I have attached a price comparison chart that
details prices I currently pay for some of my products from Punch
Taverns and the same products I have been quoted and in some cases
have bought from alternative suppliers outside of a tied agreement.
(I have documented quotes for products and invoices). Under my
tied agreement I have to purchase all "wet" products
from Punch (previously Pubmaster) as per their price list. This
includes beer, cider, soft drinks, cordials, beer, wine, spirits
etc. The penalty if found in breach of my tie is £100 per
gallon of products not purchased from Punch. My cellar contains
monitoring equipment for all cask and keg products that are dispensed
to ensure or check what I purchase against what I dispense.
Should you require any further information then
please don't hesitate to contact me.
The below table is a list of price comparisons
between Punch Taverns (previously Pubmaster) and alternative suppliers
of products that I am forced to purchase from Punch through their
representative (Carlsberg Tetley) at prices set by Punch Taverns.
Halls—a wholesaler to the drinks
industry. Bookers Cash and Carry. Tanners—a
drinks and wine wholesaler.
|
| Punch
| Halls | Bookers
| Tanners | Difference
| Margin to Punch |
Margin per pint |
|
| Keg beer (11g) | |
| | | |
| |
| Carling | £96.91
| | | £67.08
| £29.83 | 31%
| £0.34 |
| Fosters | £93.98
| | | £71.06
| £22.92 | 24%
| £0.26 |
| Grolsh | £109.28
| | | £76.14
| £33.14 | 30%
| £0.38 |
| Tetley Smoothflow | £86.56
| | | £57.91
| £28.65 | 33%
| £0.33 |
| Guinness | £105.20
| | | £82.95
| £22.25 | 21%
| £0.25 |
| Cask (9g) | |
| | | |
| |
| Bombardier | £78.43
| £56.99 |
| | £21.44
| 27% | £0.30
|
| Brains Best | £65.75
| £41.99 |
| | £23.76
| 36% | £0.33
|
| Everards Sunchaser | £71.76
| £54.99 |
| | £16.77
| 23% | £0.23
|
| | |
| | | | Margin per bottle Bottled Beers
|
| Stella 33clx24 | £19.95
| | £12.49
| | £7.46
| 37% | £0.31
|
| Kalibre 33clx24 | £16.65
| | £12.99
| | £3.66
| 22% | £0.15
|
| Corona 33clx24 | £23.57
| | £16.35
| | £7.22
| 31% | £0.30
|
| Soft drinks | |
| | | |
| |
| J2O | £11.95
| £10.78 |
| | £1.17
| 10% | £0.05
|
| Britvic Tonic | £7.70
| £6.40 |
| | £1.30
| 17% | £0.04
|
| Smirnoff Vodka | £20.17
| £18.59 |
| | £1.58
| 8% | £0.02
|
|
Margin to Punch is the margin based on selling price to me
as a tenant.
Margin per pint/bottle is the margin to Punch per pint or bottle
of beer. In many cases this is higher as I receive no ullage allowance
for line cleaning thus Punch make money on my having to ensure
a quality product for customers.
APPENDIX 28
Memorandum by the Wolverhampton & Dudley Breweries PLC
1. INTRODUCTION
W&DB is a vertically integrated brewer and pub-retailer,
with three trading divisions as follows:
|
| Name | Type
| Pubs | Turnover £m
|
|
| The Union Pub Company | Tenanted/Leased
| 1,150 | 116
|
| Pathfinder Pubs | Managed
| 450 | 252
|
| WDB Brands | Brewing
| | 122 |
| | 1,600
| 490 |
|
* year ended 27 September 2003
The majority of the Group's pubs are situated across the
Midlands and the North. The market shares of its beer brands are
highest in the Midlands area: Marston's Pedigree has a 28% share
of the on-trade premium ale sector in Central TV region, and in
standard ale (principally the Banks's and Mansfield brands) share
in the same region is 19%. (Source: A C Nielsen March 2004).
The Group's pub estates are mainly community based, and represent
the amalgamated pub estate of W&DB, Marston Thompson &
Evershed (acquired by W&DB in 1999) and Mansfield Brewery
Company (acquired by W&DB in 1999).
W&DB occupies a relatively unique position in the market
in that the business is one of very few remaining vertically integrated
businesses of scale in the pubs and brewing sector. The pub estates
of W&DB are managed in a similar way to those of the pubcos,
whilst our brewing business relies on greater distribution than
the family brewers but does not have lager brands.
The issues raised by the inquiry affect The Union Pub Company
and WDB Brands differently as set out below.
2. EXCLUSIVE PURCHASING
OBLIGATIONS
All our new agreements are fully tied. The types of agreement
offered by The Union Pub Company are as set out in Table 1 below.
Table 1
AGREEMENT PORTFOLIO
|
| Version | Tie
| Discount |
|
| Open House Plus | Full
| Draught £40-£75
Packaged £110
|
| Open House standard | Full
| Draught £50
Packaged £110
|
| Pathway Plus | Full
| Draught £40-£75
Packaged £110
|
| Pathway standard | Full
| Draught £50
Packaged £110
|
| Square Deal standard | Full
| None |
|
We offer an exceptionally wide range of brands, whether for
beer, cider or other categories, such as wines, spirits and minerals.
The provision exists within our agreements for tenants to legally
buy outside the tie in certain product categories, where they
can demonstrate that we are not supplying the requirements of
their local market. In the last three years only two tenants have
requested such an exception, which was granted.
We satisfy a modest consumer need for a variety of guest
cask ales through regular schemes which open up our customer supply
chain to other, smaller brewers and offer them a ready route to
market. Only c 9% of our tenants have responded by taking in extra
beers, demonstrating general satisfaction with the range to which
they already have access.
3. WHOLESALE BEER
PRICING
We price our products competitively. Our discounts are amongst
the very best in the sector. We enable tenants to purchase at
significantly better than market rates of discount. These include
up to £75 per barrel on premium ales, £70 on premium
lager and £110 on premium packaged brands. These discounts
are highly competitive and are benchmarked against those available
to a free trader.
Customers on our new fully tied agreements have each earned
on average over £20,000 in discount since taking out their
lease or tenancy with us.
Our Plus agreements enable customers to access higher levels
of discount in return for an up-front additional discount rent.
This is calculated in such a way that tenants and lessees are
generously rewarded for growing their businesses, with less than
100% of the higher discount being recovered through discount rent.
The wholesale profit we earn from supplying customers within
the tie is part of our overall profitability. It funds, inter
alia, investment in capital projects, repairs, marketing, business
development support, delivery and technical services.
The profit we make from our wholesaling activity is around
£117 per barrel. Tenants would typically make over £230
gross profit, depending on their retail prices.
Most pubs these days sell a wide variety of food in addition
to beers. Over 50% of our pubs offer customers either bar food
or restaurant-style dining. None of the food products or associated
categories, such as snacks, tea or coffee are tied. On the contrary,
because we as a Group buy in bulk for managed houses, our customers
who choose to buy from nominated suppliers receive very competitive
discounts.
Although tenants and lessees are tied in respect of beer
and other products, the important point is that they have a choice
of leading brands in each product category.
Table 2
PRODUCT PORTFOLIO
|
| Lager | Our portfolio includes such draught products as Fosters, Carlsberg, Kronenbourg and Stella Artois. The range of bottled lagers is also of well known brands.
|
|
| Ale | As pointed out above, the Group's ale brands are leading brands in the markets in which our pubs are mainly situated. Overall, products brewed by WDB Brands account for less than 40% of products sold by The Union Pub Company.
|
| Wines/spirits | We have just completed a portfolio review of wine supply based upon feedback from our tenants, and have made significant range improvements.
|
|
4. RENT
Rent is a key component in the value-for-money equation.
The Union Pub Company has for a number of years set its rents
on the basis of an independently chaired Rent Panel. We were the
first Pub Company to establish this important safeguard for our
tenants, ensuring that rents are set on the basis of fair maintainable
trade, reviewed against the open market.
We always seek to negotiate a fair rent, which reflects the
commercial opportunity represented by the pub and rewards the
lessee for their efforts in trading it well.
Rents are set on the basis of a variable percentage to turnover
by our Business Development Managers (BDM), in consultation with
our customers, and are then reviewed by the Rent Panel. The typical
range is between 10-12% of turnover, depending on the type of
pub, whether wet-led or food-oriented. We model the tenants' likely
profitability and aim for a return which gives them a high return
on their invested capital (>50% in many instances); we estimate
that our average tenant/lessee earns around £35,000 per annum
after taking into account the benefit in kind of living accommodation.
We have no upward-only rent reviews. Our leases comply with
the main provisions of the Code of Practice for Commercial Leases.
Our rents are set at market rate and can go down as well as up,
particularly if tenants are struggling through no fault of their
own, such as impacts from foot-and-mouth epidemic, and where there
are changes in the demographics/ethnography of an area, urban
redevelopment or road schemes which by-pass a pub. Whilst we do
not subsidise lazy or incompetent tenants, it is always in our
interest to keep a good tenant in their pub and we are very flexible
in setting rents that enable the business to continue. Interim
rent reviews are possible where the tenant and BDM make out a
valid case.
Our average rent is only 6.4% of the pub's value, very much
in line with usual commercial property rental yields. In the last
five years only one rent disagreement has ever gone to arbitration.
5. OTHER COMMENTS
The Union Pub Company is committed to a partnership with
our customers. We aim for clarity and openness in our dealings
with our tenants and lessees. This is typified by the endorsement
of the Campaign for Plain English Crystal Mark which all of our
new agreements enjoy. We were the first Pub Company ever to achieve
the Crystal Mark. The obligations and rights of both parties are
clearly spelled out in our documentation.
We spend well in excess of £12 million annually on repairs,
maintenance and—more importantly—on co-development
opportunities, building better businesses for our customers and
more attractive pubs for their drinkers and diners. The security
of cashflows that come from rent and the full tie enables us to
do this.
The relationship we have with our tenants is a business package.
As such it is much more than a dual property-owning and supply
agreement; we offer substantial added value services, such as
marketing, business development advice, training and bulk purchasing
deals, all of which enhance the value they get from working with
The Union Pub Company.
The leases we grant to our customers represent a low-cost
unbranded business franchise. For a relatively low capital outlay
of c £25,000 lessees have long-term (21 years) security,
a business opportunity with the ability to assign for a premium
after just two years and a home to boot. This compares very favourably
with other commercial leases.
The attractiveness of our leases and tenancies is evidenced
by the fact that we currently have over 500 qualified, credit-checked
and fully screened potential customers waiting to take a pub with
us.
We recognise that this strong demand could be exploited to
attract naïve applicants. This is why all our customers are
strongly recommended (and in the case of leases, compulsorily
required) to take legal advice from a solicitor, and to appoint
an accountant and stocktaker.
6. IMPLICATIONS FOR
WDB BRANDS
WDB Brands brews approximately 500,000 barrels of beer per
year, both premium ale (principally Marston's Pedigree) and standard
ale (Banks's and Mansfield).
Approximately 40% of Marston's Pedigree is sold to the pubco
market and 15% of standard ales. The pubco market is therefore
a key route to market, and the tenanted sector is an important
part of that market. Our principal customers include Punch, Enterprise
Inns, Pyramid, Avebury Taverns and InnSpired.
In assessing the likely implications for WDB Brands of the
removal of the tie, we have considered the impact of a consolidating
brewing sector which has led to a dominance of big brands with
large marketing budgets, and a trend, partly driven by consumer
demand, of sales mix shifting from ale to lager.
Our assessment is that the existence of the tie does provide
access to the pubco estates for regional ale brands. This access
would, up until the introduction of The Beer Orders, have seen
denied as a consequence of the control exerted over supply by
the national brewers.
Furthermore, the loss of the tie would have an impact on
the distribution of WDB Brands into the Union Pub Company. In
summary, WDB Brands would regard removal of the tie as extremely
prejudicial to its business.
26 May 2004
