Economy

As strike week looms, Punch Pubs boss issues a plea to rail unions

Punch Pubs CEO Clive Chesser can be forgiven for needing a stiff drink. He has guided his group’s 1,300 pubs through the dark days of Covid lockdowns and, more recently, soaring inflation, utility bills and staff shortages.

But he now faces another, even more pressing problem. “The timing of this is terrible,” he says, imagining the impact four days of rail strikes scheduled to begin Dec. 13 will have on his industry.

The looming crisis seems to have even taken away the fizz from last night’s World Cup joy, when England beat Wales.

Glass half full: Clive Chesser says it’s crucial the hospitality industry has a good Christmas trading period

“It is crucial that the hospitality industry has a good Christmas period,” he says, standing in one of Punch’s London pubs, The Prince of Wales Townhouse in Hammersmith.

“What we are trying to stress to the government and the RMT is that unless they come to a solution early, the damage to hospitality is done.”

The clash with the transport workers’ union seems to all but wipe out hopes that this year will – finally – be a ‘proper’ Christmas after Covid restrictions wiped out two festive seasons in a row.

Festive parties at his group’s urban pubs are already being canceled that week as would-be revelers cut their losses to avoid the travel chaos, he says. “We respect the union’s ambition to protect their workers’ rights and for better pay,” says Chesser. “But in doing so, they are doing enormous damage to the job prospects and the earnings and tips of the three million people who work in the hospitality industry.”

Punch Pubs, led by Chesser since 2018, runs a mixed bag of independent community pubs across Britain, ranging from cheap and cheerful pubs to gastropubs with boutique hotel rooms.

It owns more than 90 percent of its properties’ assets, managed by a network of independent tax collectors under various leasehold and profit-sharing management models.

During Covid, the private company caught the attention of dealmakers at New York investment giant Fortress. The investment giant, which had already helped Punch refinance £600m of debt, opened the bid for its long-running battle to buy the Morrisons supermarket chain around the same time.

Shortly afterwards, the story goes, the American bankers tasted Punch Pub’s hospitality during a pub crawl in the Cotswolds. In December last year, Fortress had bought the entire group in a confidential deal estimated to be worth £1 billion.

Chesser says Fortress supports his plan to invest and buy more pubs – just as he did last summer when he picked up 56 sites from rival Young’s.’ We’ve got our eye on M&A [mergers and acquisitions],’ he says. “Although we are in a fragile industry, Fortress bought us for a reason, which is that they have real confidence in our growth trajectory.”

Friends call 53-year-old Chesser a prudent CEO and while inflation is hurting his clients’ disposable income, he says all capital expenditures will be “thoughtful and prudent.”

Punch’s real estate assets are worth £895 million, according to a Savills valuation, but they’re loaded with nearly 70 per cent of debt.

“Pubs are an affordable treat and will continue to thrive. But the pressure on consumer spending is very real,” says Chesser. “Then there are some big macro factors, such as beer excise, for which we are seeking the government to give us some clarity and support.”

On Thursday, Chesser had breakfast with shadow affairs minister Jonathan Reynolds to discuss Labour’s plans for corporate tariff reform, calling the current measures a “Band-Aid”.

But he has also lobbied the Tories to persuade them to lift the huge tax burden on pubs.

Also on his wish list is a new visa system to help with labor shortages and further help with energy bills once the exemption scheme expires in March. Energy prices in his pubs have doubled or even tripled in some cases since September.

Prices had become “unsustainable and unsustainable,” Chesser says. “The government was absolutely right to intervene. But it’s too short term.’

Add to that wage inflation for the 15,000 or so people who work in the pubs in his group, and “every line” of his pubs’ profit and loss accounts is being squeezed, he says. In normal times, he would pass the costs on to his customers by raising prices. But the cost of a pint in its pubs has already risen by 20 per cent in the past year to an average of £3.80 – compared to around £4 nationally. In rival chain pubs in central London, a pint of lager can cost up to £7.

1670111621 48 As Strike Week Looms Punch Pubs Boss Issues A Plea

The long-term trend for pubs, he says, is for people to go out less often, but – on the plus side – to buy premium food and beer as pub outings become more of an occasion. Headed by Punch Pubs sister company, a craft beer and pub company called The Laine Pub Company, he plans to lure people off their couches – and win over a generation of younger drinkers – by providing more events and entertainment .

His favorite pub in Laine is the Four Thieves in Clapham, which bills itself as ‘the ultimate pub experience’ with everything from comedy nights to virtual gaming.

“Downstairs are karaoke booths; upstairs there are virtual reality pods like grown-up Scalextric and big-screen retro arcade games,” says Chesser. “It’s really a forward-looking pub business.”

Customers who want to use his pubs as offices and reduce their energy bills at home are welcome – the new trend known as ‘Working from Pub’.

He says: ‘We can provide a great environment where we pay the utility bill and have good coffee and wifi in a comfortable environment. We want the communities to feel involved in their local pub.’ The most recent financial update for Punch Pubs showed it made a pre-tax profit of £20.7m for the year ended August 14, on £284m in revenue.

Chesser says, “We are trading ahead of 2019, but profit is more challenging because of the cost impact.” Yet the ‘bond of trust’ with its tax collectors has never been stronger and about 50 Punch cafés are switching to the management partnership model every year. Under this agreement, Punch pays the running costs of the pub and the proprietors hire the staff and pay their wages out of an agreed share of the total profit.

“Our ambition is to be a modern and progressive public company that supports innovative entrepreneurs,” says Chesser. ‘Every day I take my hat off to our tax collectors, because they have set up their own business.

“They’re brave enough to do that and put their heart and soul into running a business.”

Pub purists might argue that Gen Xers plugged into virtual headsets and office workers tapping laptops have no place in a traditional community boozer.

However, if they don’t evolve, hundreds of British pubs could one day have to shut down permanently.

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Jacky

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