Pub Companies - Business and Enterprise Committee Contents


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familiarize myself with the Punch business model and I have come to conclude that it is flawed and has in fact become outdated especially under the current economic climate strongly believe that the model has become destructive to both the trade and to the greater public.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


  The important factor here is transparency in the property values and wholesale prices.

29 September 2008





 
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