Select Committee on Trade and Industry Minutes of Evidence


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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