It’s been a sober few years for British pubs.
The industry has struggled to get over a nasty hangover of higher taxes, regulation and cultural changes.
This has led to a well-documented demise of the traditional drinking establishment.
CAMRA’s (Campaign for Real Ale) tracker showed 29 pubs closed each week in the last six months of 2014.
Meanwhile, estimates claim more 20% of watering holes in the UK have disappeared since 2002.
Enterprise Inns and Punch Taverns collectively disposed of over 5,000 public houses between 2008 and 2012.
That counted for a third of all of their pubs in just 4 years and today, Enterprise Inns said it plans shut a further 1,000 premises by 2020, citing high debts along with regulatory and consumer shifts.
A strategy of selling underperforming assets and re-invested the proceeds into retained estates has been employed by many pub groups for many years now.
Back in 2013, Marston's (LON:MARS) which is also independent brewer, sold 202 pubs to NewRiver Retail for £90mln.
The company said the sale was the result of a strategy to concentrate on "higher turnover pub-restaurants", rather than smaller drinks-only pubs.
Indeed, Mitchells & Butlers (LON:MAB) boss Alistair Darby said last year that we should increasingly think of pubs as places “where people will not necessarily drink alcohol”.
It’s a strategy which has been evident from pub chain JD Wetherspoon (LON:JDW).
In March the group, which has over 900 bars, unveiled plans to triple coffee and breakfast sales over the next 18 months.
Its chairman Tim Martin said the pub industry is continuing to be hit by "unfair" taxes in comparison with alcohol duties imposed on supermarkets.
Selling food seems the right way forward and a glass half-full approach when considering the industry, according to JP Morgan.
“We find the best performing pub companies are generally those focused on food-led managed pubs, especially in London and the South East,” the broker said in a recent note.
“Food accounts for a growing proportion of the revenues of the major pub companies.
“Young’s (LON:YNGA) is (almost) a pure play on London while Greene King’s strong presence in London and the South East should increase with the acquisition of Spirit Pub.”
Mitchells & Butlers, he reckons, is also well represented in the South East.
JP Morgan admits that the sector has had its challenges, particularly the tenanted part of the market.
Parliament last year voted to axe a centuries-old agreement, under which pub companies charged higher rates for beer in return for lower rent from tenants.
From May 2016, tenants will be able to switch to buying their beer on the open market when their leases come up for renewal.
At the time, pub owners themselves warned the change would actually force more pub closures.
Enterprise today said it would be running up to 850 pubs itself, rather than as tenanted properties, by 2020, instead of just 16 at the moment.
Whatever the outcome of the new tax, industry experts appear resigned to the fact that consolidation in the UK pub industry looks likely to continue.
Still, from an investment perspective, the major pub groups continue to have their attractions.
“Despite its challenges, the sector offers good exposure to the UK consumer environment,” said JP Morgan analyst Alexander Mees.
“Demand is broadly stable and LFL sales growth has been generally positive.
“In our opinion, the high levels of debt in the sector are largely manageable and matched by extensive property portfolios.”
It’s also worth noting that despite the industry slump, share prices have held up over the past five years.
Greene King shares are up 100% to 817p since 2010 while Marston’s have climbed 80% to 165p.
Even Enterprise Inns, despite slumping in 2007, has kept a market cap of around £700mln since 2010.
The major pub companies have their own ingredients for success,” adds Mees.
“Generally stable and predicable cash flows, combined with attractive yields means Greene King and Young’s are especially well placed to improve returns through an improved mix of sales and consolidation.”