Examination of Witnesses (Questions 312
- 319)
TUESDAY 20 JULY 2004
ENTERPRISE INNS
PLC
Q312 Chairman: Good morning, gentlemen.
Perhaps you could introduce your colleagues, Mr Tuppen, and then
we will begin.
Mr Tuppen: Certainly. Can I introduce
Gordon Harrison on my right—he is my Operations Director—and
Simon Townsend, my Customer Service Director on my left. Can I
start off by thanking you for inviting us along today and give
you a tiny background on Enterprise? We formed Enterprise in 1991,
buying 368 pretty dreadful pubs from one of the major brewers.
By the time we floated on the Stock Exchange in 1995 we had tidied
those up a bit and bought a few more, so we had an estate of 500.
Since then we have grown, through acquisition, and we have an
estate of 8,500 pubs now. We are now a FTSE 100 company and our
market cap is nearly £2 billion. We have several thousand
shareholders, individuals, major pension funds, and we are committed
as a company to being the leading specialist operator of leased
and tenanted pubs in the UK. Without the leased and tenanted sector
the industry would be dominated by the large branded managed house
chains and individuals who could afford to pay half a million
or more for a pub. We are proud to have continued a tradition
where the 33,000 leased and tenanted pubs in the UK offer a well-established
low entry cost opportunity for entrepreneurial licensees to create
individual pub businesses generating real profit and real value.
Without doubt, we believe this vibrant sector has made a huge
contribution to the massive improvement in pub quality and consumer
choice in both pubs and products that we have seen over the past
10 years.
Q313 Chairman: I suppose the only
thing about that is that you are not selling as much beer and
fewer people are going to the pubs?
Mr Tuppen: I think that fashions
change all the time, and I think one of the nice things about
having such a diverse pub chain is that you can watch these changes
over time. Some pubs will shift from being predominantly beer-led
to offering more food; some will continue to concentrate on beers
and lagers. Certainly the days have gone when after a day working
in the steel works, for example, the average worker would drink
10 pints of beer then go home for a shower and then come out for
a drink in the evening. So fashions have changed, but people are
drinking probably more expensive products than they used to, higher
quality, but perhaps not the volume that they used to.
Q314 Chairman: They are not drinking
them in pubs either in quite the same way. The licence trade,
the off-licence, seems to have increased, has it not? Is there
any relationship between the fact that you own pubs and the amount
of beer that is being drunk? The importance of drinking at home
has increased.
Mr Tuppen: I think this is a trend
that has been going on from way before Enterprise Inns was formed.
I think that as social patterns change, as being at home with
videos and Sky television and the many other things that people
can have in the home, I think that makes it perhaps more comfortable
for some people to stay at home. Certainly beer in supermarkets
some might regard as unreasonably cheap. Just moving into a slightly
different area, we are certainly facing a situation where the
Government, I know, are very concerned about alcohol strategy,
Alcohol Harm Reduction Strategy, and 50p a pint for some pretty
strong lager, or whatever, in supermarkets needs to be taken into
consideration when we are looking at that particular area.
Q315 Chairman: We are going to come
back to that in a wee while; it was just a point I thought should
be raised. Some of the concerns that we have had to address so
far have been the views of tenants that, while they may well be
given an opportunity to flex their entrepreneurial muscles, as
it were, it has been suggested to us—and the difficulty
here is that we are asking you about allegations that are made
by people who may not be your tenants and, therefore, it may not
be relevant, but on the other hand it will give you the opportunity
to tell us how you handle your tenants. We get the impression
that, in some instances at least, the tenants are little better
than innocents abroad, insofar as they are not really given the
kind of information that they should have before they enter into
the agreements with pubcos. What kind of financial information
on a particular tenancy do you offer to prospective tenants? What
proportion of this is factual, that is to say based on previous
accounts, and what are estimates, adjustments, and projections?
Can we start with that?
Mr Tuppen: Yes, I am very happy
to answer that. I think I have to answer that in two parts. There
are the new tenants who join us, and they are either becoming
a member of the industry for the first time or they are just joining
us. There are new tenants who join us by taking an assignment
from an existing tenant. I think, as far as the new tenant joining
us actually taking a lease from us is concerned, it is relatively
clear-cut. We provide full historic barrelage information, full
price-lists and, of course, the lease itself, which details the
rent payable, the review process and all the other relevant details.
Your point about lambs to the slaughter—I do not think those
were quite your words but I think that was your inference—some
two-thirds of our tenants actually come with an average of five
years' trade experience. That does mean, of course, that one-third
of them are indeed new to the industry. When they are going to
join us there then follow a series of meetings, including a full
screening interview which consists of an audit of the applicant's
key skills.
Q316 Linda Perham: When you say "five
years' trading experience", do you mean actually running
a pub or working in a pub?
Mr Tuppen: By that I mean running
a pub.
Q317 Linda Perham: Running a pub?
Mr Tuppen: Yes. These meetings
include pub viewings, a review of the licensee's business plan—that
sort of thing—and I would like to point out that we want
successful licensees, so we are prepared to share everything we
have to make sure this new licensee has the best chance of being
successful. It might interest you to know as well that so far
this year we have rejected 167 applicants for reasons of funding,
suitability or ability to hold a licence. So we do not just take
on anyone; we do work very hard to make sure that these people
are suitable.
Q318 Chairman: How many have you
accepted?
Mr Tuppen: During that time, Gordon,
how many new leases have we offered?
Mr Harrison: If I can give a statistic
from the year ending September 2003, we had 416 new entrants into
the business during that year.
Q319 Chairman: So that if the numbers
are roughly about the same, you are saying that you reject one
in three?
Mr Tuppen: There would be many
more rejected prior to interview, because some people, even on
the basis of their submissions—
Chairman: Do you think you could give
us some figures on that? I am not trying to trick you today, but
I think that when you give us one bit of a statistic it is tantalising;
it is a bit like the tip of an iceberg: we do not know how big
or small it is underneath.
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