Memorandum submitted by Mark Charman
1. I have been involved in the licensed
trade since 1996, prior to which I had extensive experience in
the pub, hotel and food business and gained qualifications in
hotel and catering management.
2. Between 1996 and 2006 I ran over a hundred
tied houses on a variety of different lease and tenancy arrangements,
mainly with Marston's, which became Wolverhampton and Dudley Brewery
and is now renamed Marston's.
3. My business completely collapsed in 2006
at which time all of the houses I was running were Marston's tenancies
or leases. The collapse of my business was principally due to
a lack of margin despite all the pubs in my estate trading above
expectation some by 1.5 times FMV.
4. The lack of available margin was well
documented within my business. I tried on numerous occasions to
discuss this with Marston's. Although some within Marston's understood
the problem and took it seriously, senior management were not
prepared to discuss the issue and flatly refused to look at my
accounting information.
5. Marstons used an extensive spreadsheet
to calculate rent and a tenants potential profitability. Because
of the relationship I had with a number of BDM's I was often given
copies of these spreadsheets, although after the last parliamentary
inquiry Marston's refused to make rent and profit calculations
available to anyone. I discovered a number of errors with the
spreadsheet model, which left the model heavily weighted towards
Marstons. I discovered a further problem in relation to the updating
of wholesale prices within the model in 2005.
6. The net result of these omissions and
errors within the Marstons business model by my calculations meant
that the average Marstons tenant trading at Marstons average volume
with average costs were at best only able to break even. Obviously
leaving no money for the tenant to live. These calculations were
checked by two Marstons employees in 2004. Both of whom agreed
with my calculations and undertook studies of their own to try
to further understand the issues that I had raised. These individuals
informed me separately that they took their findings to senior
management who were unwilling to discuss the matter.
7. From the evidence I have I believe senior
management at Marstons were fully aware of the true situation
regarding their tenanted model and the actual profit their tenants
were really able to achieve. However, due to commercial pressures
and the motivation from a highly geared employee bonus scheme,
senior management, including directors at Marstons failed to act.
Their lack of action has left many thousands of tenants in an
appalling situation and in the long term has cost the public purse
and Marstons shareholders dearly.
8. In my confidential submission to the
2004 inquiry I questioned the evidence given by a Marstons representative
when they stated that their average tenant earns £27k per
annum. Because at the time I was running over 2% of Marstons estate
and as an overall group of pubs which represented an above average
sample of their estate, I know that Marstons claims were wholly
inaccurate.
9. Unlike many tenants and lessees I had
accurate and up to date accounting information available to me.
With there seemingly no prospect of my business being able to
cope with constant rent and wholesale price increases as well
as an increase in overall operating costs, I made a sensible and
practical decision to exit the business leaving no debt. To facilitate
this move Marstons would have had to release me from all my leases
and tenancy agreements, which they were not prepared to do. In
fact I was told by the most senior person I had access to at Marstons,
I had to stay in my pubs until I was bankrupt.
10. I believe that if you undertake simple
calculations and look at the published profit per house figure
that all the major pub companies quote in their accounts, you
will soon understand how it is nigh on impossible for a tenant
or lessee on a tied agreement to make money. I am of course more
than willing to help supply any information I can for you to undertake
this exercise.
11. I believe the model used by all the
major pub companies in tied agreements is flawed and because it
is allowed to continue, it makes the pub companies dominant and
overbearing in the marketplace. As a result tenants and the wider
economy suffer.
12. I am concerned that tenants have in
the past not been given a fair hearing and because of the pub
companies dominance, the real truth of running a pub on a tied
lease or tenancy has not fully come to light. Although one or
two action groups have formed in the past couple of years with
the sole purpose of highlighting the plight of tenants, these
organisations have very little funds and are not able to compete
with sophisticated marketing efforts that all the large pub companies
have available to them.
13. During my time in the tenanted pub business
my team of managers and I worked incredibly hard to make a success
of our businesses. Our landlords greeted every success with a
further opportunity for them to capitalise on the good work that
we had achieved. I would like to stress that my team and I were
exceptionally good at making pubs run properly, often taking pubs
which had had a troubled past and turning them into thriving enterprises.
I now believe that with the physical evidence I have and from
talking to formed employees of Marstons that my fate was sealed
from the time that I signed any agreement. There is simply not
enough available profit from the average pub to facilitate a reasonable
wage for the lessee and the demands of the pub company and shareholders.
Again, it is the permitting of the tied model which allows this
situation to continue. Without it, the market would find its own
level for rent and wholesale prices and the trade would become
far more equitable for all those to seek to earn a living from
it. I urge the committee to take my comments seriously and once
again wish to offer any help and assistance that I can.
September 2008
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