APPENDIX 9
Supplementary Memorandum by Enterprise
Inns
During our presentation of evidence at the Trade
and Industry Select Committee inquiry into pubcos on Tuesday 20
July, we were asked to provide some further information in response
to specific questions raised by members of the Committee.
I am now in a position to respond to those enquiries,
and in addition am able to provide some further information which
I hope will assist the Committee members as the inquiry progresses.
RECRUITMENT AND
RETENTION
In questions 318, 319, 320, 321, 325, 333 and
337 (as numbered in the uncorrected transcript of oral evidence
HC 751-iii), we were asked to provide further data in relation
to the appointment and departure of tenants and lessees, and if
possible to distinguish between those negotiating an agreement
directly with Enterprise, and those purchasing an agreement by
assignment from an existing lessee.
Agreements made directly by Enterprise
We receive many direct enquiries, some serious,
some "just looking". As you would expect, just 20% of
these enquiries proceed to a formal application, from which point
we begin to evaluate the licensees concerned. Some are rejected
based upon factors such as lack of suitable skills, inadequate
funding or ability to hold a license, some take a pub with another
company, others decide that running a pub is not for them and
some proceed to take an agreement with Enterprise (see note 1).
In addition a number of existing Enterprise
licensees choose to take a second or subsequent pub from the company,
and a substantial number renew their agreement each year (see
note 2).
The majority of new appointments are to licensees
with prior experience of running a pub (see note 3).
The company provides financial assistance to
some applicants who wish to take a pub on an Enterprise agreement,
who may be highly qualified, but have insufficient working capital.
In such circumstances, the company may offer terms which allow
part of the cost of the ingoing to be paid over time through some
sort of deferred payment plan. At August 2004 there are currently
121 assisted deposit plans in operation, with almost £350,000
outstanding.
Agreements terminate for a variety of reasons,
including licensee progression to a different pub, retirement,
ill health or financial concerns, or when a pub is being sold
(in some cases to the incumbent licensee). The company may terminate
an agreement for reasons such as breach of contract, business
failure or loss of liquor license by the agreement holder. In
the year to September 2003, 151 licensees surrendered their agreements
with the company and 277 agreements were terminated by the company.
The average length of time that licensees have
remained in an agreement with Enterprise is currently 6.7 years.
Lease Assignments
Lease assignments are private transactions conducted
between an outgoing and incoming lessee and in which the company
has no involvement or role (other than the right to refuse consent
to assign, such permission not to be unreasonably withheld). It
has therefore not been possible to quantify the reasons for assignment
but I can confirm that in the 12 months to September 2003, 460
lease agreements were assigned (sold) by existing lessees.
Our experience based upon the outcomes of interviews
with assignees is that they conduct their own due diligence exercises
focussing upon the business to be acquired in order to establish
the potential of the pub and therefore its value as a going concern.
The results of the due diligence exercises play a large part in
determining the price an assignee is prepared to pay the assignor
for the unexpired portion of the lease.
THE TIE
The drinks tie is clearly a matter of significant
interest to the Committee, and many arguments have been offered
in evidence both for and against it. We share the view of the
trade associations and many independent observers that the existence
of the tie is of crucial importance to the success and sustainability
of tenanted and leased pub sector in the UK. I would reiterate
therefore the key points which we believe the Committee should
consider in relation to the tie.
Consumers
From the consumer perspective, the tie as operated
by Enterprise has increased choice, enhanced competition and has
had no detrimental impact on retail pricing. In our submission,
clauses 1.1 to 1.4 demonstrate Enterprise's track record of sourcing
and supplying the widest possible range of drinks products, and
clauses 2.2 to 2.4 clearly demonstrate that our approach to product
pricing is not anti-competitive and does not disadvantage consumers.
In addition, the evidence we have provided comparing the price
of a pint in managed, leased and independent free houses throughout
the UK further endorses this point.
Suppliers
From a supplier perspective, the tie provides
a route to market in an environment in which it is in our own
best interests to provide the widest choice and most appropriate
brands for licensees who in turn must satisfy the requirements
of their local market if they are to maximise their profitability.
We have consistently demonstrated that there are no barriers to
entry into the Enterprise estate, and have recently been able
to confirm how individual members of the Society of Independent
Brewers will be able to deliver products directly to pubs within
the Enterprise estate.
Tenants and Lessees
We strongly advocate that the very existence
of the tie operates in the best interests of Enterprise tenants
and lessees, as it inextricably aligns the company's success with
that of our licensees, and perhaps more importantly, exposes the
company to the same business risks experienced by individual licensees
operating in a highly competitive marketplace. Approximately half
of Enterprise's annual income is derived from the sales of drinks
products under the tie, as a result of which we remain totally
committed to the success of the pub businesses we supply as reflected
in their ability to grow sales of drinks products. Both CAMRA
and the FLVA, in evidence provided to the Committee, endorsed
the importance and the benefit of the tie to tenants and lessees.
COMPLAINTS RECEIVED
BY THE
COMMITTEE
Some members of the Committee made reference
to the quantum of licensee complaints received in evidence. I
remain convinced that any representations made by this tiny minority
of tenants or lessees of Enterprise Inns do not reflect the views
and opinions of the overwhelming majority of licensees in our
estate. The fact is that we receive very few complaints from our
licensees, but when we do, we treat each as important and act
quickly and fairly to investigate and respond.
I do acknowledge, however, that there are occasions
on which we make mistakes in our dealings with our licensees,
and that, as we sought to demonstrate in clause 3.10(ii) of our
submission, one of the most important qualities of our business
is our willingness and our ability to resolve licensee issues
effectively, and address any errors we have made.
I appreciate that the Committee has received
and digested a vast amount of evidence. If you feel that we can
be of further assistance or provide additional clarification please
do not hesitate either to call or to suggest a meeting.
G E Tuppen
Chief Executive
2 September 2001
ENTERPRISE INNS PLC
Note 1
In the 12 months to September 2003:
— The company received 10,819 enquiries
from individuals interested in pubs available for let.
— Of these enquiries, 2,102 results
in full, comprehensive applications for an Enterprise pub under
an Enterprise tenancy or lease agreement.
— 152 applications were rejected based
on such factors as a lack of suitable skills, the inability to
hold a justices' licence or insufficient funding.
— By the end of the 12-month period,
928 applicants had entered into a new lease or tenancy agreement
with the company.
Note 2
In the 12 months to September 2003:
— 152 existing holders of Enterprise
agreements took an additional pub on an Enterprise agreement.
— 721 existing Enterprise tenants and
lessees chose to renew their agreements with the company.
Note 3
At the end of June 2004 the company had 894
unfulfilled formal licensee applications for pubs on our database,
of which:
— 134 had over 10 years' licensed trade
experience (15%).
— 137 had between five and 10 years'
experience (16%).
— 259 had between one and five years'
experience (29%).
— 73 had less than one year's experience
(8%).
— 291 had no previous licensed trade
experience (32%).
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