Another pub group collapses, but industry outlook is improving

After a disastrous 2009, the New Year hasn’t started well for Australia’s beleaguered pub sector, with the collapse of a small pub group based in the New South Wales regional centre of Newcastle.

Alchemy Hotels Pty Ltd, which also operates M. J. Finnegan’s and The Premier Hotel in Broadmeadows, was placed in voluntary administration earlier this month.

The pubs, which are now in the hands of administrator Keiran Hutchison, are continuing to trade. According to a report in the Newcastle Herald, there are less than 100 creditors to the collapsed group.

One of the creditors is ING Real Estate Entertainment Fund, which told the Sydney Morning Herald that it is owed $340,000.

While the exact reasons for the collapse of Alchemy Hotels is still not clear, NSW business broker Murray Gilchrist, who specialises in hotel and hospitality industry sales, says pubs in the region have been “hammered” by a crackdown by the liquor licensing regulators concerned about alcohol-fuelled violence in the city.

“That has detracted a lot from the value of the pubs in that area,” Gilchrist says.

However, he is hoping the 2010 will be a much better year for the pub sector than the disastrous 2009 as the sector slowly emerges from under a mountain of debt.

“Hotels are still good, solid, core businesses. But it’s unfortunate that a lot of the people who got in trouble in 2009 – and may still get in trouble in 2010 – were so highly geared.”

The inflated prices of 2006 to 2008 are gone, although Gilchrist admits it has been difficult for many vendors to accept that they have lost money, even when their hotels have done relatively well.

“Vendors have had to face up to the fact that the hotels are now worth less, even if they’ve improved the pub’s profitability.”

But the buyers who have stepped in to grab bargain pubs (often out of the hands of insolvency experts) are much better placed to bring stability back to the sector, thanks to their lower gearing and the support of very cautious lenders.

“To get bank finance these days is pretty tough,” Gilchrist says. “The banks criteria now almost makes it fail-safe as far as an investment is concerned. “

Gilchrist says he is seeing a return of family owner/operators to the sector, although some investment syndicates are still managing to turn good profits in well-managed venues.

“It’s hard work, it’s a lot of hours and it’s tough, but you can make a good living.”