Business News

The demise of the Irish pub

By Business & Finance
21 April 2012
Pub stock pic

As drink licences are being transferred from on to off-premises, pubs are fighting for customers writes Christopher Goodfellow.

The shuttered pubs on local high streets are an ominous sign for the industry. Publicans have faced a perfect storm of increasing costs, falling consuming spending and changing drinking patterns.

Since the start of the recession the closing bell has tolled for the final time at 809 Irish pubs –10% of the entire market – and they have been closing at a rate of one per day since 2005.
Even among successful pubs, trading conditions are daunting. “Your overheads are pretty high and it’s quite crippling. You won’t get money for your hip pocket if you can pay your bills, your staff and suppliers, call yourself lucky,” says Jurgen Schwalm, owner and manager of The Roundwood Inn in Wicklow.

And industry experts expect the trend to continue, predicting in the region of 200-300 further closures per year over the next few years.

Behind the statistics is an on-going structural change in the way that the sector operates, one that has been accentuated by the recession – our relationship with the local pub is evolving.
People are drinking at home more as the recession reduces disposable income. This is particularly true among the younger crowd. Conor Kenny, head of hospitality at industry consultants Conor Kenny & Associates, says that Generation Y is reacting to the economic problems and has not adopted the pub in the same fashion as its predecessors:
“Those under 27, 26 haven’t adopted the pub, they drink at home. This is being fuelled by supermarkets and off-licences selling alcohol, and because they can’t afford to go to the pub. They are going out a lot later and are only going to have one or two drinks because they have had their volume drinking a lot earlier.”

This pattern is reflected in the licence trade. Licensing regulation means that no new licences can be created, if a new premises wants to sell alcohol it has to use an existing licence. The licences from pubs which have closed are often transferred to new off-licence premises.
Maire Conneely, senior associate leisure and licensing at A&L Goodbody, says: “The conversion of on to off-premise licences has been going on for a number of years. There were a lot of premises that would have sold their on-licence to someone who’s applying for off-licences previously because there was development value in the site, but that value is no longer there. Any pub licences that have been converted now have been converted because there is no trade.”

The topic of price is a controversial one. The abolition of the Groceries Order in 2006 meant that these off-licences, and in particular the supermarkets, were able to sell booze as a loss leader, and they proceeded to do so to help bring in customers.

This has in part been blamed for the extent of independent off-licence closures, which can’t offer such deals – over 935 of these businesses have closed since the start of the recession.
The price of alcohol puts pubs in a difficult position. In Dublin a pint of Guinness can cost €5.00, on the same street retailers would price a can at €1.80, almost a third of the price. And there are further low-price options.

Stewart Scott, manager at McNeill’s Pub on Capel Street, says: “In my view, the only way the pub trade can move forward is that instead of the publican charging €5.00 a pint they should be charging €3.50 and be happy with less margin, but higher volume.”

On this front there may be some respite. A cross-party committee have called for minimum pricing on alcoholic drinks to be included in the upcoming health bill.

Pubs outside of Dublin, particularly those in rural areas, have suffered worse than their counterparts in the capital.

The number of active licences in Ireland, including off-licences, dropped by 12% between 2007 and 2011 – the number of pubs fell by 4% in Dublin, but plummeted by 10% in the rest of the country.

The statistics do come with a caveat. Revenue policy permits publicans a 12-month renewal period, creating a lag in the figures, and many businesses continue to trade with lapsed licences as they struggle to meet tax demands. In an extreme example, it was recently reported that the The Long Bar in Edenderry had been operating without a licence for three years, as a District Court Judge ordered its closure.

The country pub began to suffer with the introduction of anti-drink driving legislation. In many cases the customer base of these businesses is spread over a large catchment area and, unable to drive, visitor turned away from the local boozer. This trend was spurred by the recession, which led to drastic reductions in consumer spending and high levels of rural unemployment.

Donal O’Keeffe, chief executive officer of the Licensed Vintners Association, says the difficulties these venues face will continue through the sector’s recovery: “What you are going to see is a very uneven recovery. Dublin and other urban centres will recover in time, but I think the future of the pub is urban, in areas where you have the population to sustain the pub, good public transport and a taxi network.”

The difficulties are reflected in licence prices, which have been cut in half. According to licence traders, the price of a licence has dropped from a peak of between €180,000 and €190,000 in 2006, to between €80,000 and €85,000 in 2012, as the trade “dropped off dramatically”.
What can pubs do to beat the downward trend?

Conor Kenny says pubs need to meet the needs of new consumers: “It [the recession] has challenged and changed the model, and in a lot of ways people didn’t change with that. The obvious clichés answer is that we need to do food; we’ve gone way beyond doing food.”

Kenny suggests the pub has to cater to a variety of moods and customer needs. Where venues are smaller and cannot host special events, the focus should be on ensuring the customer has a relationship with the owner and staff, he says.

Scott says: “They [the customers] don’t want any hassle, they are not going to get people annoying them and that’s the big thing in Dublin. The approach of the staff is important as well, if you walk into a bar and the barman’s grunting at you, you aren’t going to come back.” The traditional pubs, the Irish staple that Fáilte Ireland bills as having ‘a special place in our hearts’, have tried to promote their role in society as somewhere people can meet to talk and relax: “If a small pub they have a great opportunity, it’s all about my relationship with the guy that owns it, it’s all about how I’m served, the storytelling, the engagement,” says Kenny.
And there are still business openings for this model. Ross D’Arcy, a licensing specialist at Liquor Licence Transfers, says that he has received an increasing number of enquiries for locations in housing estates which were built beyond reasonable walking distance from the nearest public house: “We are getting enquiries [of this type] from Carlow to Donegal, and there have been numerous requests from Wexford.”

Among the super venues, the results have been mixed. The multi-million euro entertainment complex, which included the Odeon, Pod and Crawdaddy, was the latest victim. The site on Harcourt Street was closed in February, 2012, as POD ENTERTAINMENT went into receivership.

That said, there have been signs of green shoots in Dublin. Opened at the height of the economic problems The Wright Venue, at 40,000 sq ft in size, continues to perform well.
There are a number of new licences being processed in the city, particularly on the hotel side of the business, and inquires for new licences have increased. These developments will lead to spin-off trade in the surrounding area. International visitor numbers have also been positive and the conferencing business is booming, brining in large numbers of delegates from around the world.

Often larger pubs have responded to downward trends by focusing their offering to a particular clientele or need, such as sports or tourism, and the market finds strength in the diversity of its offering.

Looking forward, it’s expected that the pub trade faces at least two more years of difficulty, albeit with slightly improved trading conditions, and its thought the sector shrank by between 4 to 5% last year.

Donal O’Keeffe says the biggest concern is the short-term outlook: “We think trade will continue to shrink, but it’ll be at a much slower rate. The floor is coming into sight and I think we see, over the next few years, stabilisation coming into the trade.”

Legislation has been tabled to simplify the at times archaic 100 year-old licensing laws. There will also be the gaming law reform and it’s conceivable that new licences will permit the sale alcohol in premises where casino games take place. It is hoped these new developments will provide some oxygen to the  sector as it struggles to free itself from the wider economic malaise.