Pub Companies - Business and Enterprise Committee Contents

Letter to Enterprise Inns from Brulines dated 3 March 2009

Re: David Law Submission to BEC

  As requested I am writing to provide Brulines response to parts of the David Law submission to the BEC enquiry.

  It is worth underlining that Brulines' core purpose is to provide operational transparency to draught beer operations in pubs.

  Our core service consists of:

    —  Monitoring of dispensed draught beer volume trends utilising the highly reliable Titan Pelton Wheel flow meter, and remote harvesting of the data.

    —  Report production including weekly comparison of draught beer dispensed against draught beer officially delivered by the pub company supply chain to the pub.

    —  Customer Data Analysis on a weekly basis which includes identification and removal of line cleaning, rectification of data anomalies, and analysis of variances between delivery and dispense trends including potential buying out.

    —  Customer Account Manager and Data Advisor support to directly address potential buying out and reconcile discrepancies with licensees and customer representatives.

  Brulines provide reports and identify trends which allow Pub Companies and licensees to run more efficient businesses.

  Good honest licensees who uphold their legally binding contracts with the pub companies use the system to help improve their business whereas others attempt to discredit and bypass the system for greed and or need driven reasons:

    —  Access free market discounts that free hold pubs can access ie they won't take a mortgage out to buy a free of tie pub but they want the discounts that it attracts despite having knowingly entered into a contractual agreement to be tied to purchase supplies through the pub company. A case of wanting the cake and eating it.

    —  Avoid paying taxes by buying beer for cash on the grey market. In doing so they can avoid VAT and business tax, and also avoid national insurance by paying bar staff in cash earned from undeclared retail sales.

    —  In some cases unscrupulous licensees take unofficial supply from nearby free trade pubs which have volume over rider targets with the brewers.

  The Brulines system is effectively the industry standard management information system for draught beer operations. It allows the key stakeholders to look at one set of factual information, forming a basis on which investment, fair rent, and business support decisions can be made.

  The submission from Mr David Law consists of inaccurate and misleading assertions which I address below.

Mr Law—This system is known as Brulines and was founded by Derrick Collin who in 1986 was convicted of conspiracy and blackmail.

  This point is irrelevant as the integrity of the system is not directly related to the personal history of Derrick Collin.

  In the article evidenced by Law, the journalist Edmond Jackson of the Telegraph questions whether or not Derrick Collin's conviction was disclosed to investors, not the integrity of the system or indeed Brulines as a company. He goes on to suggest investors should hang on to their investment. "I am not implying that CBS shares are a write-off. Its Brulines subsidiary is the market leader in its specialist area and investors should hang on".

  For the record Brulines has since March 2003 been managed by chief executive James Dickson during which time he has overseen a management buyout from Derrick Collin in May 2005 followed by a successful flotation in October 2006. Becoming a listed public company entailed satisfying significant commercial and legal due diligence.

  Dickson, BSc Civil Engineering, MBA (IMD, Lausanne) Chartered Director (Institute of Directors) had previously held senior positions in Scottish & Newcastle and Whitbread.

Mr Law—The system is based around a very simple flow meter commonly used in plumbing and can be bought over the counter in any plumbers merchant for approx 24p

  There is no truth in this statement which seems to be based on ignorance and a lack of understanding of our market leading system.

  The Titan flow meters used in dispense monitoring installations are not commonly used in plumbing and are not commonly available over the counter in plumbing merchants.

  The price quoted by Law is understated by a factor of c.70 times and is therefore spuriously inaccurate.

Mr Law—The problem lies in the fact that the analysts of the data at the Brulines HQ have to guestimate the quantities of water that the Lessee pulls through the dispense system to clean the beer pipes

  Brulines Customer Data Advisors are trained to identify and highlight as water any volumes within trading hours that may be attributable to the process of flushing the lines with clean water when changing from empty to full real ale cask containers.

  Whilst the practice of flushing between casks is common place it should not be confused with the correct cleaning methods widely recognised within the industry, and therefore should not be regarded as a weekly clean. Mr Law clearly confuses the two practices in his comment "with regard to real ale we clean our lines at the end of every barrel".

  Where practiced the water pull between casks is usually in the range of 2-4 pints per flush; relative to total cask volume this would not be evidential of buying out. It is standard practice for Brulines data advisors to overestimate line cleaning volumes in the favour of the licensee.

  Mr Law also claims that there is a law on frequency of line cleaning. He is clearly confused as there is no law relating to frequency of line cleaning, however brewers and retailers have over the years established best practice for line cleaning regimes, including the recommended frequency.

  Sadly too many licensees fail to clean their beer lines either frequently enough or to a robust enough regime which results in too many unsatisfactory pints being sold to the consumer. These licensees then wonder why their businesses are not performing.

Mr Law—My first experience of this was when my BDM reported a 54 x 11 gallon, barrels discrepancy to my previous employers at the Eagle

  This example from July 2005 is a case of incorrect interpretation of the data by our Customer Data Advisor rather than system accuracy; it relates to missing delivery information for guest cask ales and the manual flushing between casks as covered above.

  The tenanted pub companies provide a very wide portfolio of guest ales for their tenants. Historically this was occasionally problematic as direct supply by some cask providers took time to reconcile with deliveries from the various pub company supply chains however logistics systems are increasingly integrated enabling robust weekly delivery information.

  Where the comparison data provided by Brulines is disputed the pub company and Brulines are careful to ensure that any area of dispute is investigated thoroughly to ensure the facts are correct (apart from our desire to be fair and transparent, if a dispute cannot be settled satisfactorily the data must be capable of standing up in court). In the dispute referred to by Mr Law the investigation was carried out and resulted in the appropriate corrective action being taken by Brulines and Enterprise, thereby demonstrating the fairness of the system. This is covered in the email dated 28 July 2005 as provided by Mr Law.

  To minimise the risk of human error Brulines have implemented several quality assurance checks and processes over the past three years.

Mr Law—Unfortunately I personally know four Lessees that have been charged with the same accusation and sadly paid fines of £1.5k, £3k, £4K, £8K and another with an attempt at £18k

  It is unreasonable to comment on this statement without further specific information being provided by Mr Law.

  Overall the incidence of Brulines systems identifying licensees buying beer outside the tie and tampering with the system (bypassing and interfering) has continued rise over the past five years.

Mr Law—Nick Light Operations Director, Enterprise Inns told us that Brulines had gone to court 160 times and had a 100% track record.

  Mr Law is largely correct. In an email from Brulines to Nick Light timed 22.27 on 01 April 2008 the actual numbers for the period April 2005 to February 2008 were confirmed as:

    —  Licensees admissions of buying out 10,949

    —  Licensees written undertaking not to buy out again 7,233

    —  Injunctions served 249

  Since Brulines systems were first installed in the mid nineties we have never lost in court when the data has been challenged.

  The bottom line is that Brulines provide reliable operational transparency to draught beer operations in pubs. This transparency allows the pub companies to ensure that licensees are honouring agreements and also allows a factual basis for business development conversations and rent negotiations. The historical information is particularly helpful for new lessees ensuring that they have transparency on actual performance of the pub before entering into an agreement.

  Brulines system is a management information system which allows pub companies to manage their assets, and provides proactive licensees with valuable trading information for business improvement. This is why dispense monitoring is installed in 22,500 pubs.

Mr Law—Inclusion of the Publican article

  Data integrity and transparency are sacrosanct for Brulines and to help ensure this we make significant investment in our systems, organisation and people.

  For example, our back office systems and Customer Data Analysts review the data on a weekly basis and on finding data anomalies will first check its integrity against historic trends, and where appropriate will commission line verifications and/or calibration checks, and possibly a field engineer visit to check for evidence of the licensee either tampering or bypassing flow meters. Malicious damage, tampering and bypassing of flow meters are common place due to many unscrupulous licensees who seek to defraud the pub companies and avoid taxes.

  In this particular case Phil Turner-Wright's issue was not escalated by one of our Customer Data Analysts resulting in him escalating it direct through the Publican. Once the issue had been raised the appropriate action was taken to investigate and remedy the situation.

  In my statement at the time in October 2006, I said: "My investigations have highlighted a very basic internal communication failure which resulted in this situation being handled unsuccessfully by an employee. Had Mr. Turner-Wright's issue been escalated through the proper channels more promptly this scenario would not have transpired".

  Enterprise Inns provide their retailers with full time Customer Account Managers to investigate dispense irregularities in all of their outlets.

  The process allows licensees to challenge the data and seek clarification and corrective action where appropriate.

Mr Law—Recently we had new meters installed and the variance started to drop dramatically

  I am unable to comment on the installation of new flow meters as Mr Law does not make direct reference as to which outlet. "I am a Partner in two pubs leased from Enterprise Inns".

Mr Law—The meters aren't government stamped, are not recognised by Weights and Measures or Trading Standards

  This statement is a red herring.

  Flow meters used in the installation of Brulines dispense monitoring systems undergo an in-situ calibration process traceable to national standards.

  For any flow meter that is calibrated in-situ (as with all Brulines flow meters) the repeatability is the over-riding factor and the repeatability of Titan meters at constant flow is +0.25% (or better where a full pint is being measured).

  Already mentioned, Brulines have systems and processes which regularly review the integrity of calibrations, which is particularly necessary given the proliferation of licensees attempting to get round the dispense monitoring system.

  Unlike spirits optics and grocers scales the Brulines flow meters are not installed to determine a unit for retailing where money exchanges hands between vendor and consumer. Our flow meters are used to reliably gather management data which is used for analysis and to identify trends. The trends are then investigated and may lead to issues being addressed with licensees including gaining admissions of buying out, fines being levied, and potential forfeiture of lease.

  Mr Law's point relating to Weights and Measures has no validity as Weights and Measures legislation does not apply to the provision of data by Brulines because the services it provides arise out of a business to business transaction and do not impact on the product sold to the end user. In addition, Brulines has always believed that its equipment does not require to be stamped by Trading Standards.

  I hope this addresses the key elements of Mr Law's submission, but should you require any further clarification please give me a call.


  Firstly, the flowmeters used are neither of the type available across the counter or that used in the oil industry, are not notoriously inaccurate and do not tend to need recalibration on a frequent basis. A paper on the technical nature of the meters is available if required. The meters do measure the flow of liquid as described, and the model used by Enterprise cannot distinguish between water and beer, which we have never claimed it can do.

  The dispense data is sent to Brulines for analysis and part of that analysis is indeed to attempt to remove dispense volume which might be water used during line cleaning. For keg products, which form the vast majority of dispense, this process is relatively straightforward because a meter is placed on the water ring main and volumes dispensed when water is being flushed through are removed. The set of circumstances referred to by Mr Law is restricted to cask products when cleaning is achieved by pulling water and/or line cleaning solution through the system directly from a container, generally a bucket. The removal of this volume is a more subjective process and is normally manifested by significantly large volumes being dispensed in short periods of time often outside of trading hours. It would be difficult to accurately identify what was line cleaning if lines were cleaned after each cask within trading hours as described by Mr Law.

  Because of this potential inaccuracy, Brulines would not normally conclude that purchasing outside the tie had taken place on cask products without the Brulines CAM (who is trained in the interpretation of data) attending the site and discussing the reportage with the retailer. This discussion should encompass the line cleaning regime in that particular outlet and the reportage will be reviewed in the light of that.

  A major discrepancy was identified at the Eagle in the first half of 2005 and this was subsequently withdrawn on the basis that the cask line cleaning regime had not been taken into account and that deliveries by a former variant of the SIBA DDS scheme had not been accounted for. Since then there has been no reason to suspect anything untoward occurring at the Eagle because these factors have now been addressed.

  Brulines do supply data to retailers, either directly or via the web, and recently Simon Clarke at the Eagle complained that cask line-cleaning had not been removed correctly. As mentioned before this is a subjective process and a closer look at the data suggested that this might be right and the volumes were removed. It should be re-iterated that no accusation had been made on the strength of the data alone. Data continues to be sent to the Eagle and whilst no further issues have been raised, it has been suggested that some erratic line cleaning procedures are continually being introduced in order to deliberately complicate the interpretation process.

20 March 2009

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