your hiring processes are badly designed....