Pub Companies - Business and Enterprise Committee Contents

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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