Examination of Witnesses (Questions 440
- 459)
TUESDAY 20 JULY 2004
THE WOLVERHAMPTON
& DUDLEY BREWERIES
PLC
Q440 Mr Hoyle: Can I take you on
to business development managers. I just wonder what training
do you give to your business development managers?
Mr Oliver: We train them intensively.
Every year they get between ten and 15 days' training and coaching
and development, which is a pretty substantial investment by us.
It might be helpful to you to have a profile of the kind of person
who is a business development manager within our business. On
average they are 46 years old, on average they have been with
us for 15 years and in many instances they have been with other
companies before so you are looking at somewhere between about
15 and 20 years' experience in the trade as a whole. Approximately
half of them are graduates. The vast majority of them are members
of the British Institute of Innkeeping and have gone on to achieve
other qualifications. So they come from a range of backgrounds.
Many of them have worked in managed houses, many in the free trade,
so they have a range of skills, and a fair number have run pubs
too so they have seen the other side of the fence. We give them
training on a whole range of things but typically it would be
on property management, legal, marketing, wines and spirits, the
whole gamut of issues that affect the licensed trade.
Q441 Mr Hoyle: How are they paid?
I presume they are salaried employees rather than self-employed.
Do they have bonus incentives?
Mr Oliver: They are salaried employees
and they are on bonus schemes as well.
Q442 Mr Hoyle: That makes it a little
more interesting because obviously they sit on the rent panel,
do they?
Mr Oliver: They do not sit on
the rent panel. They attend the rent panel to present the case
for their particular pub.
Q443 Mr Hoyle: Because they meet
with the tenants and discuss the rent that they are aiming for
and then it goes off to a rent panel?
Mr Oliver: That is correct.
Q444 Mr Hoyle: Is that rent panel
independent?
Mr Oliver: The rent panel is independent.
This is one of the distinguishing features of the Union Pub Company
because we were the first company to introduce an independent
rent panel. It is a very important part of our business. It is
the way in which we can ensure as far as we possibly can do that
the rents we set are fair and that they are maintainable. The
reason why I can say that is because the Chairman of the rent
panel is an independent person and not employed at all by the
Union Pub Company. It is a person called Andrew Watt who is a
chartered surveyor from Colliers CRE, which is one of the biggest
chartered surveying companies in the UK specialising in licences.
What Andrew is able to bring to the rent panel is a huge degree
of industry knowledge and objectivity and he advises as to whether
or not a rent proposal by a BDM is correct, fair and whether it
is too high or whether it is too low. If I can quote perhaps from
something which Andrew provided to me. He said: "Often I
reach a different conclusion to the BDM, both higher and lower.
My aim is to provide sustainable rents for the tenant and not
to penalise over-achievement. On the other hand, a poor tenant
should not be supported with an artificially low rent." We
have run this process of the independent rent panel for two years
and we have found it a very successful way of getting the best
possible solution for both ourselves and our customers. Perhaps
the best evidence of that is that in that time only one rent has
gone to arbitration.
Q445 Mr Hoyle: Who makes up the rest
of the panel? We have heard about one person. What about the others?
Mr Oliver: The panel is chaired
by Andrew Watt. It also attended by Chris Proctor-Smith, who is
our Property Director, Simon Cattley, who is our Sales Director,
and the appropriate business development manager and regional
manager. I do not attend it.
Q446 Mr Hoyle: Who sits on the panel?
Mr Oliver: They sit on the panel.
Q447 Mr Hoyle: What I am trying to
get to is how many people are independent of the brewery who sit
on the panel?
Mr Oliver: One.
Q448 Mr Hoyle: Out of a panel of
five?
Mr Oliver: Yes and he is the Chairman.
Q449 Mr Hoyle: He might be the Chairman
but is the Chairman all-powerful because if he is you might as
well let him sit on his own?
Mr Oliver: The Chairman is all-powerful.
The Chairman can overrule us, he can overrule me.
Mr Hoyle: That is the point I am trying
to get to.
Q450 Chairman: He has the power of
veto?
Mr Oliver: The total power of
veto.
Q451 Mr Hoyle: Okay, he is the Joe
Stalin of the Committee so when his word goes everybody accepts
it?
Mr Oliver: Correct.
Q452 Mr Hoyle: If I have got it right,
these decisions go to the panel that Joe Stalin has overruled
because some are too high and some are too low in many cases.
Do you feel then that your business development managers get it
wrong if he is having to overrule in this many cases?
Mr Oliver: No, in the vast majority
of cases he believes that what they have put forward is correct
and that is clearly the right solution because part of the training
that the business development managers have is to judge rents
as fairly as possible. The point is if we believe that we have
undercooked it or overcooked it he is in place to make a judgment
and to alter the rent accordingly. What I can tell you is that
since June 2002 we have agreed 23 rent reductions on existing
agreements. That is to say an agreement that is already in place
and running and mid-term there has been a case made out to reduce
it. That is disregarding any adjustments downwards when it has
come to review.
Q453 Mr Hoyle: How many have gone
up?
Mr Oliver: More have gone up than
have gone down.
Q454 Mr Hoyle: It is funny how you
have the figure for going down but not the figure for going up.
I am amazed at that.
Mr Oliver: Overall rents do go
up over a period of time clearly.
Q455 Mr Hoyle: So what is your figure
of increase?
Mr Oliver: The absolute—
Q456 Mr Hoyle: Do you want to send
it to us to make it easier?
Mr Oliver: I will send it to you
later.[3]
The point I was making though is that there is absolute flexibility
in the process. The thing is if we have a rent panel that sets
fair rents in the first place there should not be that much need
to reduce them but we are flexible enough to do it.
Q457 Mr Hoyle: I accept that. Do
you believe that this model that you use ought to be copied by
other pub companies?
Mr Oliver: I believe that this
is one of our sources of competitive advantage, so I have no doubt
that our competitors, who watch very closely what is going on
in the industry, if they believe that this would also be a competitive
advantage for them, will copy it anyway. For the moment, we are
very happy with it because it does mean that the tenants and lessees
working for us know that they are going to be treated fairly when
it comes to rent.
Mr Findlay: I think that is the
point. It works for us and we think it works for them. It is worth
just bearing in mind that there is no point in us trying to over-rent
tenanted pubs because we are there for the long-term so we need
a sustainable business. You were talking earlier on about how
you judge this point. This is the point at which you judge the
rent is fair or not fair. I remember one of our tenants put this
to me very well. He said: "Look, I am coming up to my rent
review and the fact is you want a bit and I want a bit and provided
I am happy with the bit you get and you are happy with the bit
I get, that is fine".
Q458 Mr Hoyle: As long as you are
both making money.
Mr Findlay: That is the point
which we all try to get to. That lacks precision, I fully accept
that, but that is what we try to do.
Q459 Mr Hoyle: Now you have set up
this model where you have got a rent review panel, do you think
it ought to be totally independent that all pub companies can
go to, like the rates panel?
Mr Oliver: No, I do not, because
it does not take into account the different circumstances. For
instance, we have the knowledge about what capital investment
we have put into the pub. You need to have the expert input of
the BDM and the regional manager, who is closely involved with
that pub and who can see the potential, for instance. I think
it is important to have the local knowledge working on it, but
with the safeguard of the independent chairman.
3 Note by witness: From
June 2002 to now we have agreed 23 reductions in rent on existing
agreements; over the same period 14 rents have been increased
on existing agreements at mid-term review and 10 rents have gone
up at renewal of an existing agreement. In summary, then, there
has been just one more upward rent review than downward rent review
on a like-for-like basis. Other rent changes have taken place
as a result of changes of tenancy, capital investment, change
of agreement; it is not possible to compare rents pre and post
and they do not, by definition, affect existing tenants. Back
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