All of the economic and industry evidence suggests that rental values should be falling, yet the ALMR Benchmarking Survey (phase 6, July 2012) suggests that rents in the pub sector have increased by almost 11 per cent since 2009. So why are rents still increasing? Well, the answer is that (with a few exceptions) they probably shouldn’t be. At BNP Paribas Real Estate, the rent reviews that we negotiate in the pub, bar and restaurant sector are, more often than not, settled at nil increase (more than 75 per cent in the last three years). Unfortunately, the standard commercial lease in the UK does not allow the rent to fall, but where the rent can decrease, for example at lease renewal, it often does so.

The simple explanation for this paradox is the RPI linked annual rent escalator, that inflation proofed comfort blanket for those landlords who can no longer rely on the market to deliver growth. It is to be found in the majority of leases that would form part of the ALMR benchmarking survey. A quick surf of the UK National Statistics website tells me that the Retail Price Index has increased by approximately 11 per cent since the beginning of 2009. The similarity with the result of the ALMR benchmarking survey is not a coincidence. The figures that I presented to the MA250 conference last year showed that in only one year out of the last 16 has market rental growth outstripped inflation, which tells you who benefits most from this arrangement.

Perhaps the food and drink sector can learn something from the retail market? In this sector the average lease length is little more than five years. So often for these clients we are negotiating lease renewals (rather than rent reviews) and at a renewal of the lease there is no artificial collar on the rent. The market rents that we are agreeing in some regional town centres are on average 30 per cent below the previous rent payable. Those of you paying attention will have noted that I did slip in the caveat “regional town centres”. This is because the markets are not all the same.

Central London continues to witness an excess of demand over finite supply, with the casual dining sector in particular often pushing up rental values in all main tourist and retail hubs. The same goes for strong regional centres - Manchester, Edinburgh and Leeds all immediately spring to mind. Rents are a direct function of demand against supply, and the fact is that few new shopping centres or leisure schemes have been developed in recent years, so the market must satisfy its desire for growth from either existing stock, or perhaps converting properties from other uses. But these locations are an exception.

So back to the pub market nationally, just remember that basic tenet: rental values are a product of demand and supply. Whatever the industry codes of practice or the RICS guidance notes tell you, this fundamental indicator of value should influence the outcome of your rent review; RPI escalator permitting, of course.

“Sex, Drugs and Rock ‘n Roll!” That’s what this business used to be about. Well, maybe not quite that exciting, but I seem to remember it being more fun and less hassle. Am I just feeling my age perhaps? I’m not getting disillusioned with the business - I love it! But it does feel a little more like “statistics, due diligence and rules ‘n’ regulations!” than the glamour of a few decades ago. Am I simply suffering from SAD (seasonal affective disorder) due to a lack of sunshine, or has life in general turned a lot “greyer” over the last few years? It seems that just as you’ve convinced yourself that there can’t be another summer like the one we’ve just (haven’t) had, some bloody scientist produces a report that states, “due to the Atlantic Ocean water temperature rising by a tiny fraction of one degree centigrade, they are all going to be wet and stormy in the future”.

When I set up The Ever So Sensible Group just over ten years ago in Nottingham, life was full of colour, optimism, adventure and even a little bit of deviation. Now, scratching my slightly reseeding silvery-haired scalp, I feel that there is a lot more hesitation and repetition. Do you remember when you spent most of the time thinking of new things you could do to create more fun for those seemingly ever increasing customer numbers? Experimentation, innovation and challenging the traditional was the norm. Now, much like my hair, the colour seems to be dripping out of life and we are retreating back into a world of black and white television. 

I think it’s about time to get the pots of paint out and introduce some fun and colour into the business again. This Christmas I’m determined that we’re going to stop retreating into a reserved, cool, understated, timeless, traditional and boring generation. We’re going to get the glitziest, outrageously loud and brashest decorations we can find. We’re going to dress up in tinsel, get Santa to come down our chimneys, place as many colour changing LED lights on the outside and inside of our pubs and restaurants, fill the places with the sound of Frosty the Snowman and Slade (oh maybe not that far!). On the other hand simply turning into a “Chav” probably isn’t going to do anyone any favours.

There are plenty of headlines and issues to cause anyone’s brow to furrow - the economic downturn, the changes in demography, smoking bans, supermarket pricing, youth unemployment, anti-alcohol lobby, energy prices, inflation, stagnation, pub companies’ attitudes, wheat and barley harvest, and tax levels, the late-night levy saturation zones and cumulative impact areas to offer up a non-exhaustive list. But all of these individual issues are in reality mere glitches and processes that have always occurred and lead to an ever changing trading environment, whatever it is you sell.

So where the hell am I going with this column? You may well ask! I’ll tell you. My earlier lamentations over the “good old days” were of course blatant poppy-cock - they weren’t that good. In fact they were, in many ways, bloody awful! Now, in contrast, life isn’t about loud brash statements, it’s no longer about “shock and awe”, the customers don’t just flood in. Now, it really is a John Major-style “back to basics” push. Sounds boring maybe, but I find it really exhilarating. The devil IS in the detail. Today’s customers, whatever their age, education, demographic, are more savvy then ever. They understand service, quality and value. They know when something is good or mediocre. They educate their choices through research and social media. They have a substantial repertoire where they spend their pound or £50. But I believe they are also still seeking that great local, pub, club or restaurant - the venue where they feel welcome, special, part of, where they have a small share of ownership and are proud to frequent. Our role now is to concentrate on those areas that really matter. Alright it’s not “sex, drugs and rock ‘n roll”, maybe it’s a different nostalgic view from the 1980s we should be concentrating on. Remember the sitcom based in a Boston bar (US, not Lincolnshire)? Remember the song from Cheers? 

“Where everybody knows your name, 

and they’re always glad you came. 

You wanna be where you can see, 

our troubles are all the same 

You wanna be where everybody knows 

Your name.”

In his best-selling book “Good to Great” Jim Collins identified the characteristics which propelled some world-class companies into the stratosphere while others, equally successful at one time, got stuck in the slow lane for a few decades or more. A key trait among the great companies, said Collins, was a willingness to “face the brutal facts” about their businesses, however painful to contemplate. In contrast, the less successful were more inclined to adopt the ostrich approach. 

In this context, it’s interesting to look back on the major battle in the pub business about 10 years ago between those companies which supported a switch of licensing jurisdiction from magistrates to local authorities, and those which opposed it. Those supporting the switch, often justifying the position by a government promise of later opening, were a group led by Punch, Enterprise, the big trade organisations and, by dint of their silence, M&B. Those opposing were family brewers like Fullers, Young’s, Shepherd Neame and St Austell, to name but a few. The opposers understood the implications of political control of licensing and where it would lead, and we were right. 

It is almost universally acknowledged that the switch to local authority control has greatly increased pressure on individual licensees: the new regime is a lot more expensive, there’s a lot more regulation and these effects have weighed more heavily on pubs, increasing the competitive disadvantage with supermarkets. The ostriches, especially Punch and Enterprise, failed to fight their corner and left their own tenants to pick up the pieces. 

A decade on, a debate about VAT is creating a new division in the industry. Wetherspoon and the family brewers are backing Jacques Borel, and argue that pubs can’t possibly compete with supermarkets, having already lost 50 per cent of their beer sales, unless there is tax parity – 20 per cent food VAT for us and nothing for supermarkets is the road to hell. This camp has been joined by a number of restaurant companies, smaller pubcos and, to their credit, Punch. The other camp, which includes M&B, Greene King, Marston’s and Enterprise, might like the idea of VAT equality, but they’re keeping schtum and, while not disputing the logic of the Borel camp, refuse to emerge from the closet and support it overtly. Just like a decade ago the tenants of the ostrich companies are solidly with Jaques: they know what it’s like to trade next to Tesco Metro, but their boards of directors are way out of touch.

I think it’s instructive to contrast the earnings per share (profits divided by the number of shares in issue) for those companies which vociferously supported the retention of magistrates’ control a decade ago with those which opposed it. If you look at the results for Wetherspoon, Fuller’s, Young’s and Shepherd Neame, for example, it’s as plain as a pikestaff that we have far outshone our adversaries at the time, especially since the going got tough after the smoking ban. The reason for this is that companies which face the brutal facts take a longer term approach and acknowledge and understand the threats to their businesses. Those companies that refuse to face up to reality and opt for the ostrich-like approach invariably end up with serious problems. The Jacques Borel side understand that pubs face an unfair and life-threatening VAT disparity. Boards of directors that don’t understand this threat and sit on the sidelines are ostriches which can’t see the elephant in the lounge bar.