Examination of Witnesses (Questions 400
- 419)
TUESDAY 20 JULY 2004
ENTERPRISE INNS
PLC
Q400 Mr Hoyle: About 400?
Mr Harrison: The answer is they
would not be available.
Q401 Mr Hoyle: So let us get it right
then. It is 9,000, it is 100?
Mr Tuppen: Yes.
Q402 Mr Hoyle: What you are saying
is that only 100 pubs benefit the consumers. For Joe Public out
there there are only 100 pubs where Joe Public can benefit? What
you are saying is in the other 9,000 pubs it is a rip-off?
Mr Harrison: I do not think I
have ever said that. The point I make is this: that we have special
tactical deals available for licensees who consider they are in
areas of extreme price sensitivity and we use them where we consider
there is benefit to be had.
Q403 Mr Hoyle: Do you think the consumer
ought to get a better deal all across your pub estate?
Mr Tuppen: If we could answer
that one, Lindsay. We have made this offer available quite generally
from time to time when there has been price pressure particularly
in the high street. It is not surprising to me but might be to
you that if we offered this to 500 pubs most of them would say,
"No, we do not want that deal because we are not into the
business of selling cheap beer." Selling cheap beer is not
the way to run a quality pub. It is contrary I believe to many
social issues. Cheap beer being available raises a lot of social
issues. I could take you to a pub in a relatively dodgy area of
North London where there is a pub selling cheap beer down the
road and our licensee was offered the chance to have this special
offer and he said, "Frankly, I do not want those people in
my pub. I am perfectly happy that the clientele I have got do
not want cheap beer; they want good quality service, they want
a great atmosphere, they want good music, they want good food
and they are very happy with the beer prices that I am charging.
The fact that there is a pub selling cheap beer down the road
is quite good news for us because what it means is the sort of
people that that business might attract will go down the road
and will not damage the reputation of my pub by coming in here."
I do assure you—and I am sure we can provide you with surveys
that can confirm this—that price is about the tenth or twelfth
reason why people go to a pub.
Q404 Mr Hoyle: Can I just get it
right. If you said to me I could have some beer cheaper then I
am going to turn that down because it could make more profit?
I do not really want to make a profit; I want to be a person who
is running a business so I am willing to not take a discounted
beer? I would not necessarily have to sell it on, I could have
kept the extra profit. Are you telling me that all your people
are willing not to take the extra profit?
Mr Tuppen: As I am sure you will
understand, the transaction would be that there is a pub down
the road selling cheap beer, we will sell you some more cheaply
so you can compete whilst maintaining your margins.
Q405 Mr Hoyle: These people really
do not want the public out there to get the benefit through your
estate apart from the 100 pubs where you are still in the competition.
Mr Tuppen: No, I am saying that
the majority of our licensees have demonstrated that they think
the quality of the pub and the performance of the pub for the
satisfaction of their customers is far more important to them
than churning out cheap beer.
Q406 Mr Hoyle: Can you let us know
how many people you have offered your price busters to in your
9,000 estate?
Mr Tuppen: Yes.
Q407 Mr Clapham: Mr Tuppen, do I
take it from what you have just said that you would not allow
your tenants to enter into such things as happy hours in order
to bring in the custom?
Mr Tuppen: On the contrary, how
an individual licensee runs his own business is entirely up to
him and there are licensees who will—whether it is a happy
hour or a band on a Friday or free sandwiches on the bar on a
Sunday—run the business in whatever way they choose. I would
say, however, that we regard ourselves as working very closely
with government in regard to the Alcohol Harm Strategy and our
clear advice to our estate is that cheap supermarket beer is bad
for society because I believe it enables people to have large
quantities of alcohol available cheaply which can lead to a lot
of town centre disorder. We also make it very clear to our licensees
that with the Government's "storm troopers" going in
over the next eight weeks that if anyone is seen to be running
a house in such a way—serving underage drinkers or generally
behaving contrary to the licensing regulations—we will be
entirely on the side of the police if the police or the magistrates
choose to shut that pub down. We are passionate believers in responsible
drinking. My own position as Chairman of the British Beer and
Pubs Association gives me the chance to talk to senior members
of Government on a regular basis and I am delighted that the Government
recognise that the battle against alcohol harm and the battle
against rowdy town centres is a task that we undertake together,
that we are in partnership here, because the vast majority of
pubs and the vast majority of people drink sensibly. It is vitally
important that the entire industry works together—and Enterprise
is a big part of it—to bring a sense of order back to those
areas where drinking has got out of control. I must say that cheap
drinks irresponsibly sold such as "as much as you can drink
for a fiver" have no place in our industry.
Q408 Mr Clapham: Right. Given what
you have just said and given that that would translate down the
line into a constraint on the initiative of your landlords (because
it possibly would transfer that way) what is your reaction to
a suggestion that some of your landlords are earning, after your
take, less than £10,000 a year?
Mr Tuppen: I made the point earlier
that I think this relates to the quality and potential of some
pubs whether they are our landlords or whether they are independently
owned. There are some pubs where the economics (whether you buy
it or rent it) are becoming a bit marginal.
Q409 Mr Clapham: You would agree
that £10,000 a year is hardly a living wage for a landlord
who is spending probably 65 hours a week working in that pub?
Mr Tuppen: I agree that a full-time
landlord earning that much should be looking at the viability
of that business. I would just put one caveat with that though.
Were there to be a rule passed that pubs were not able to earn
that little you would damage a vital part of the rural sector
where there are pubs which are in nice villages which are good
places to live and people are happy to live there, perhaps not
work very hard in the pub, perhaps have some other work as well.
It is a choice they can make and I could introduce you to licensees
who say, "I do not make much from the pub but it is a great
pub, the people in the village are fantastic. We do not make a
huge amount of money. My husband or wife goes out to work during
the day. We are perfectly happy with this arrangement." Do
not legislate to force those pubs out of business because many
people would be quite content with that.
Q410 Mr Clapham: Given the situation
that of course not all pubs are making a really good living what
kind of penalty would you apply to a landlord or a tenant who
wishes to surrender their lease early?
Mr Tuppen: No penalty whatsoever
is the answer to that. I can assume that we are referring to one
of the previous witnesses. The lease is very clear. You cannot
assign your lease during the first two years. It is very straightforward.
You are not allowed to assign your lease during the first two
years. We do that for a number of reasons, mainly to do with avoiding
revolving door licensees and things like that. Part of the commitment
is you sign up for two years.
Q411 Mr Clapham: Presumably with
exceptions for ill health?
Mr Tuppen: There will always be
exceptions, and for more than ill health to be fair. Once you
get past the two-year milestone then you can assign your lease
without any costs at all but within that two-year period there
will be things that go wrong, and you mentioned ill health. I
did manage in anticipation of this question to see what has happened
over the last year and during the last year, 45 licensees out
of 9,000 have left during that first two-year period. For 28 of
those pubs no fee was charged. They were not all ill. In some
cases they had a perfectly logical reason or explanation and they
dealt with us fairly and we allowed them to go without penalty,
as you described it. In the other 17 that have gone where we did
charge a fee, the average fee that we charged was just around
£4,000 a pub . Basically we are helping these licensees out.
In the case of the witness to whom you refer, there were a number
of issues which meant that we did not feel that she was perhaps
treating us fairly. When she asked for a rent reduction she would
not open the books to explain why it was necessary. As Gordon
explained, she said that one of the reasons she was not prepared
to reduce the rental cost for her letting rooms was that if the
pub was full she would have to get up and make the breakfasts.
We hardly felt that we had a case of hardship. We felt with different
circumstances she could have made this pub a bit better. We also
discovered that she was trying to sell it for a substantial profit.
My regional manager, acting I think perfectly correctly said,
"This is the situation. Your two years runs out in January."
He made clear in a letter to her—and you have a copy of
all of this correspondence—"If it is sold after 8 January
there is no fee to pay. If you do manage to sell it for the price
that you are asking, which is a substantial profit, we will take
a fee for allowing you to do that." I think that was a reasonable
commercial decision made by that regional manager.
Q412 Mr Clapham: And are all your
tenants advised that there may be a situation in which you are
going to claim a fee?
Mr Tuppen: No. Much more importantly
than that it says very clearly in the lease you cannot assign
the lease during the first two years. It then goes on to say,
I believe, in our Code of Practice that in exceptional circumstances
we will discuss the possibility of your leaving. As I say, for
28-60 odd%—of those who did leave no fee was charged. I
think we behave morally responsibly in situations like that.
Q413 Judy Mallaber: You are sounding
terribly responsible! Can you go back to the beginning of this
question and tell us what proportion of your tenants you think
do earn less than £10,000 a year? We have had evidence from
others that suggests that it might even be the majority.
Mr Tuppen: We did supply you with
a chart. I see Simon looking for it. I believe the chart which
was included in Annex 9 of our submission showed that out of the
sample there of 5,000 pubs, which is our entire core estate, 167
licensees out of 5,000 earned an average of £11,000. I have
to agree with you that that is not a satisfactory level of income.
Q414 Judy Mallaber: You have referred
quite frequently this morning to your Code of Practice which I
understand has been there since 1996. Do I take it given that
you have been giving us a number of statements about your own
sense of responsibility that you would be happy to respond to
calls for a legally-binding Code of Conduct that applied across
the industry? Would that be something that you would think would
be something that you could accept?
Mr Tuppen: We believe passionately
in a Code of Conduct and acting responsibly but I doubt the merits
of a legally-binding industry-wide Code of Conduct. It is a very
competitive market. As I said, we have great pubs and unless we
attract great people they will be little more than buildings.
So in order to get great licensees we have not only to be fair
but to be seen to be fair. We have been developing our reputation
(hard won) over a number of years. We make mistakes and I am more
than happy to admit that. However, generally we are doing things
better and better and being seen to be better at doing our job
as time goes on. We led the way by getting rid of privity of contract
and upwards-only rent reviews. We have spoken about our cooling-off
period. We are about to announce further upgrades to our agreements
extending the cooling-off period to 90 days and a five-year one-way
break clauses in all of our new agreements, one way for the benefit
of the licensee, and this mandatory sign-off by an independent
expert. We would prefer to see the dynamics of the market enhanced
by the market leader leading the way. The danger of an industry-wide
binding code, I am afraid, is that, as so often, it could become
the lowest common denominator.
Q415 Judy Mallaber: What about if
it were a code that included the areas which clearly should be
covered: things like insisting there were full structural reviews
on properties before people took over a tenancy or even some other
areas like caps on beer price rises, given some of the evidence
we have on how frequently prices seem to be put up. There are
a number of areas where we do have Codes of Conduct which are
legally binding which guide good practice. Why would this be a
problem for you if, as you keep telling us, you are in the lead?
Mr Tuppen: The danger, without
using a cliché, is that you may be throwing the baby out
with the bath water. A responsible company in this industry with
a Code of Conduct and a press that is vitally interested in the
performance of the businesses will form and in fact constantly
improve its Code of Conduct. If there were to be a legally-binding
industry-wide Code of Conduct I would imagine with confidence
that we would comply with all aspects of it. So it presents no
risk to us. I simply caution that I fear you may be harming the
marketplace by introducing such a thing because, as always, if
you are trying to make something standard across the industry
there is a risk that it finds its level at the lowest common denominator.
Q416 Chairman: What would you say
if the Government were to offer you the choice of having a voluntary
code self-regulated by the industry as a whole or one which the
Office of Fair Trading, let's say for example, sought to impose?
Mr Tuppen: I think the industry
has a number of Codes of Practice.
Q417 Chairman: Well, that is all
the more reason why we might want to have a degree of consistency
and it could be organised voluntarily by your own trade association.
There seem to be such a plethora of them that we are never very
sure which one we want to finger. You have got a code, you cover
a large part but not all, and there are one or two others with
whom you have only slight differences. That would not necessarily
imply the lowest common denominator. I think really you just want
to run this show, do you not? There is a bit of a power-madness
about your organisation. You want to have a say on the one-armed
bandits, you want to have a say on the price of crisps, you want
to have a say on the price of beer but we cannot know what these
prices are. You just want to hold everything to yourself.
Mr Tuppen: I have never had a
view on the price of crisps!
Q418 Chairman: There is time!
Mr Tuppen: I think your point
is well made and I think that no-one would disagree that a voluntary
code would be eminently preferable to both government and the
industry than something that was pored over for months and ended
up several hundred pages thick rather than a code which is clear,
which is bought into by the trade organisations from wherever
and based upon what I consider to be a level of good practice
across the vast majority of pub companies.
Q419 Judy Mallaber: Would you go
back and recommend one having come to this Committee and told
us how good you are?
Mr Tuppen: I think I was given
the choice of an imposed code or a voluntary code. I still think
that company codes will probably give greater dynamism to the
market. The question was would I choose a voluntary industry-wide
code or a government-imposed one? Clearly it would be in everyone's
interest if that were to be the case—to go for the industry
produced code.
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