Examination of Witnesses (Questions 300
- 311)
TUESDAY 6 JULY 2004
BRITISH BEER
AND PUB
ASSOCIATION
Q300 Linda Perham: So you stand by
your statement that it is easy for a retailer to leave the business.
Mr Hayward: We believe it is.
The circumstances to which you referred are very special and probably
not fully identified when the information was given.
Q301 Linda Perham: You do not know
of any other barriers to somebody exiting who is in difficulty?
Mr Hayward: Clearly there are
people who get into difficulties and those have to be treated
by each company as individual cases. There have been circumstances
where, for example, steelworks or mine closures face a community
and I know that companies have taken action. I am sure there are
other cases where individuals are not happy because they want
to get out for whatever reason and the pub company has taken a
different view. That is because they have a different assessment
of the circumstances which people have got into. I would certainly
echo what Martin Rawlings said just now, that, tragically, one
of the problems we face—and you face as MPs when you get
people coming to your surgeries—is that at times you wonder
why people did not take the advice which ought to have been available
to them. We have all been through that.
Q302 Linda Perham: Yes, we frequently
feel that. You said "take action" in a case where circumstances
change, with the closure of a facility or something. When you
say that do you mean work with the tenant to make sure that the
business keeps going or in some cases actually close the pub down?
Mr Hayward: It is a mixture. In
light of the evidence which was given last week, I did actually
ask one or two companies specifically whether they had been affected,
for example by Llanwyrn, which happened to be the first major
circumstance which I could think of because it is close to my
part of the world. In fact both of them were in a position to
say yes, they had not only reduced the rent but they had reduced
it very substantially because suddenly the circumstances had changed.
They had a vested interest in maintaining the pubs in operation,
but clearly there are individual cases, some of which have worked
to the advantage of people and some of which have not.
Q303 Chairman: One of the things
which you have said is that the tenants of pubcos have the opportunity
to increase the capital value of their business through business
development. By the same token, a rather grudging attitude is
adopted, as far as we can see, about things like gaming machines.
Why is it that a pubco should be allowed to take a share? I have
had experience of running social clubs where the hardest thing
is wading through the Yellow Pages for gaming machine companies
and they all offer you dizzyingly attractive deals. It does not
take any expertise, it does not take any great ability on the
part of the pubco which is peculiar to them as distinct from the
tenant. Why in these circumstances do you think pubcos deny the
tenants the full fruits of the one-armed bandits?
Dr Rawlings: You have touched
on a rather sore point. Clubs of course have a higher prize regime
than allowed in pubs and they do very nicely out of it.
Q304 Chairman: Notwithstanding that.
Dr Rawlings: Notwithstanding that.
May I explain it this way? Gaming machines are a particular case
in point where pubcos have actually worked very well. If you look
back over the figures we have had in recent years, the income
to the tenanted sector has risen and the number of machines has
risen in that sector, primarily because the pubcos have taken
an interest; prior to that a lot of pubs did not realise the potential
of gaming machines. There are still around 17,000 pubs which do
not have them at all. Where the pubcos have gone in and taken
on companies they will go round and do deals with suppliers, much
as they can with anybody else; they will turn the fruit machines
around. When a guy has a fruit machine in for a year it is so
tired at the end of a year that it is not making any money at
all. All that added value which the pubco puts in is what he takes
out as his share.
Q305 Chairman: Dr Rawlings, I do
not think the tenant is going to be that knackered at the end
of 12 months that he cannot pick up a phone and ask for a better
machine. These guys are never out of the place. They are always
wanting to sell you extra ones and things like. That is about
the feeblest evidence we have had all afternoon.
Dr Rawlings: I am sorry, but it
does happen. What happens is that they are renting second-tier
machines from the suppliers because they are somewhat cheaper,
but they are not earning the money that other people do. I am
not going to apologise for the evidence, because it is there to
see: the number of machines in those tenancies has increased and
the income they have got from them has increased. The other thing
I would say is that nobody forces anybody to take that agreement.
If there is an existing agreement, you cannot walk in and say
"I am going to take the machine income away from you".
You cannot do that. If the tenant does not want that to happen,
it cannot happen under those existing agreements.
Q306 Chairman: Really what I am saying
is that if ever there were evidence of the way in which the dice
was loaded against the tenant, it is in this particular area,
where no expertise is required to install the machine, little
expertise at all apart from the ability to read the Yellow
Pages is required to find the companies and all the individual
still has to do is take the money out and sometimes they do not
even have to take it out because it is done by the companies themselves.
In my experience the kind of people who use these machines like
the complicated ones. If they are in the pub and they have money
to spend which they do not want to spend on drink, they will put
it into pretty well any kind of hole in the wall which is going.
I have to say that your evidence has been robust so far, but this
is pretty feeble stuff.
Mr Hayward: May I make the observation
in relation to it, that some companies do or do not operate that
as part of the tie. Others operate it through soft drinks or wines
or neither. There is a variety of different options and that indicates
the flexibility which we now have in the market, that there is
more evidence of choice and professionalism now because there
is a range of options, whereas previously, with the Beer Orders,
there is an absolutely standard arrangement available in any community.
Now you have a range of options which is given to anybody who
wants to go out of different age ranges and different sets of
circumstances.
Q307 Sir Robert Smith: You just mentioned
the soft drinks and other things. There is a concern, especially
of a lot of people who are not driving and the people switching
to non-alcoholic drinks, that there the consumer is missing out
because that seems to be where the tie is getting stronger with
the pubcos dictating what soft drinks can be supplied.
Mr Hayward: I am honestly not
sure because I have not checked that. I cannot either agree or
disagree. What I would say is that in fact the proportion of sales
which is allocated for alcohol in pubs is declining and food and
particularly soft drinks, including coffees and the like, are
actually rising quite markedly as a proportion of most pubs' take.
Q308 Sir Robert Smith: So it would
be quite important for the final consumer if that side of the
market were not getting too restricted.
Mr Hayward: I think the evidence
probably is that it is not getting restricted, purely on the basis
that the range of soft drinks and the range of things like coffees
and teas, which a few years ago nobody would have ever dared ask
for in a pub, are now readily available in the vast majority of
pubs.
Q309 Chairman: Some would say that
they should not be allowed in good pubs, but that is another matter.
One point on this. Let us imagine that a tenant has a pubco property,
no food has been offered in the past, so they go to the expense
of installing limited catering facilities which they need, it
might be a high powered microwave or something like that, but
they do that and they start it. Do you think it is reasonable
for the pubco to take a share of that?
Mr Hayward: In many cases he does
not and unfortunately I wish it were just as simple as that. With
trading standards officers, environmental health officers and
all other elements of regulation in this day and age it is actually
an incredibly complex process setting up catering facilities in
a pub. In fact about 90% of pubs do have catering as part of the
offer now, which previously, going back 20 years, very, very few
of them did. Again it comes back to the point I made just now
about the variety of ties. Quite a few of the companies would
not include that as part of the tie; others may do, I do not know.
Q310 Chairman: To sum up, the picture
you are painting is that the practice is now varied, varying and
variable across the businesses. There are some who offer discounted
food, others who will allow people just to get on with it and
the same with one-armed bandits as well.
Dr Rawlings: I am not aware of
any pubco which takes any proportion of food sales into the tie.
When they publish figures about publicans' incomes, they exclude
anything outside that package. So the property maintenance and
the food side of the business are his and he does his own buying
and selling for those.
Q311 Chairman: I think we heard from
someone else about that, but I will have to check the evidence.
We have beaten the clock, as they used to say on the quiz programme,
and we have avoided any votes, but we are very grateful to you
for your evidence. If you have any additional evidence you want
to submit, please do. If we think we require points of clarification,
we shall get back to you.
Mr Hayward: In conclusion, may
I thank you very much. May I say that we did try to keep our answers
brief so that we could conclude before a division? Thank you.
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