Memorandum submitted by Admiral Taverns
1.1 Admiral Taverns was formed in December
2003 and currently operates over 2,200 pubs across England and
Wales. The business has grown primarily through the acquisition
of pubs from other companies in the sector and only operates leased
and tenanted pubs. Although the business has only been trading
for four years, the management team have been recruited from a
wide range of other pub companies and has a huge experience in
the leased and tenanted sector.
1.2 Admiral's income derives from three
the rent received from tenants and
margin generated on the sale of drinks
to licensees; and
share of the machine income.
1.3 Admiral offers licensees a full range
of flexible agreements from short term tenancies to long term
leases. This range of agreements offers the licensee different
low-cost options to start up in business. Part of Admiral's strategy
is to offer the widest range of agreements and to be flexible
with certain elements of the agreements to ensure that it is properly
suited to the licensee and the style of property.
1.4 Admiral offers a wide range of additional
services to its licensees including business support, licensing
management, capital investment, marketing and promotional support,
food development and property services.
2.1 The key underlying principle of the
leased and tenanted pub sector is that both the licensee and pub
company want the business to succeed. Growth of the business profitability
will generally lead to more income to both parties. However, where
trade does decline both parties will share some of the pain and
look to minimise this impact.
2.2 This principle is particularly important
during the current economic climate. There is little doubt that
some pubs are being negatively impacted by the current trading
conditions but the pub company is able to buffer the licensee
from the full impact of the reduction in trade. This would not
be the case if the properties were being leased from a standard
property owner. It is noted that Admiral leases a number of sites
from commercial landlords and there is no prospect of it receiving
any support or rent reductions over this period.
2.3 Although Admiral has seen many businesses
continue to develop and increase trade, Admiral recognises that
the trading conditions for the pub sector are very tough at the
current time, with a reduction in trade for some licensees from
the smoking ban, increased competition from supermarkets selling
alcohol at below cost, increased operating costs and additional
compliance costs with legislation.
2.4 Admiral is therefore continuing to provide
additional support for its licensees to maintain their businesses
even though this support is not required under the lease or tenancy
agreement. This type of support has always been provided to licensees
who were struggling to maintain their income but the level of
support through rent concessions and additional off-invoice discount
schemes has now increased to over £2.5 million per annum
across over 250 licensees. Additionally across the estate, the
company has provided support through capital investment, additional
marketing and promotional support and maintaining existing insurance
recharges across the whole estate despite increases in premiums
in the property market, and to our business, from the 2007 floods.
2.5 Further to the above support, Admiral
has confirmed that it will absorb, in the short term, the exceptional
price increases announced by a number of brewers over the last
couple of months and will not be increasing these prices to licensees
for the balance of 2008. Admiral has also been trialling discount
schemes which provide exceptional prices to licensees without
any amendments to the terms of the agreement or rent levels. These
discounts allow the licensee to earn significant discounts over
and above their existing discount scheme for achieving target
volumes or pass the majority of the margin on certain products
to the licensee.
3. CODE OF
3.1 Following the Trade and Industry Select
Committee ("TISC") review of 2004, one of the major
recommendations was for British Beer and Pub Association ("BBPA")
Code of Conduct issued in 1997 to be updated and that the industry
should accept and comply with this code.
3.2 The Committee will be aware that the
BBPA has updated the code and the industry has followed this with
updated individual company codes. Admiral has also compiled its
own Code of Practice, incorporating the standards set out by the
BBPA but also going further than the BBPA code in a number of
areas. Noted below are some of the specific areas recommended
for inclusion by TISC and how they are covered by Admiral's Code
Rent reviews and rent setting
3.3 Although the Admiral estate has a lower
proportion of long term leases than some other pub companies,
the rent review is considered to be a pivotal part of the relationship
with the licensees.
3.4 The aim of the rent review is to ensure
that the new rent agreed is fair and equitable for the property.
It is a fundamental part of setting the rent that the licensee
is able to make a reasonable income from their business.
3.5 However, Admiral does not wait for the
rent review date to reduce rents to fair and sustainable levels.
Where a public house trading potential (and therefore the income
of the licensee) has been affected, we will look to support that
licensee through a package of measures as set out above.
3.6 Admiral's average annual rent charged
to licensees is about £15,000, well below the average of
other pub companies. This lower level does reflect the lower trading
potential from the properties but also reflects the opportunity
being given to licensees to earn a reasonable income from the
3.7 Admiral uses the "profits method"
in assessing rents for each site, a standard method used across
the industry. This involves assessing the fair maintainable trade
and operating costs that would be achieved by a hypothetical competent
operator and then calculating a rent based upon this divisible
balance. The percentage of the divisible balance calculated as
rent is worked out on a site by site basis but generally ranges
from 35% to 55% depending upon the individual circumstances of
the operation and comparable evidence for other nearby operations.
3.8 Over the four years since Admiral began
trading, there have been less than 200 rent reviews and only two
of these have been referred to an outside party to set the rent.
On both occasions, the rent was agreed by mutual consent prior
to the independent expert completing their assessment.
3.9 The company also looks to work in an
open manner with licensees and will share its profit and loss
assessment. Admiral also encourages the licensee to share their
actual trading as this will assist in setting a fair and sustainable
rent for the site.
3.10 Admiral always recommends that licensees
take independent advice prior to agreeing the level of rent and
where possible will try and reduce the costs of the review process.
A number of the agreements within the Admiral business require
an independent arbiter to be appointed where the rent cannot be
agreed. The cost of this process can be very expensive (over £10,000)
and therefore it is recognised that this can deter some licensees
from using this to finalise the rent. Admiral has stated that
it will waive this provision within all of its agreements and
allow the licensee to choose that the rent be set by an independent
expert, a process which will be significantly less expensive.
Admiral also understands that the British Institute of Innkeeping
("BII") is looking to set up an independent expert referral
service, which will help to speed up and further reduce the costs
of the rent review and we welcome this initiative.
3.11 Given the importance of the rent review
process, Admiral is currently working with the BII to present
in detail the rent review process to licensees from within and
outside its estate.
3.12 As stated in its Code of Practice,
Admiral will use the above approach on all rent reviews. This
means that despite the actual wording of the lease agreement,
Admiral will waive any `upward only' clauses on future rent reviews
and will set the rent to the correct, fair sustainable rent. This
could result in the rent being assessed at a level below the initial
rent for the site.
Role of the Business Development Manager ("BDM")
3.13 The BDM is the main point of contact
and the key relationship with the licensee. As such Admiral recognises
that this is an essential role in the development of our and our
3.14 A number of our BDMs have been licensees
previously and therefore have an in depth knowledge of the required
skills and support required by licensees. Admiral has deliberately
kept the ratio of pubs to BDMs below the industry norm, with an
average of 40 pubs per BDM. Admiral believes that this enables
the BDM to better understand the specific pub operation and offer
the best support to the licensee.
3.15 Admiral maintains the knowledge and
business skills of the BDMs through a continuous programme of
training including food development, marketing skills, product
awareness and knowledge, briefings on new legislation and general
Complaint and dispute procedure
3.16 Complaints and disputes are treated
extremely seriously within the business. It does represent a potential
breakdown in the relationship between the BDM and the licensee.
The complaints handling process is fully set out in our Code of
Practice and all complaints received at head office are monitored
to ensure that they are fully responded to. The process includes
the ability to escalate the dispute to the Managing Director.
3.17 If the Managing Director is unable
to resolve the dispute, an independent adjudicator will be involved
to resolve the matter. The Admiral website also includes links
to a number of trade bodies who will be able to assist licensees
if they wish to use independent support during this process.
Disclosure and availability of information
3.18 It is an important part of the relationship
between a licensee and pub company that both parties understand
their expectations from the property before entering a long term
agreement. Admiral will therefore share prior trading experience
from the property and expected levels of trade. Admiral also expects
the licensee to share their business plan to ensure that there
is no misunderstanding with regard to the future operation.
3.19 Admiral has generally favoured allowing
licensees to take a six month agreement when they first take on
a new property. This allows the licensee to understand the business
and confirm that the potential from the property is in line with
their expectations. Where the property does not meet the licensee's
expectations, it allows the licensee to leave the business without
having incurred additional costs and financing required when entering
a long term agreement including stamp duty, legal fees and fixtures
and fittings purchase.
Legal and professional support
3.20 Importance is given within the company
to the need for all new and existing licensees entering new agreements
to take independent advice. This is emphasised in the Code of
Practice and is also set out to licensees in all relevant documentation
prior to a new agreement being signed. This is further emphasised
by our BDMs in meetings with potential licensees. Admiral has
recently introduced a requirement for any new licensees to take
professional advice prior to entering a new agreement or specifically
confirming that they have considered this option and do not wish
to take independent advice.
4. TRADE AND
No one pub company is dominant
4.1 The TISC enquiry concluded that there
was no one pub company which had a dominant position in the wholesale
market for beer. Given that this assessment was on the basis that
the largest pub company had 8,739 pubs in 2004 and the largest
pub company currently has only 8,400 pubs, Admiral believes that
this conclusion must continue to be the valid. The percentage
held by one company would be further reduced if the market was
considered larger than just full on-licences.
More flexibility in choice of products
4.2 The TISC recommended that pub companies
allow their tenants flexibility on the choice of products. This
has been a fundamental policy of Admiral which sources its beers
from the open market and has no exclusive purchasing arrangements.
No brewer is excluded from the estate as long as they are able
to demonstrate certain quality standards and sufficient demand.
4.3 In addition, the Direct Delivery Scheme
operated by the Society of Independent Brewers reduces the barriers
to entry for local beers from smaller brewers and enables these
products to be made available to tenants, giving them an unprecedented
range of products.
4.4 In a small number of exceptional and
site specific circumstances, Admiral has released licensees from
the beer tie in return for an increased rent. Admiral has noticed
that the majority of these sites have entered exclusive agreements
with one brewer to source only beers from their product range,
eliminating the ability for other brewers to supply the site or
local brewers to compete.
Removal of the tie would not benefit licensees
4.5 The TISC inquiry concluded that licensees
would not be better off with the removal of the beer tie and this
would likely benefit the international brewers. Despite changes
in ownership of some of the brewers, Admiral strongly believes
that this conclusion is still correct. Admiral would also need
to review all rents to compensate for the loss of wholesale margin
and the relationship with existing and future licensees would
change with less importance being placed on tenant's businesses
and any downturn in trade would be borne exclusively by the tenant.
More transparency about contractual relationships
with nominated AWP suppliers
4.6 Admiral is convinced that through proper
management and control of the machines within its sites, the total
income generated from machines is significantly enhanced. To achieve
this, Admiral employ a dedicated machine management team to ensure
that specialist advice is available to licensees, a wide selection
of machines are offered and the best machines are available across
the business. This ensures that our licensees receive an excellent
service with minimal down time, machines are properly positioned
providing the optimum offering to a wider audience and therefore
increase footfall and profitability.
4.7 Admiral has 26 nominated suppliers in
its estate for licensees to choose from. These suppliers have
met strict selection criteria and deliver high quality service
to our licensees. By using these suppliers, Admiral ensures that
its machines are operated legally, with permits and licences obtained,
are insured and no lengthy contracts need to be signed by licensees.
4.8 Admiral asks all licensees to enter
a separate agreement with regard to the machines in their sites
which specifies that only approved and nominated AWP suppliers
may supply machines to each site. The share arrangements are clearly
set out in this agreement.
4.9 Although this machine income is shared
between the licensee and Admiral, this share arrangement is included
in the assessment of the rent through the rent calculation and
rents are therefore reduced by an element of the machine income.
5.1 The Licensing Act 2003 ("Act")
has significantly increased the cost and resources required for
the administration of the pub licences.
5.2 This began with the requirements for
plans and additional information which resulted in pub companies
being required to bring in external support to assist in a process
that in many cases simply secured grandfather rights for its licensees
in respect of existing trading hours with no added benefit.
5.3 This is further increased by the costs
involved in annual renewals and the costs involved in changes
to designated premises supervisors.
Additional hours of trading
5.4 The Act has enabled pubs to open longer
and to compete with other elements of the leisure market. The
majority of these additional hours have been on Friday and Saturday
where Admiral has seen an average increase of one to two hours.
5.5 Admiral has not seen the well publicised
24 hour drinking across its estate or across the public house
market. One Admiral property has been granted a 24-hour licence.
However, in this case and in the majority of the other pubs with
a 24 hour licence, these additional permitted hours are not being
5.6 These additional hours have resulted
in certain public houses being able to retain their customers
longer rather than lose them to town centre sites which historically
had longer opening hours.
5.7 However, evidence is available to demonstrate
that since the longer opening hours started, customers have used
this to drink more at home until later (preloading) before visiting
Reduced trading potential
5.8 The Act has given more scope for local
authorities to impose trading restrictions on premises. Although
Admiral recognises that this is a positive measure in many ways
to ensure that premises maintain the appropriate disciplines at
site, there has been a significant increase in restrictions imposed
on the use of outside areas. Following the smoking ban, there
has been an increase in the importance of these areas to maintain
trade against stiff competition from the off-trade and restrictions
on their use has limited this ability to compete in more community
6. NEED FOR
6.1 Admiral does not believe that there
is a need for additional regulation within the leased and tenanted
pub industry. The conclusions of the TISC enquiry in 2004 are
still valid in the current market and the recommendations have
been generally adopted by the industry.
6.2 Given the relationship between a pub
company and licensee, the pub companies have responded to poorer
trading conditions with a significant package of support which
they are not contracted to provide under their agreements. This
support is not being seen within the commercial property market
or other landlord/tenant relationships and therefore changes to
the current arrangements could lead to a less flexible approach
from the pub companies, higher rents and additional pressures
29 September 2008