Long wary, UK pub chains take chance at last on Ireland

By Neil Maidment and Padraic Halpin

LONDON/DUBLIN (Reuters) - After years of waiting on the sidelines, Britain's major pub chains have finally spotted an opening in Ireland, hoping tumbling property prices will give them a chance to expand into a neighboring market they never managed to crack.

At the height of a property boom in 2007 one in six Dublin pubs that changed hands was sold for at least 14 million euros, with almost half sold for over 6 million - far too pricey for big players in need of as many as 12 sites to make a market work.

Six years on, after a burst property bubble and an international bailout, the typical Dublin pub now changes hands for a mere 800,000 euros. In that time, Irish pub revenues declined by a third and more than 1,000 mostly family-run establishments closed down.

For British chains, that means opportunity at last. According to the central bank, the average Irish pub is now carrying 270,000 euros in debt, meaning big chain entrants can exploit their financial advantage to invest in refurbishment and be more competitive on price.

The first big British pub firm to announce Irish plans is JD Wetherspoon, owner of more than 880 UK pubs. It last abandoned plans to enter Ireland almost 10 years ago because of property prices, but has now agreed to buy its first two Irish sites, both in suburban south Dublin. It aims to open 30 around the country.

"It'll probably take five to 10 years to get established," Wetherspoon chairman and founder Tim Martin told Reuters. "We think we can make a go of it."

Wetherspoon is not the only firm coming. Charlie Chawke, one of Ireland's best-known publicans, told Reuters he had been approached by an intermediary on behalf of Britain's Greene King, which has 2,300 pubs, restaurants and hotels. Greene King declined to comment on its Irish plans.

A source at another of Britain's leading pub chains told Reuters it was also keeping tabs on Ireland.

And it's not just British chains spotting an opening. David Kelly, Dublin-born owner of the Ri Ra chain of Irish pubs in the United States, has opened his first pub in Dublin.

Despite the recent hard years, pubs remain an important part of Irish culture. The Irish drink an annual 11.6 liters of alcohol per capita, among the most in the OECD and more than the British.

BULLISH

The downturn saw drinkers diverted from pubs to cheaper off-license shops and supermarkets, which now account for 60 percent of sales. But drinks manufacturers see the tide turning back. Magner's cider maker C&C saw sales in bars outperform off-licenses for the first time in seven years.

"Having been bearish for two or three years on Ireland in terms of the economic cycle, we're bullish. The Irish consumer is certainly feeling a lot better," C&C's chief executive Stephen Glancey told Reuters last month.

After imposing a smoking ban that publicans say hurt their business, Dublin is now set to bring in minimum alcohol prices, which should prod some drinkers back to the pub by reducing the price advantage of buying beer in the shops.

One gap in the market where British operators may have an advantage is pub grub. A still relatively underdeveloped concept in Ireland, food sales are now a major growth area for British pubs as cost-conscious consumers eye cheaper nights out, and are made more attractive in Ireland because of its 9 percent VAT rate - much less than the 20 percent pubs pay in Britain.

JD Wetherspoon anticipates food will make up 50-60 percent of its turnover in Ireland, compared to 30 percent that Ireland's Licensed Vintners Association says is the average for an Irish pub. Some 40 percent of Dublin pubs still do not offer a lunchtime menu at all.

"F-OFF WETHERSPOON"

But Ireland has its challenges, including fiercely loyal customers for independent pubs, a national identity famously uneasy about its bigger neighbor, and an obsession with a certain local black beer.

"The Guinness will be (rubbish) and they'll probably show cricket matches!" lamented one of 2,397 fans on a "Feck off Wetherspoon" Facebook page. Another wrote: "We are becoming more English than the English themselves. Protect our own."

Wetherspoon's Martin acknowledged that "Ireland is a hard nut to crack," adding that the firm recognized it would take time to win over Irish customers.

"The way it's been portrayed is that we think we can just get off the boat and make a few million euros and ship them back to Britain, and it's not going to be like that."

For a chain looking to build a portfolio, it is still hard to find prime Dublin locations for sale. One auctioneer said demand for the few pubs on offer in the capital is "phenomenal".

And elsewhere, consumer spending is still held back by unemployment above 13 percent. The LVA still predicts more pub closures, arguing that Dublin aside, a country of 4.6 million cannot support its 7,400 pubs - one for every 620 people.

Chawke, who paid the highest price ever for an Irish pub, buying the Old Orchard Inn in the scenic south Dublin suburb of Rathfarnham for 22 million in 2005, says he is not worried about competing with the big British chains.

"They're very welcome to come in and try their hand at what they're good at. We'll see how they get on," he said. "People have come and gone before."

(Editing by Peter Graff)