Running a London pub: the dos and don’ts

the drinks business speaks to Chase Distillery’s James Chase and former bar director at Sketch, Dominic Jacobs, co-owners of The Running Horse in Mayfair, about the challenges of running a pub in the capital.

Running a pub in London has never been without difficulty, but with the Campaign for Real Ale (CAMRA) now estimating that an average of 21 pubs close every week in the UK, it is evidently a real struggle to stay afloat.

When CAMRA first launched its Good Beer Guide in the 1970s, the number of UK pubs totalled 75,000. In 2017, there are now less than 50,000, meaning that the number of UK pubs has reduced by a third. The industry body also has warned that UK pubs are facing a “ticking time bomb” due to rising business rates, which were introduced in April this year.

But is there a town and country divide? CAMRA believes there is. In a survey, it found that many out-of-town supermarkets and stores based on industrial estates saw their rates reduced following the revaluation in April, with town centre pubs bearing the brunt of the increases, a move, it says, “can only fuel the rate and level of pub closures”.

The operating costs associated with London pubs recently made headlines after a bar, based in Borough Market, was criticised for selling a pint of beer for £13.40.

Defending its decision, The Rake bar explained that the beer in question was Cloudwater’s DIPA, weighing in at 8.2% abv.

“Cloudwater will not deliver directly to us unless we order a pallet from them and, if you know The Rake, you’ll also know we do not have the space to store a pallet; so this being the case we have to order through a distributor who will obviously put their margin on it,” the bar explained.

Distributor Euroboozer posted a breakdown of the costs involved, factoring in the high abv and therefore increased malt bill, the extra hops and Cloudwater’s own overheads. This was then added to The Rake’s operating costs.

For a London pub or bar, Euroboozer states that gross profit has to be in the region of 70% in order to be sustainable. The Rake was making a 66% gross profit margin on the Cloudwater beer.

On the other hand, there needs to be a balance in order to not alienate or annoy the consumer. CAMRA’s latest Good Pub Guide revealed that only 15% of UK beer drinkers now think that the price of a pint in the UK is either very or fairly affordable. It estimates that the average price of pint in the UK is now £3.60, with the average price in London coming in at £4.20.

But it isn’t all doom and gloom. Cask Marque believes there are opportunities to increase the prices of certain beers without ripping off the consumer. In its latest Cask Report, it stated that pubs should be charging more for cask beer, but stressed that higher priced beers should be served alongside those priced at “entry level”.

It has become apparent that pubs must diversify, not only in terms of their food offering, but by acting as a space for events and meetings or places to grab a coffee.

Dominic Jacobs and James Chase.

With these issues in mind, the drinks business catches up with two drinks professionals who decided to venture into the London pub market.

Chase and Jacobs had been looking for a venue for a bar when they stumbled upon The Running Horse in Mayfair. Having opened in Autumn 2013, the pub works with UK food and drink producers and champions the “field-to-bottle approach”.

Jacobs said: “When we were shown the Running Horse it immediately gave us the feeling in our stomachs, the one where you know something is right. We hadn’t set out for a pub, but realised that they actually represented great value in terms of square footage and location.”

“We both loved drinking in pubs and realised few people at the time went into the pub industry from a drinks background (bizarrely, it is normally chefs or people who just love the idea of owning their local). We thought we could open our perfect pub on the ground floor to cover the overheads and then effectively have a free space on the first floor to play with”.

With The Running Horse approaching its fourth year in business, Chase and Jacobs reveal their top tips and advice for surviving in the capital.

Gross profit margin

For Jacobs, who works at the pub full-time (Chase divides his time between the Running Horse and the distillery), managing gross profit margins has been the most difficult task. He revealed that the disparity between the gross profit on draught beer and that achieved on cocktails could vary by as much as 30%, further complicating the issue.

“Managing gross profit margins is tough. Being tied, the difference between the gross profit on draught beer and on cocktails is over 30% so day-to-day, as product mix varies, it’s very, very hard to manage your cash flow. You can have a difference of 10% week on week which represents a great variance in profit,” Jacobs told db.

Building maintenance

The Running Horse was built in 1738 which brings with it a unique set of challenges, as Jacobs explains. “Pubs are a complete nightmare to upkeep – they are not designed for the volume of people that is required to be profitable. Consequently, it is a constant battle trying to ensure that our old building can stand up to the masses who flock in for their after work drink.”

Catering for the public

It might sound obvious, but a pub, or to give it its full name, public house, must cast its net wide in terms of appeal. Long gone are the days when pubs were only for drinking.

Jacobs added: “Pubs also have the ability to be far more adventurous and adaptable with their offerings. Opera theatre night, yoga classes, suit fittings, hair cuts, hobby workshops are all something that you can do in a pub without people blinking an eyelid, but not necessarily in a restaurant or bar”.

How have you survived?

Jacobs told db that since taking over the pub four years ago, business rates have doubled. Renegotiating business rates three years ago “helped a bit in the revaluation” but the big price hike comes next year as the pub is still operating on the transitional rates.

“I think the valuations office were very naïve about the challenges facing pubs when they chose to raise the business rates,” Jacobs added.

To prepare, The Running Horse has “had to be bold on [its] pricing of draught beer”. In addition, Jacobs said: “We will be looking at how we make savings on our overheads, however, we are more interested in trying to increase sales in quiet or empty sessions.”

“We are therefore planning to open for breakfast, drive a new Sunday trade, make more of our upstairs space for a new dining experience, and open a coffee station outside to catch the commuters”.

Having a clear USP and being creative has also helped the pair to generate extra business.

“Being innovative with events to boost non-traditional busy times is essential. Cocktail masterclasses, sausage making masterclasses, “crafternoon tea” all help in quiet periods,” said Jacobs.

“We aimed to redefine a public house and be zero compromise, from cask ales to cocktails. You don’t get a cask ale in the American Bar at the Savoy and equally, most pubs couldn’t compete with them on a Martini! This helps us keep a broad customer base and you see this on a Thursday night with our gender and age mix. This is truly a public house”.

Has your previous experience helped you to run the pub?

Dominic Jacobs: “All of my experience has built towards being able to operate this pub, both the positive and negative elements of each job. This includes managing people, developing menus and attracting press. Aside from the physical differences of managing the beer systems, ultimately it is all very similar whether cocktails or ales.”

“Understanding the importance of HR was a great skill I developed at Harvey Nichols which has helped in a few circumstances and ultimately saved us on occasions. I have always been very hands-on in terms of DIY, which is certainly needed in this business. The only difference is more goes wrong in a pub because they are so old and complicated! The public are more forgiving of pubs for this reason though we feel. Having said that though, nothing can prepare you fully to owning your own business. It is never quite how you would imagine it!”

James Chase: “Similar [to Chase] in the same respect that it requires an immense amount of work to build something from scratch, something that should never be taken for granted. Both industries are dominated by titan companies with deep pockets, and we have to be innovative continually and lead with excellent service in furiously saturated markets. On our side, consumers are more and more inquisitive about the brands/bars they buy into and its great to see growing interest in independents.”

“For instance, we are the only independent pub in the area and hopefully aside from a few tied beers, this is reflected in our offering. If anything, its increased my respect for anyone working in the industry. And the knowledge I’ve learned from growing trends over the bar, like the rise of the soda serve, or how to approach a bar/restaurant is often relayed to our sales team”.

What is the one thing you wish you had done but didn’t?

Jacobs: “I wish we had invested more heavily in our BOH systems as it would have helped highlight financial pitfalls and margins faster.”

“Whilst I had always wanted to do this, the costs and timing implications were prohibitive initially. We made the decision to crack on and open the pub quickly instead of putting in place a solid BOH stock system like FnB shop, as we felt we were better getting money in through the door and moving forward. That said, I suppose the truth is that we couldn’t really afford a fancy BOH system at the time. I was quoted £20,000 for what we needed for BOH, but I had already spent the budget on more fun things like ovens and coffee machines!”

Final advice and predictions…

Jacobs: “Get experience in hospitality first, really analyse your local market, and find a USP for your pub”.

“Scrutinise your GP margins weekly. Know your break even and share it with your staff, they love tangible challenges. We set daily targets with silly competitions, but they love it – it connects them to the bigger picture which informs everything they do that day.”

“Above all, get entrepreneurial and always innovate! You have space in a pub, so utilise it. Publicans need to start recognising the changing drinking habits if they want to succeed. When I was younger, we would go to the pub a drink eight to 10 pints every Thursday, Friday and Saturday. Now people take up the same space but will have maybe just four.”

“Guests are more health-conscious than ever before and 19% of 18-25 year olds are teetotal. Innovative non-alcoholic drinks and healthy food which is all high margin will help get that profit per head back. I envisage this as the biggest growth area for publicans”.