It was announced this week that Greene King had been approached by CKA Holdings, and the Hong Kong investment firm offered £2.7 billion for the group – which equates to a 50% premium, and the board of the pub group have advised shareholders to accept the offer. 

Between pubs, restaurants and hotels, Greene King has 2,700 outlets on its books.

The UK pub sector has suffered in recent years, as higher business rates, an increase in wages, and a softer consumer climate has put pressure on the industry as a whole. Greene King’s share price has seen a decline between 2015 and 2018, and it managed to recoup some of those losses this year, but the generous offer from CKA might help make-up some of the ground, should the deal be accepted.

According to Campaign for Real Ale (CAMRA), between July and December 2018, 14 pubs closed per week, the organisation stated that between 2002 and 2018, the number of small pubs has dropped by 44%. CAMRA claims that business rates are too high for pubs, and the tenant leasing terms from large landlords are also holding back the sector. With tougher terms of business, you can why the industry is suffering.

We have already seen a shake-up in the sector. Fuller, Smith and Turner sold its brewing business to Ashai, and including in the deal was the well-known brand London Pride. The Japanese drinks business paid £250 million for the division. Fullers took the decision to exit the brewing game, and focus on running hotels and run – where it makes the bulk of its money. Asahi will supply drinks to Fullers establishments so at least the consumers will enjoy some continuity, but it is a sign the group needs to focus on what it does best – managing.

Last month, Ei Group – formally known as Enterprises Inns, was acquired by Stonegate Pub Company for £3 billion. Stonegate is funded by a private equity group, and the organisation already had over 770 pubs on its books before it took over Ei, and now it has over 4,000 properties. Ei was already in the process of moving away from the tenanted model to a managed pubs one when Stonegate made their bid, and all of Stonegate’s pubs are run on the managed model. The tenanted system is hurting the industry too as the so-called ‘beer tie’ ties the pub to the brewery group and restrictions come with that arrangement. Private equity groups have a track record of creating value for their investors, but usually don’t have a long-term interest in the sector, so underperforming sites might get closed down.

In 2017, Punch Taverns was sold-off for £1.8 billion, and Heineken wound up with nearly 1,900 sites, and the private equity firm Parton Capital obtained just 1,300 venues. The Competition and Markets Authority waived the deal through on the condition that Heineken disposed of 33 locations around the UK in a bid to avoid anti-competitive practices. During takeovers, it is common for components of the business to be sold-off, and no doubt the Dutch brewing giant was only too happy to spin-off a number of establishments.   

Mitchells and Bulters cancelled their dividend in late 2017 and profits slipped in 2018 as mount debts, rising expenses, bad weather and weaker consumer confidence were blamed for poor performance. The group owns well known pub brands like All Bar One and Nicholson’s, and it also own restaurants like Toby Carvery and Harvester. In May, the group registered an increase in first-half profits, and a more commercial culture was cited for the turnaround in earnings. It would appear that management were feeling the pressure from the subdued share price performance.

Marston’s are holding up well considering the rest of the sector is muddling along. In 2018 the group revealed record profit and revenue, and that was helped by the acquisition of the Charles Wells Beer group in the previous year, so the numbers aren’t as impressive as the headlines would suggest. The stock took a knock in May when the group revealed sales figures which undershot market expectations. The group said it was on track to achieve its debt targets, and it is considering directing funds into organic growth plans, rather than a new-build scheme, which indicates they are cautious about aggressive expansion.                    

JD Wetherspoon has been going from strengthen to strengthen as wide selection of low-cost food and drinks has helped the group stay ahead of the curve. The group continues to shut underperforming sites, and open in more opportunistic locations, and it has been expanding in the Republic of Ireland too. On the back of the Greene King-CKA news, the stock hit a record high, which is extremely expressive when you consider the bulk of the sector is struggling, and in some cases being snapped up.

The craft beer craze has really taken off in recent years, and despite the high prices it is still gaining ground. There is evidence the number of people drinking on a weekly basis is dropping, and that is especially the case with younger adults, but at the same time they are keen to have quality over quantity ,and that is where craft beer enters the fold. Craft Beer sales account for less than 5% of total beers sales in the UK, but in terms of hype and media coverage, it punches well above it weight.

The bespoke brewing sector has caught the attention of major conglomerates too. Carlsberg owns London Fields Brewery and Heineken acquired a minority stake in Beavertown. Craft Beers sales in the US account of over 20% of total beers sales, and the recent move by major players in the sector suggest that big business believes that craft beer has more room to grow in the UK.                 

Looking at the big picture, JD Wetherspoon are storming it, while the bulk of the sector are finding trading tough. It has become clear that middle-of the-road pubs have fallen behind. Customers seem to want competitive prices and a varied range of drinks and food, or else they want to pay a premium for craft beer. The middle of the market is drying up, and last orders might be in offing for many more establishments.      

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