APPENDIX 10
Further supplementary memorandum by Enterprise
Inns
Please note that Enterprise Inns have requested
that some of this evidence remains confidential.
I am responding to your letter which I received
on 16 September, seeking further information and clarification
following our appearance at the inquiry on 20 July and our subsequent
supplementary submission of 2 September 2004.
For your convenience, my responses below follow
the same order and use the same references as your letter of 16
September.
Q321
We do not hold the information which adequately
details all reasons for termination of agreements, whether by
the company or by the tenant or lessee. However, in our submission
clause 2.15(ii), we stated:
"The rate of business failures under Enterprise
agreements is low, and has continued to decline in direct correlation
to the improving quality of the estate. In the year to March 2004,
198 agreements (4%) were either terminated by the Company or abandoned
by licensees."
The 151 agreements terminated by the Company
were as a consequence of some material breach of contract, such
as buying outside the tie or failure to pay monies owed to the
Company.
Licensee abandonments arise for a variety of
reasons including, financial failure leading to monies owed to
the Company, but may equally be caused by marriage breakdown or
some other change in personal circumstances.
Bankruptcies are rare and in the year to September
2004, we estimate that not more than 15 tenants were the subject
of formal bankruptcy proceedings. In our experience, bankruptcy
proceedings are almost always instigated by either HM Customs
& Excise or by utilities companies.
Q326
Our position in relation to the clauses contained
within our agreements is one of explanation, not negotiation.
We seek to ensure that every prospective tenant or lessee has
a comprehensive explanation of the implications of every clause,
in order that they may make a judgement based on a full appreciation
of the facts prior to taking up a formal agreement with the Company.
In a competitive market, we clearly seek to
ensure that our leases are fair and do not contain onerous clauses.
In the end, if a prospective tenant or assignee is unhappy with
the form of the agreement, then of course they should not sign.
You will understand the administrative impossibility of several
thousand individually negotiated agreements each with minor differences.
Q328
I attach as Annex A an Executive Summary of
our 2004 Customer Satisfaction Survey. The 84% of satisfied Enterprise
licensees to which I referred are those who would "definitely,
probably, or maybe" recommend Enterprise as an example of
an excellent pub company.
Q330
We can confirm that, in the year to 30 September
2003, 52% of all Enterprise lessees and tenants came from lease
assignments, the balance of 48% of entrants signed new Enterprise
lease or tenancy agreements. You will appreciate that only lease
agreements are assignable; tenancy agreements are non-assignable.
Of the new agreements issued by the Company
in the year 30 September 2003, 49% were tenancies and 51% were
leases.
Q336
In our submission clause 3.5(i-v) and Annex
14, we set out details of our new Retail Partnership Agreement
which has been under development for almost two years, and was
due for launch in July 2004. We felt it appropriate to postpone
the launch of the new RPA agreement pending the outcome of the
T&ISC Inquiry. However we can confirm that it remains our
intention to extend our cooling off period from one month (current)
to three months under this new agreement.
Q339
We have been provided with information by a
range of machine operators which clearly demonstrates that gaming
machines operated in leased and tenanted pubs (where the pub company
retains an interest in managing the performance of the achines)
consistently outperform machines in free-of-tie pubs. The cash
sums quoted are the average weekly cash balance available for
distribution, after machine rent has been deducted.
|
| Source | Average weekly cash balance (Post rent)
| |
|
| Leased /Tenanted
| Free of machine tie
| % Difference |
| Local operator | £226
| £135 | 67%
|
| Regional operator | £206
| £94 | 119%
|
| National operator | £202
| £157 | 29%
|
| National operator | £187
| £91 | 105%
|
|
Q342
I believe the survey to which my answer refers is one carried
out by the Morning Advertiser in May 2004, where only 59% of respondents
claimed to have taken legal advice prior to signing a lease.
It is not possible for us to quantify exactly how many holders
of an Enterprise agreement have not taken professional advice
as, to date, we do not require formal confirmation of this. However
we recommend, in writing, that professional advice is taken by
all applicants on no less than four occasions leading up to the
point at which an agreement is formally signed, and we believe
that this commitment is likely to lead to a higher proportion
of Enterprise applicants seeking and receiving some form of advice.
The four occasions are:
— at the time of application (printed in our Code
Of Practice);
— at the time of consideration for a specific pub
(printed in our Business Blueprint);
— at the time of Proposal for Offer (printed on
a specific form signed by the applying licensee); and
— at the point of Agreement Offer letter (printed
in the final paragraph of the letter).
You will also recall our commitment, in our new RPA agreement,
to ensuring that prospective lessees take professional advice
and having their advisor confirm this by countersigning the lease.
Q350
The 50:50 split of profit (which is a standard industry benchmark)
refers to the pub retail operating profit only and does not include
the wholesale profit made by Enterprise from the sale of products
to pubs.
Q385
The figures provided refer to the entire Enterprise estate,
as operated under current agreements. We are not able to speculate
how these proportions might change under our proposed Retail Partnership
Agreement.
|
Enterprise share
of AWP income
| Number of outlets |
% of estate |
|
| 0% | 4,020
| 46% |
| 15% | 525 |
6% |
| 35% | 1,223
| 14% |
| 50% | 2,971
| 34% |
| 8,739 |
100% |
|
Again in Q385
In our submission clause 2.11(ii), we stated—
"In the six months to March 2004, sales of untied drinks
products to a value of £10 million were supplied to over
2,000 Enterprise tenants and lessees (£5,000 per pub). In
addition, approximately 1,600 Unique pubs choose to purchase untied
drinks products from the Company."
In addition, our submission clause 2.11(iv) demonstrates
how the benefit of purchasing terms secured by the Company from
suppliers of other goods and services has been utilised by a large
number of tenants and lessees—
"In the 12 months to March 2004, sales of non tied, non-drinks
goods and services to a value of £13 million were made by
a range of suppliers to almost 2,500 Enterprise pubs which generated
estimated savings to those pubs of over £4 million compared
to suppliers' standard list prices, equivalent to £1,600
per participating pub."
Q403
In our submission, clause 2.5(iii), we noted that—
"Research by UK drinks companies has identified that
price does not feature in the top 8 reasons why consumers choose
to frequent a particular pub. These are (1) Atmosphere, (2) Convenience,
(3) Clientele, (4) Cleanliness & safety, (5) Staff & service,
(6) Surroundings, (7) Drinks range and quality and (8) Entertainment
& promotions:"
I am enclosing as Appendix B[30]
the results of similar research carried out by Scottish Courage
Limited amongst almost 2,000 consumers as recently as 2002, which
further endorses our assertion that price remains one of the least
important factors to consumers when choosing which pub to visit.
Q406
As we have only recently acquired the Unique business of
3,997 pubs, the retail price support mechanic referred to has
not previously been available to these pubs. Within the Enterprise
estate of 4,742 pubs prior to the Unique acquisition, this facility
has been available to all pubs at the discretion of the Enterprise
Regional Manager to assist the incumbent tenant or lessee to compete
effectively in a particularly price-sensitive local marketplace.
Whilst we do not have a record of how many pubs have been offered
this facility, I can confirm that 132 outlets currently elect
to receive retail price support from the Company.
SUPPLEMENTARY
I attach as Annex C a schedule detailing the number of pubs
in the Enterprise and Unique estates by type of lease and tenancy
agreement in September 2003 and September 2004.
I also attach as Annex D a schedule detailing the payment
frequencies for rent and trade accounts, and the numbers of pubs
in the Enterprise estate by each payment method.
I hope that I have provided all the information the Committee
are seeking. However please do not hesitate to contact me if I
can be of further assistance.
G E Tuppen
Chief Executive
28 September 2004
30
Not printed. Back
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