Memorandum submitted anonymously
I submit the attached written evidence to the
Business & Enterprise Select Committee reviewing the Fair
Trade Investigation of Pubcos.
As an American I came to the trade with a different
set of standards of service and business operations. Breweries
in the United States legally cannot own retail licensed premises;
they are prohibited from taking the wholesale and retail profits
from the sector. As we're aware the Beer Orders intention was
to open the trade and benefit the consumer, I do not believe this
has been the case.
1. I am a Publican, currently with two Punch
leases and I welcome this opportunity to make a submission to
the Select Committee. My experience with Pubcos is confined to
Punch so I cannot comment on the operations of other Companies.
2. One of my leases was originally with
Vanguard and the other was agreed during the early days of Punch,
so I have a less restrictive tie the currently on offer.
3. As this is my trade I have worked to
familiarize myself with the Punch business model and I have come
to conclude that it is flawed and has in fact become outdated
especially under the current economic climate strongly believe
that the model has become destructive to both the trade and to
the greater public.
4. I can tell you that in the 11+ years
I have held these leases, my relationship with Punch has become
increasingly strained and frustrating in the following ways.
5. The structure of the tie is without regulation
and is not subject to market forces, in the normal accepted way.
Cheaper products have come into the market, from abroad or from
more efficient manufactures; this can be seen in the off trade
as well as supermarkets. It is wrong to say that this is only
due to bulk buying power, which supermarkets may benefit from;
as corner shops have no such power yet still beat me on price.
6. Since Pubcos do have bulk buying power
they certainly benefit from a lower price, if this were passed
on to pubs this hearing may not have taken place. The profit Punch
takes from its" pubs is unchecked; whereas my profit is limited
by proper market forces. In simple terms, I have to compete with
my neighbouring pubs; Punch can charge me whatever price they
and their shareholders think they can get away with and is just
not right and unfair.
7. Imagine if you were to rent a house for
yourself and your family to live in. The house is suitable in
everyway and was available for rent at say 40% of the market value.
Good deal right! The only catch is that you have to buy all your
utilities from the company that owns the house. Maybe it's not
so good a deal.
8. If the above business model were to come
into effect, I doubt very much if anyone would take up the offer
because it's clear that without any limits on the pricing of the
utilities the renter would be at the mercy of the owner. Perhaps
the reason we don't have this model working right now is because
of utility regulators.
9. Almost nothing stops Punch or any other
Pubco from increasing the prices which they charge for their tied
beer—nothing. In a practical sense they are immune from
market pressures, they have a tied estate.
10. This license to control the price of
beer isn't enough for Punch, if they are going to satisfy the
shareholder they need to squeeze profit from every area, maximise
the profit streams, including rents.
11. I have been through two five-year rent
reviews and I am now involved in two lease renewals. I have come
to believe that Punch has lacks any ethics in these negotiations.
I have encountered a Business Relationship Manager (BRM) who amongst
other things, showed up on Easter Sunday to perform a cellar-check
check, demanded to see personal paperwork during a private family
wedding, visited my pub with his girlfriend ordering several rounds
of drinks without paying, and called upon me on the very first
day a Section 25 "Landlords Notice" could be served.
12. One could put this behaviour off to
a personality conflict or even a single rouge employee, and I
did. I made a formal "Executive Complaint" to directly
to Giles Thorley the CEO of Punch. The complaint was acknowledged
and while I was led to believe it was being investigated, the
same BRM instigated an investigation of my other pub which was
not under his jurisdiction, a few infractions were discovered
and Punch filed an injunction against myself, the value of which
was ultimately decided to be nil. To this day I have not been
advised of any outcome to the Executive Complaint I made.
13. I have no doubt that Punch engages in
deliberate "bully boy" tactics to squeeze its lessees
as much as possible during rent reviews. Punch has in the past
made much of spinning its self as a "partner" in my
business, I find that in the current batch of advertising and
charters that hit my desk I am now considered a "customer".
The "Dear Partner" letters have been replaced by "Dear
Customer" letters, in truth "Dear Victim" would
be more appropriate.
14. Punch is proud that it regularly "updates"
its Customer Charter. What I see happening is the constant erosion
of any rights I may have from my original lease. These are not
limited to a missed delivery charge, a fee for selling my business,
and a fee for even listing my business for sale; these may not
be legally enforceable, but they certainly work to enrich company
and develop the power the Pubco has over the publican.
15. Even when producers create products
or change products to maximise the margin, these are "sold
in" to publicans as positive changes to the business. I know
of at least one example where a product was repackaged with a
higher cost price, and the only thing Punch did was advise everyone
to buy it (This example could have cost your average pub an extra
£3,000 per year, with 7000 pubs, we're not talking about
a small amount of money).
16. I discussed with both my BRM and his
Operations Manager the possibility of purchasing the freehold
of my premise. Both said that this was impossible as they couldn't
then control the prices I charged and could under-cut the other
Punch pubs in the area.
17. I would point out that Punch is now
offering discounted products provided that the pub retails the
product for a fixed price. This is part of the way they intend
to deal with the declining economic climate, price control.
RECOMMENDATIONS:
1. Consider legislation offering Lessees
the right to buy there freehold, or at lease a right to buy yourself
out of tie, at any time during your lease.
2. Consider legislation which regulates
the non-discounted price Pubcos charge for there tied products.
3. If Pubcos are going to rent pubs to a
"fair market rent" then we need to have transparency
in that calculation. The non-tied rent needs to be known to the
lessee. This should be disclosed and the size of the tie limited
to this amount.
EXAMPLE:
The Dog & Duck has a Fair Market Rent of
£30k per year. Fare Trade PLC owns the Dog & Duck, and
would fine it easier to let the pub if the rent were less; say,
£20k. A publican is found and a deal agreed. Fare Trade PLC
will sell the publican beer at £300 per barrel. The Publican
has sourced the same beer for £200 per barrel, the publican
will buy beer from Fare Trade until the amount of the discounted
rent is paid (£10K discount = 100 barrels). At which point
the tie ends and the publican is free to buy beer from whom ever
he chooses.
The Pubco can choose to structure the deal anyway
they want according to the matrix:
| 50% Discounted Rent |
= | Larger Tie |
| 25% Discounted Rent | = |
Medium Tie |
| 10% Discounted Rent | = |
Smaller Tie |
| Full Rent | = | No Tie
|
| |
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The important factor here is transparency in the property
values and wholesale prices.
29 September 2008
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