APPENDIX 24
Supplementary memorandum by Punch Taverns
I am responding to your undated letter (received
27 September, 2004) seeking both additional evidence to that given
by Punch Taverns on 20 July, 2004 and clarification on some further
points. I will address each point in turn as outlined in your
letter; however, as you previously discussed with my personal
assistant, Anita Moores, I will on certain points refer to the
letter already sent by Francis Patton to Martin O'Neill on 2 September,
a further copy of which I also attach for completeness.
1. QUESTION
508
"The number of people who fell into
financial difficulty, or bankruptcy in the case of the individual,
is very, very small and tiny compared to virtually any other industry"
The Committee would be grateful if you could provide us with evidence
to back up this claim?
Our evidence comes from comparing our business
failure rate to that of those quoted by financial lenders such
as Barclays plc and the Government itself for small businesses.
For clarity, the definition we used to ascertain our own survival
rate was to look at those retailers who had left our business
due to financial difficulties. As in the studies by both Barclays
and the Government, we have looked at this over a three year period.
Using this definition and the same time frame
for each sample, then the figures are as follows:
— Government small business service
estimates three year failure rate for small businesses to be 34%
(source: DTI Small Business Website—www.sbs.gov.uk)
— Barclays estimates three year failure
rate for small businesses to be 47% (source: Barclays Small
Businesses Survey, Quarter Three 2002)
— Punch Taverns three year failure
rate is 12% (source: Punch Taverns internal data)
2. QUESTION
515
Mr Thorley states "I could get the statistics
for you but I honestly do not know, to be honest": The Committee
would welcome these statistics.
These statistics on the proportion of adults
who go to pubs were provided in Francis Patton's letter to Martin
O'Neill in point 1 of that letter and supported in appendices
one, two and three.
3. QUESTION
529
With reference to our Retailer Satisfaction
Survey concerning the quality and support provided by BRM's. The
Committee would be grateful if you could supply us with the full
results of this survey. Your written submission also suggests
that the survey would be repeated in August 2004. The Committee
would also welcome any results that you may have received from
this survey.
Further information concerning the comments
made were provided in Francis Patton's letter to Martin O'Neill
in point 3 of that letter.
The full survey is fairly lengthy and detailed
looking at a range of issues from which we have attempted to pick
out the most relevant to the inquiry. We would be happy to show
you and David Lees a copy of this at our meeting at Punch's offices
on Friday 8 October, enabling you to focus on which aspects of
the full survey you consider most relevant to the Committee.
Finally, the repeat survey referred to in paragraph
266 of our submission was completed on Friday 1 October and we
now await the results of that survey from the external company
which undertook it on our behalf. This analysis is not expected
to be complete for some weeks.
4. Question 538
The Committee would like to know if this
course (Modern Licensed Retailer Course) is taken by tenants prior
to or following, the signing of their lease agreements?
As stated in our original evidence, the Modern
Licensed Retailer course is a mandatory course for any retailers
wishing to take a lease/tenancy with Punch Taverns. Our stated
aim is to ensure that all retailers undergo this course prior
to taking a pub with us and this is exactly what happens. However,
we cannot definitively state that this happens in every case since
in certain circumstances or because of previous experience, a
retailer might take up a pub prior to going on a course. In these
cases the retailer will go on the next available course and will
be supported in the interim by both his Business Relationship
Manager and our Learning and Development team. He will also have
had to have been through the National Licensee Certificate course
in order to have obtained that qualification, which is a pre-requisite
for most local authority licensing benches.
5. Question 547
Referring to audited accounts and Mr McDonald's
quote "This is something we could discuss with our Retailer
Forums and see what sort of views we get from our retailers".
The Committee would like to know if this has yet been discussed
with your Retailer Forums?
We have not held any Retailer Forums since the
oral evidence session as we try to avoid the busy periods of the
year, such as the key summer months and the Christmas period in
the interests of our retailers. Our next sets of Forums are set
for early November and it is our aim to have this as an agenda
item.
6. Question 554
Referring to Amusement machines and a quote
from Mr Thorley stating "I can give you some statistics but
the levels of rent we charge for machines are materially lower
than are available in the free trade, and we can give examples
of that. Moreover, they have fallen I think by 7% in the last
year". The Committee would welcome this evidence.
These statistics were provided in our letter
to Martin O'Neill in point 5 of that letter.
7. In paragraph 24 of your written submission
you state.
"In the Punch estate approximately two
thirds of the pubs buy their beer from a standard price list which
is based upon the brewers' national wholesale price. The balance
buy their beer subject to discounts of approximately 15% or an
average of over £40 per barrel, with a small number (currently
78) receiving a discount of an average £80 per barrel. The
level of discount received is dependant on the agreement reached
at the outset and not reflective of the volume of beer sold."
The Committee would like to know what is the effect of these discounts
on the dry rent paid by these tenants?
As outlined both in our written submission and
in our oral evidence the leased/tenanted model offers a low cost
entry into the licensed trade. The cost of entry is made up of
the initial ingoing costs for fixtures and fittings, stock and
a deposit and then the ongoing cost of rent and the cost of goods
purchased. Again, as outlined in our submission the rent paid
is worked out on an industry wide approach which is the split
of the divisible balance. This divisable balance is the profit
generated from the outlet once all costs have been deducted from
the gross profit, derived from the income streams to the pub.
In working out the gross profit, the calculation will take into
account the selling price (ie retail price to the consumer) and
the purchase price (including any discounts). The higher the level
of discount received, the higher the level of profit generated
should logically be and therefore, the higher the divisable balance.
In all cases, ie where the discounts are taken or not, the split
of the divisable balance remains roughly the same.
8. In paragraph 45 of your written submission
you state.
"Struggling retailers get into financial
difficulties for many reasons and it is not always because the
rent no longer represents a fair share of the available profit.
It is also worth noting that, on average, rents as a proportion
of turnover seem to be coming down. The latest trade survey in
the Morning Advertiser highlighted a reported average rent at
13.35% of turnover, down from 14.18% in the prior year (source
Morning Advertiser/Morgan Stanley industry report May 2004)".
The Committee would be grateful if you could provide us with-a
copy of this report?
As requested, we attach a copy of the report.
9. In paragraph 53 of your written submission
you state
"We are pleased to note that the average
income of our pub retailer is estimated to be circa £35,000
per annum, including an allowance for accommodation and we believe
that most retailers are enjoying a growing income". The Committee
would like to know how the figure of £35,000 was arrived
at and from which source?
This figure was arrived at from analysis of
our own estate. It is derived from the retail profitability of
the outlet where the retailers' earnings are linked to the rent
paid. As already discussed in 7 above the rent charged is based
on an industry model, where the profit is split on average 50:50.
As we know that our average rent is £27,000 we therefore
know that the retailers profit will average £27,000. This
does not take into account additional benefits, the main one being
accommodation which, in line with other companies, commentators
and analysts we put at £8,000. Therefore, the average income
is estimated at circa. £35,000 per annum.
10. In paragraph 136 of your written
submission you state.
"Web applications have been running
at c 450 per month since July 2002. Recently, when we went live
in April 2004 with a joint Punch/Pubmaster site, this jumped to
over 700 applications. Those who successfully pass the initial
interview and cannot be placed in a suitable outlet according
to their skills and requirements are placed in our talent bank
and at present, the average number of applicants that are moving
through our recruitment process post screening and credit checks
is 1,600. These applicants will either be at interview 1, interview
2 or included in our talent bank": The Committee would like
to know what the average number of successful applicants in your
talent bank is? We would also be interested to know how many new
tenants have taken out a lease through Punch (over the latest
twelve month period available) broken down by the type of lease
taken?
It would appear that our submission did not
clearly explain the talent bank position. What we were in effect
saying is that we have 1,600 people in our talent bank who have
successfully passed our initial interviews and are therefore already
successful applicants awaiting matching to a pub.
The second part of your question relates to
how many new retailers have taken out an agreement with Punch
over the last 12 months, broken down by the type of lease taken.
As this is looking at a 12 month period, straddling our purchase
and integration of Pubmaster, we have only looked at new retailers
taking out a substantive agreement with Punch excluding Pubmaster.
Over the period 24 August, 2003 to 21 August, 2004 (our financial
year) lettings have broken down as follows:
|
| Standard Legacy Lease | 0
|
| New Retailer Agreement | 46
|
| Punch Growth Lease | 134
|
| Tenancy | 163
|
| Total New Lettings | 343
|
|
In addition, a further 416 were assigned to new retailers
over the year, many of whom would have previously come from our
talent bank.
11. How many pubs are there in the Punch Taverns estate?
As of 21 August, 2004 there were 7,334 pubs in the Punch
Taverns estate, of which 2,926 were from the Pubmaster acquisition.
As we publicly announced on 10 September, we have since bought
the InnSpired Group Limited but those pubs have not yet been integrated
into our existing estate and we are likely to make some disposals
from amongst the InnSpired estate.
12. What is the breakdown of tentants in your estate
by type of lease/tenancy?
For the Punch estate referred to in question 11 above, of
7,334 pubs as at 21 August 2004 the breakdown is as follows:
|
| Standard Legacy Lease | 88
|
| New Retailer Agreement | 74
|
| Punch Growth Lease | 57
|
| Tenancy | 87
|
| Net Trading (pending development or disposal)
| 128 |
| Total | 7,334
|
|
13. How often (quarterly/monthly etc) do your tenants
have to pay their dry rents? How often (fortnightly/monthly etc)
do they have to pay for their deliveries?
The breakdown is as follows:
|
| Rent |
Goods (deliveries) |
|
| Weekly | 53%
| 53% |
| Fortnightly | 42%
| 42% |
| Monthly | 4%
| 1% |
| 4 weekly | 1%
| 4% |
|
I hope that this has been useful in responding to the specific
issues that you have raised on behalf of the Committee and, if
we can be of any further help please do contact us or raise it
on Friday 8 October 2004.
Giles Thorley
Chief Executive
6 October 2004
| 
