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08-07-2014, 07:54
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Pete Brown writes here (http://www.morningadvertiser.co.uk/Opinion/Pete-Brown/The-drive-for-profit-is-killing-pubs) about how the Black Lion on Bayswater Road in central London has been sold for an astonishing £27 million. He uses this story as a peg on which to hang an argument about how things other than simply return on investment need to be taken into account when considering the future of pubs, and points out that the pub was turning an annual gross profit of £700,000. But, however much profit you’re making, there will come a point when an offer is just so tempting that you can’t turn it down. Every business owner ultimately has his price.
It is a fundamental principle of economics that overall utility is maximised if all the factors of production – capital, land, buildings, equipment and people – are used in the most effective manner. It doesn’t matter if something is already profitable – if it can be used to generate a greater profit by being used for something else, then it should be.
Obviously we realise as a society that there are some things that you can’t really put a price on, which is why we have planning restrictions, listed buildings and green belts. But in a sense these can be regarded as luxuries that prosperity enables us to afford. Stray too far from the principle of maximising returns and you end up with economic sclerosis and businesses struggling along on life support when their sites and their employees could clearly be more profitably employed doing something else.
Look at any shopping street from fifty years ago and the mix of businesses will have pretty much entirely changed. It may be a matter of regret that all those little family butchers and wool shops have been replaced by takeaways and nail parlours, but the usage of the buildings simply follows demand, and exactly the same is true of pubs. If the building would be more profitable as something else, then, subject to planning considerations, that’s what it should become. You can’t preserve businesses in aspic because people feel sentimental about them.
It also is not the case that such conversions leave whole areas denuded of pubs. It may not make economic sense to maintain a large, free-standing building as a pub in a city centre with sky-high property prices, but such areas by definition will have large numbers of residents, workers and visitors and are likely to be able to support plenty of shops, bars and cafés to meet their needs, albeit generally in units as part of a larger building. And, if a large and underused estate pub has been converted to a Tesco Express, there’s nothing to stop entrepreneurial locals turning a vacant unit in a nearby shopping parade into a box bar or micropub if they think there’s the demand, as many have already done. A small pub may succeed where a big one has failed.
Pete also comes up with the familiar canard that the Black Lion could surely have been more profitable if run in a more enterprising manner. For each individual pub taken in isolation, this may be true, but in general it would only have succeeded by taking trade from others. As I argued here (http://pubcurmudgeon.blogspot.co.uk/2011/02/who-wants-customers.html), it isn’t credible to suggest that the marked long-term secular decline of demand for pubs could have been prevented or even significantly curbed by pubs as a whole being better managed. To do that would involve rewinding thirty years of social and legislative change.
It also seems to me that this is overwhelmingly a London problem, and indeed a problem of London inside the North and South Circular Roads. It’s very hard to think of any example of a pub local to me that has been sold for alternative use despite having been doing healthy business. In fact, the opposite is generally true – there are plenty of pubs that have been standing closed and boarded for years without being either brought back to life as pubs or converted to something else. £27 million could easily buy you a whole estate of pubs in the North-West!


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