Examination of Witnesses (Questions 240
- 259)
TUESDAY 6 JULY 2004
ASSOCIATION OF
LICENSED MULTIPLE
RETAILERS
Q240 Mr Hoyle: Okay, pluck a figure.
Which figure would you prefer? Sixty thousand pounds?
Ms Nicholls: I am happy to stick
with the figures we have in our submission, but I just wanted
to point out that they were for our membership. The average is
£60,000 per annum in our membership. The average for the
sector as a whole would be closer to—
Q241 Mr Hoyle: You pick your average
weekly.
Ms Nicholls: I would go with the
£1,200.
Q242 Mr Hoyle: Okay, so it is £1,200.
All I am trying to ask is: do you not feel that, before you serve
a pint, before a customer walks through the door, you are really
on a hiding to nothing? I put it this way to you. I think that
level and the cost of trying, before you even sell a pint, to
raise the amount of rent which is required each week is absurd.
The other thing, maybe you could confirm, is my understanding
that before pub companies existed there was a queue and a waiting
list for pubs, the reason being that it was a good return; it
was a good investment and it was a long-term marriage, but usually
it was a dead-man's-shoes operation before you could get a pub.
Now what we see is that it is quick turnover and I do not know
the average length of tenancy of a pub company. Is it a lifetime
or is it now two to three years, which is the figure I would put
on it? If you agree with me, then there is something sadly wrong
with the industry.
Ms Nicholls: May I pick up the
last point first, because there was quite a lot to go through
there? In terms of the average figure for our members, we are
talking about multiple lessees and they are in it for the long
haul. They have been in there for 20, 30, 40 years. They have
had leases of that length of time and they go on renewing them.
We do not have any evidence within our membership of that kind
of churn that you are talking about.
Q243 Mr Hoyle: How many have been
sub-leased?
Ms Nicholls: I am sorry?
Q244 Mr Hoyle: You have people who
take the lease and then sometimes they sub-lease.
Ms Nicholls: No.
Q245 Mr Hoyle: You have none of that.
Ms Nicholls: No.
Q246 Mr Hoyle: Would you find out
for us what the average is for each pub company's pub?
Ms Nicholls: We only deal with
multiple lessees. I can only deal with what our members would
be doing, who are multiple lessees. That is probably a fairer
question to put to the pub companies themselves rather than to
us as a trade association.
Q247 Mr Hoyle: Do you think it is
fair that at £1,200 per week you are expected to try to make
a go of it?
Ms Nicholls: That was the point
I was trying to make. The kind of business model our members have
is for multiple lessees and they make a very good living out of
that. Alex is probably better equipped than I am. We are not representing
people who are struggling to cover the cost of the rent; they
are making very good profits out of those businesses they are
running on that rental model. Alex's company was the £155,000
a week rent because it is a central London prime site.
Q248 Mr Hoyle: Can you let us know
how many people hand the keys back per year?
Ms Nicholls: The kind of people
we represent as multiple lessees are not handing the keys back
every year.
Q249 Mr Hoyle: Somebody must be handing
something back, because I see pubs changing hands and changing
landlords.
Ms Nicholls: With respect, we
do not represent those people, because we do not represent individual
tenants.
Q250 Mr Hoyle: But the companies
must.
Mr Bish: The pubcos would be able
to furnish that information and we will ask them.
Q251 Mr Hoyle: You represent them.
Mr Bish: Some of them.
Q252 Mr Hoyle: Yes. So can you just
get us that information from the people you represent?
Mr Bish: Yes.
Mr Hoyle: It seems very hard. Ms Nicholls
does not seem to understand. It is all we require.
Q253 Mr Berry: We have been told
that the average length of time a tenant spends with a pubco is
three years and this is the basis of a number of Lindsay Hoyle's
comments. You represent a membership which is diverse in terms
of their commercial perspective, as you tell us. What would be
helpful, would be if, for example, you had information. From what
you said, for the multiple lessees we are talking something like
30 or 40 years.
Mr Bish: Long term.
Q254 Mr Berry: Yes, this is long
term. This clearly suggests that relationship is fundamentally
different from tenants of pubcos who are churning every three
years. Because you represent pubcos, you represent a range of
commercial perspectives in this market, do you have any figures
about other pub operators? You said that for multiple lessees
it is much, much longer. That suggests something quite interesting.
Do you have any other information from your members about how
long people hold leases in different market circumstances?
Mr Bish: We have to understand
that there is a variety of reasons for coming into the business.
With the old breweries—and one talks in terms of those relationships—the
old tenancy relationships were often three-year renewable tenancies,
on non-assignable short leases. The tenants got nothing out of
it at the end of three years and had to negotiate a new tenancy.
So you could say that even in those sunlit uplands of the previous
life, there was a churn of tenancies every three years. Now a
new business model exists for long-term leases where lessees can
assign their leases after a period of time, usually in the area
of two to three years. There would be a number of people coming
into the business, with the actual business intention of leaving
it or assigning their lease, but certainly changing, after three
years. You could regard that as a business model success. Really
what we are talking about is those who fail to make a success
of their business. That would presumably be the concern of this
Committee and of us all in the industry. I think that it is probably
better to ask that question of the pubcos, but we will certainly
ask them to supply, through us, that information. You will probably
get specific answers next week when you take that evidence.
Q255 Sir Robert Smith: One of the
other issues we have raised is to do with the barriers to exits,
but again maybe in the kind of members you represent it is not
necessarily the best route to check this out. It has been suggested
that for people who are finding life difficult when running a
pub or through ill health or whatever, there should be an easy
route to exit from their lease. I do not know what your own experience
is of trying to exit leases.
Mr Bish: Perhaps Alex could talk
about getting out of a business he did not want to stay in.
Mr Salussolia: It is always a
challenge. When you make a commitment, particularly as a multiple,
you are making a commitment over a reasonable length of time to
make an investment against and get a return. If you get that model
wrong, then you want to try to assign it and it becomes harder
to do so if you have a very good covenant and cannot find someone
with a better covenant to take the assignment. That is the nature
of retailing to a degree. The actual market has become more competitive
in retailing terms and if you look at the time people spend in
a specific business, it is as much about how good they are but
also as much about how the market might change. In these days
the market changes at a much faster pace than it has historically
and you run into lots of issues with people who have good business
and a poor business. From a retailer's point of view, what you
would like is more flexibility to be able, yes, to share the good
times, but share the bad times a bit better. That brings it back
to the point of upward-only rent reviews as an issue which may
need to be examined a bit more closely. If you look at break clauses,
it is a very difficult and problematic area. If you introduce
break clauses into an agreement it has to be both ways, with the
landlord and the tenant, and if you are a tenant making an investment
against a two-year period, it is a very different investment than
if it is against a 10- or 15- or 20-year period. I do not have
the solution for that one.
Q256 Linda Perham: In some of our
evidence we have had tenants complaining about the role of their
business development managers. Do you have any information about
the experience and qualifications these people are required to
have?
Mr Bish: Business development
managers are the middle managers in the industry. They are a crucial
link between the licensed premises and the head office. In the
context of leases, their particular role is to make sure that
the terms and conditions of the lease are complied with and their
responsibility to their company is to maximise the rent and, above
all, to minimise the chances of there being a rent void, in other
words of the pub being boarded up. However, back to our earlier
discussions about the size of the cake, they do have a role as
advisers and to develop the business. Most pubcos will tell you
that they have a contribution to make to support the tenant. Our
experience—and I am not necessarily talking about multiple
lessees, where the relationship is different—is that the
business development managers sometimes have a role and historically
it was always so in industry, where licensees, publicans, tended
to have particular skills at marketing and customer relations,
filling in at a pub if you like, whereas as businessmen they were
sometimes less experienced, less qualified and that is an area
which perhaps you explored quite extensively with Tony Payne.
Good BDMs for good companies have that role as well as maintaining
a contractual relationship. Within multiple lessees, it is quite
likely that the managing director of a company such as Glendola
Leisure would deal at a more senior level with his landlord than
necessarily on a day-to-day basis with his BDM, whose support
on business development and improving the size of the cake is
not so crucial.
Q257 Linda Perham: And their qualifications
and experience?
Mr Bish: That is a matter for
the company which employs them. There are more business qualifications
within our industry than there were, but they might have hospitality
degrees, they might have run pubs themselves, they might be en
route through management to more senior things within the industry.
It certainly was my own personal experience to be involved in
the industry in that way. I referred earlier to the Morning
Advertiser and its survey which reported a good relationship;
3.5 out of 5 as a satisfaction rating with their BDMs, which sounds
pretty good considering it can be quite tense at some stages in
the relationship.
Q258 Linda Perham: Do they come in
at an early stage, say when the leases are being negotiated, or
are they just in at a later stage when the business is being developed,
or they are being called in for advice later on?
Mr Bish: Traditionally the BDM
role was multi-functional, multi-disciplined within the whole
relationship between the landlord's company and the lessee, the
business if you like. Some companies now have specialists who
will deal with beer sales and some with marketing, some with property
support. The business development manager is responsible to his
employers, to the pubco, for the success of that business. It
is probably important for us all to remember that the success
of the business is crucial to virtually everybody engaged in the
process.
Q259 Linda Perham: Do the brewery
companies have them as well?
Mr Bish: In one shape, form or
another. The ALMR runs a competition for those people at that
level of management and we distinguish between those who are settled
area managers of managed businesses, where there is usually a
concentration of, say, 12 to 15 pubs per manager and the BDM in
the pubco estates between 40 and 80, depending on the intensity
of the work.
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