House of Commons - Trade and Industry

Select Committee on Trade and Industry Written Evidence

APPENDIX 25

Memorandum by Shaun Rennison

THE RELATIONSHIP BETWEEN PUB COMPANIES, THEIR LESSEE'S AND WHOLESALE BEER PRICES CHARGED BY THE PUB COMPANIES

I have been involved in the licensed trade for some 12 years and in the retail sector for a total of 33 years. I am currently Vice President of the Federation of Licensed Victuallers and President elect of the Hull & East Riding Licensed Victuallers Association. I would be pleased to speak before the Committee if it is thought my views are relevant to their ongoing investigation.

Though I put forward my observations as a private individual I have cognisance of the licensed trade in general, but in depth knowledge of my own business interests as both a leaseholder and a free of tie public house operator.

I operate two different companies one which has two leasehold properties and one free of tie public house/restaurant which we own. I propose to give a synopsis of the three properties we operate to enlighten members of the Select Committee as to the type of trade enacted, the discounts received and relative profitability.UNIT 1 THE BEAR INN, MARKET PLACE, SOUTH CAVE

A traditional village public house with two separate bar areas served from one bar and a restaurant extension added some three years ago at our own expense. We have operated this site on a 30 year lease with the Un!que Pub Company since September 1992. Starting rent was £25,000 per annum and has subsequently risen to a current passing rent of £33,000. Customer profile is typical of a village with mixed age groups throughout all trading periods. This outlet trades as a village inn but serves food as an ancillary, trade is heavily biased to liquor sales in the proportions of 75% liquor and 25% food. This unit will purchase in the order of 385 barrels of beer products from our landlords in the current financial year with purchases currently running at -9.86% in volume terms. We have seen a steady decrease in beer purchases in the past three to four years as a result of price increases and increased competition from other operators.UNIT 2 THE PERCY ARMS, AIRMYN NEAR GOOLE

Again a traditional village public house with one large room and a conservatory area. We have operated this site on a 30 year lease with the Un!que Pub Company since October 2001. Starting rent is £25,000. Customer profile is mainly middle aged to retired persons though we do attract younger persons for dining. This outlet is food driven with a sales split of 40% food and 60% liquor. This unit will purchase in the order of 230 barrels (approx) from our landlords in the current financial year with liquor sales currently running at -0.80% against last year.UNIT 3 THE TRITON INN, BRANTIGHAM, BROUGH NEAR HULL

Purchased some 4½ years ago the Triton is a food lead operation. With three separate rooms providing a lounge bar, conservatory and restaurant. Customer profile is again middle aged to retired but again the food offer means that we see younger age groups as a result of our sales mix. We have absolute freedom of purchases for beer from all sectors of the market and use that to the full. Beer volume will be in the region of 200 barrels in the current financial year. Liquor sales value is currently on a par with last year though we anticipate that for the full year we will see a downturn in the order of 5% against last years sales.BEER DISCOUNTS BY OUTLET

I would like to show the significant difference between prices paid for the same beers by the three different outlets. Units 1 and 2 purchase at the same price from the Landlord/supplier.

The attached matrix shows that even with significantly lower volumes the free house actually achieves the purchase of key products at up to 28% lower than the prices charged by the landlords for units 1 and 2. It is fair to say that had I the opportunity and/or the right to purchase all of my products from a single source the variance in prices would allow me to improve even further the discount element achieved to a larger extent. The benefits to my business would be:

We have, I believe moved from one bad operation to another. The beer orders were legislated as the conservative government at the time thought the brewers had too much power within the UK drinks industry. All that has been achieved is to move towards a different controller dictating prices to thousands of small business operators stifling a free market trade.

Considering the discounts achieved based on small volumes the free house operates at up to 10% higher gross profit margins, if we consider the discounts which must be achieved by the Pub Companies based upon their buying power the lessee or retailer is being unfairly treat and, indeed as is my view, are being used to prop up the profits of the Pub Companies who seek only to securitize their property holdings and utilise the trading of others to achieve net gains.

It is significant to note that many of the major Pub Leasing Companies have sought to operate their own managed house divisions whereby they can utilise the massive volume discounts they impose upon the brewers to effect lower selling prices at carefully selected outlets with potential for enormous profit for the Pub Company often at the expense of their own tenants.

I consider myself to be lucky as I had the knowledge and the ability to negotiate the right rental levels with my landlords, and as such have had a good working relationship with them over the past 12 years. However as a member of the Licensed Victuallers Trade Association I am unfortunately faced on a regular basis with members who take on leases without the benefit of a background in negotiating skills who find themselves unable to earn a basic living wage as a direct result of the actions of some of the Pub Companies. I find it an anathema that Pub Companies are allowed ethically or otherwise to enter into competition with their own leasehold operators.

Rent reviews are supposedly based upon open market valuation, yet we are all locked in to the unfair upward only review. Having spent £140,000 building a large extension to our property at South Cave some three years ago we were still faced with and increase of rent to the tune of £7,000 per annum, and this was in the face of admitted reductions in sales value!! We have yet to see a full return on our investment and will have to hand this capital improvement over to the landlords at the conclusion of our 30 year term.

To conclude my observations I believe that the time is right to consider removal of the tie element of the leasehold or tenancy, allowing small businesses to purchase their stock in trade from where they wish. The removal of the right to upward only rent reviews must also be a major step forward for the trade. I appreciate that the Pub Companies will reserve the right to review the rental obligations of the leaseholders, but the freedom to buy could, in my opinion stimulate and reinvigorate the licensed on trade market to such an extent that the business will still be of benefit to all involved.

Shaun Rennison

19 May 2004

PRICE MATRIX

Attention Trade and Industry Select Committee

Please note a quoted barrel is equivalent to 36 gallons however packaged


			Actual Price Paid after discount

Product	Container Size	List Price	Units 1 & 2	Unit 3	Variance
Fosters Lager	11 gallon	95.96	84.21	60.4	-23.81	28.27%
Stella Artois Lager	10 gallon	99.13	88.45	69.05	-19.41	21.93%
John Smiths Smooth	11 gallon	85.04	73.28	54.74	-18.54	25.30%
Guinness	11 gallon	105.18	93.43	88.41	-5.02	5.37%
Budweiser Bottles	330 ml	24.19	22.33	16.01	-6.32	28.30%

Note:

In addition to the above off invoice discounts the landlords offer a retrospective deal which based upon 380 barrels would allow for a payment of £4,358.00 and on 230 barrels a payment of £2,010.00. The free house would also receive an additional payment of £2,100.



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