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As patronage slips, the British pub gets face-lift

As patronage slips, the British pub gets face-lift

BENTLEY, England -- For at least two centuries, "The Case is Altered" pub in this village near the east coast of England served beer and simple food.

Last year, managers Richard and Jean Senior opened a post office in a room once used to store beer bottles. They bought an espresso machine for the pub. And they hired a professional chef to serve up dishes such as rosemary- and garlic-coated Brie wedges and sizzling Mongolian lamb steak.

The Case, as it is called by locals, is owned by Punch Taverns PLC, one of a handful of big United Kingdom companies that in the past few years have snapped up large numbers of Britain's 60,000 pubs. The top two companies, Punch and Enterprise Inns PLC, together control about 17,000 pubs and have a combined market value of about $8 billion. That's a sharp contrast to the U.S. or Continental Europe, where bars are typically owned by individuals or a small group of partners.

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These big pub companies are now trying to reinvent the traditional British pub, best known for its fireplace, bad food and warm beer. The reason: Britons are drinking less beer these days, and even less at the pub. Changes in Britain -- a newfound interest in sophisticated food, the expansion of supermarkets selling cheap beer and a boom in wine drinking -- have made the traditional "local" look out of date.

"There is very little future for the sort of pubs that were there 10 years ago, where all you were offering was a place to sit and drink a glass of beer," says Ted Tuppen, chief executive of Enterprise Inns, the biggest pub company in the U.K. Instead, pubs have to become establishments "whose prime objective is to sell as much whatever as possible."

U.K. beer consumption fell 11 percent to 3.4 pints a week in 2003, the latest figures available, from 3.8 pints in 1990, according to the British Beer & Pub Association. (A U.K. pint is 20 fluid ounces.) The portion of beer sold in pubs has dropped off much faster as supermarkets such as Tesco PLC and Wal-Mart Stores Inc.'s Asda unit offer a wider selection at lower prices, prompting more people to drink at home. Sales of beer sold in stores now account for about 40 percent of the overall market, up from just 10 percent in 1980, according to the association.

Pubs, which traditionally have focused on beer and liquor, also have largely missed out on a sharp rise in wine consumption _ which jumped 60 percent between 1990 and 2003 in the U.K., the association says. About 80 percent of wine is sold in shops and supermarkets.

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Punch has responded by pushing its pub managers, whom it now calls "retailers," to sell more than beer. In rural areas, for instance, some of Punch's pubs are becoming post offices and mini-general stores to draw in people on their daily shopping rounds. Pubs now have automated-teller machines. And the company is bulk-purchasing food, in part to encourage its pub owners to expand their meal service.

In towns where it owns several pubs, Punch requires that each be sufficiently different to attract a wide range of customers, from drinkers looking for a bar atmosphere to couples looking for upscale food. When Punch is recruiting new pub managers, it urges them to think in terms of 11 pre-defined pub "segments" _ ranging from "value dining" to "young local" _ to better target their businesses and identify potential customer groups.

"Because the drinking culture we have is changing, people recognize that they can't support a business on just one pillar of income _ beer," says Francis Patton, Punch's customer-services director.

Mitchells & Butlers PLC, which owns about 2,000 pubs, is redoing many of them to appeal to women, throwing out the worn carpets and repainting the nicotine-stained ceilings in favor of light-colored wooden floors, brighter lights, wine lists and sophisticated menus. Food now generates 30 percent of Mitchells & Butlers's overall sales of about $2.8 billion a year, says Simon Ward, a spokesman. A decade ago, food would have made up 10 percent of sales at most, he adds.

The pub industry's campaign to increase sales is expected to get a boost from the British government this November when pubs will be allowed to stay open late into the night. Today, pubs in England and Wales must close at 11 p.m. six nights a week and at 10:30 p.m. on Sundays. Early hours date back to restrictions imposed during World War I to ensure that munitions workers showed up for work on time the next morning.

To make the case for extending pub opening hours, the government of Prime Minister Tony Blair cited two social problems: binge drinking and late-night street violence, especially in city centers. U.K. police chiefs were among the most vocal supporters of a change. They said later, and staggered, closing times would reduce the number of customers who order and quickly drain several pints shortly before closing time and then spill onto the streets en masse at 11 p.m.

The pub industry also argued for greater flexibility, but it wasn't a tough sell. "There was no need to mount a huge campaign because the politicians were already in favor of change," says Mark Hastings, communications director for the beer and pub trade group.

An adviser to the Culture Ministry said the police and popular support were the main drivers behind the change and that the pub industry's approach wasn't "aggressive." Although there was a brief outcry this January over the prospect that pubs could stay open around the clock under the new rules, the uproar quickly faded as it became clear few, if any, pubs actually planned to apply for permits to stay open 24 hours.

The new hours are expected to boost sales at pubs such as the Nell of Old Drury, an Enterprise-owned pub on Drury Lane in London. It is opposite the Theatre Royal Drury Lane, now staging the hit show "The Producers."

"Right now, you have 2,500 people coming out of the theater after a show at 10:45 and the pub shuts 10 minutes later. Nobody benefits from that," says Enterprise's Mr. Tuppen. Now, the pub will likely apply to stay open until 12:30 a.m. most nights. He says that could boost sales 20 percent.

Today's pub-company giants sprang from a government effort to break what was seen as an anticompetitive hold on pubs by brewers. In 1989, the U.K. ordered brewers to sell off large portions of their pubs. Rather than dole out the pubs piecemeal, the brewers sold off thousands at a time.

Enterprise started in 1991 with 368 pubs and has grown by buying pubs from brewers such as Bass, Whitbread, and Scottish & Newcastle. Its CEO Mr. Tuppen was an accountant and ran an engineering company before spotting a buem on to pub companies. In the fiscal year ended Aug. 31, 2004, Punch posted sales of $1.22 billion and net profit of $196.7 million.

Both companies lease pubs to managers, who run the pubs as somewhat independent businesses. The pub companies charge managers monthly rent and require them to purchase all their beer from the company at wholesale prices, although the companies secure big discounts from brewers and pocket the difference. Pub-company executives say they try to keep their ownership low-profile so customers think they are frequenting a mom-and-pop operation.

"We go out of our way to make sure people don't know it's a Punch pub," says Mr. Patton at Punch. "The last thing we want is for anybody to think this is part of a big corporate umbrella."

Still, Punch exercises a lot of control. The company keeps a list of about 1,600 people who would like to become pub managers. It costs about $38,000 to purchase a pub lease, compared with up to nearly $1 million to buy a pub and an alcohol license independently, Mr. Patton says. When prospective managers apply to lease a Punch pub, the company checks both their pub location and concept to ensure minimal overlap with nearby Punch properties.

To recognize and spread successful sales ideas, Mr. Patton and his team three years ago launched an annual contest to pick the best pub in the company, now known as the Shine Awards. Punch sends a film crew to record short documentaries about the finalists. DVDs of the documentaries are sent to all Punch pub managers, who vote for a winner.

Although pub managers are required to buy only beer from Punch, the company is beginning to use its purchasing power to secure discounts on other goods that it then sells to them. It signed an agreement for frozen foods such as chicken, meat and vegetables with food-service retailer Woodwards, and is looking to soon complete a similar agreement to make bulk purchases of condiments. Three years ago, it negotiated a deal for Hanco ATM Systems Ltd. to supply pubs with cash machines. Now, they are in 311 Punch pubs.

To some, all the corporate changes mean the classic British pub is lost. "Pubs today are all one and the same," says Peter Haydon, the author of "The English Pub: A History." "They have been treated like baked beans where you do your market-sector analysis and then you target your market."

Increasing food sales at pubs also carries some risks as the U.K. considers a smoking ban in bars and restaurants. Under current government proposals, smoking would be banned in establishments that serve food, so many pubs would have to choose between serving food and serving smokers.

Some customers welcome the changes. David Craig, a 33-year-old online marketer from Essex, east of London, said he wants "good quality food in a nice, kind of homey atmosphere, but not in an old man's drinking pub." When going out in London with friends, he tends toward pubs that have character, yet are "thriving and lively." One favorite: The Scarsdale Tavern in Kensington, which describes itself as serving "a variety of world cuisine."

And some pubs are seeing new opportunities from one of their biggest threats _ supermarkets. Although retailers such as Tesco and Asda can sell beer for less than many pubs, they can also hurt local businesses in rural communities. "We started to notice that as supermarkets open up, other things leave the local community," Mr. Patton says. "Corner shops come out of communities, post offices close, bank branches close. The one thing that remains is the pub. They are taking up the slack for these other things and are keeping these local facilities alive."

In Bentley, the Seniors run a mini-general store within their post office, stocking a handful of necessities, including locally produced jams, sausages and eggs. The couple also teamed up with supermarket operator J Sainsbury PLC. Each Tuesday, customers come into the post office and place a grocery order that the Seniors pass to Sainsbury's, which then delivers the groceries to the post office on Wednesday for collection.

The Seniors take a fee of about $2 on each order. While that doesn't generate much profit, Mrs. Senior says, "it's a service" that gives potential customers another reason to drop by.

The post office, which handles mail for 650 villagers, is also a draw. Joyce Knight, a Bentley resident, stops by the post office Thursday mornings and then has lunch with a friend in the pub. "On Thursdays they do a special lunch for old-age pensioners, it's two meals for GBP 10 (about $19) and it's quite nice," says Mrs. Knight.

To further entice post-office customers, the Case offers a $1 discount on coffee or tea if they linger in the pub. To beef up the offer, Mr. Senior last year spent about $3,200 on a professional coffee machine. "I told him he was mad to spend that," Mrs. Senior says. Yet, coffee sales have since jumped to about $380 a week from about $100 previously, she says.

"We've got to sell everything we can," Mr. Senior says. "If you want an ice cream or a hot chocolate, we've got to be able to supply it. There are very few places left where you can sell beer full stop."

First Published: March 2, 2005, 5:00 a.m.

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