James Dickson, chief executive of pub equipment supplier Brulines, has forecast that 4,000 pubs may close over the next few years.
Thirty years ago, he says, somebody could be a “really crap pub landlord” and still make a living but now pubs must fire on all cylinders.
But now “when times are hard you separate the wheat from the chaff”, he says. “It’s about the quality of their offer.”
Brulines’ monitoring equipment enables pub owners to track whether tenants are complying with their beer supply contracts. Its systems are now installed in 23,000 of the UK’s estimated 30,000 tenanted pubs.
Some tenants have claimed that the beer prices they are obliged to pay under the terms of the “beer tie” contracts are forcing them out of business.
They are also battling against recession, the smoking ban, cheap supermarket alcohol and changing social habits. UK pubs, about 57,000 in total, have been closing at a rate of 35 a week.
Brulines’ equipment has proved unpopular with many tenants. The company dominates its marketplace, serving customers including Punch Taverns and Enterprise Inns.
Mr Dickson remains unbowed, saying that his equipment can help good tenants. On Tuesday the company delivered a strong set of results for the year to March 31, with profit before tax and exceptionals up 19.6 per cent to £4.98m and earnings per share up 14.8 per cent to 13.59p.
Pre-tax profit rose from £4.2m to £4.6m.
Mr Dickson said delays in installation decisions had been offset by the need for pub operators to improve quality and efficiency, ensure operational transparency and reduce shrinkage. In its financial year Brulines completed 1,428 new installations, including 46 of its new quality monitoring i-draught system, as well as 491 upgrades.
In the current year, Mr Dickson expects a total of 2,000 installations, including new and replacement systems.
While Brulines deals predominantly with pub owners, it is beginning to see business from brewers which have granted loans to free trade pubs.
Brulines monitors data from its Stockton-on-Tees base and visits pubs, representing the owners, where it suspects that a licensee has been buying beer from alternative sources. Installation of its system leads on average, it says, to a 7 per cent uplift in beer volumes.
Recurring income now accounts for 79 per cent of Brulines’ turnover, which rose in the year by 11.7 per cent to £19.07m. Gross margin improved from 53 per cent to 58 per cent. The company declared a final dividend of 3.8p, giving a total of 5.35p (5p).
Last October Brulines bought Edensure, a company offering data delivery and analysis for petrol forecourt operators, and in December it acquired Vianet, a telemetry and data capture solutions business serving the vending industry.
During the year Brulines raised £4.4m net through a placing to fund acquisitions. It wants to extend its data handling capability in the leisure, vending machine and petrol forecourt sectors, and is in early discussions with three small businesses involved in petrol forecourt services. At the year end it had net cash of £4.26m. It says it expects to grow organically as well as by acquisition.
Mr Dickson has spent his working life in the oil and beer sectors. For Brulines, he says, the same philosophy applies whether it is beer or petrol being measured. “How can you manage something if you can’t measure it? You want to know that licensees or managers are operating as efficiently as they could. It’s your asset they are going to destroy if they are not.”
He is confident that any Competition Commission investigation into the “beer tie” would support the current arrangements and confirm “once and for all” the pub sector is competitive.