Pub Companies - Business and Enterprise Committee Contents

Memorandum submitted by the Federation of Small Businesses


  1.  In towns and villages across the UK small businesses and local shops face closure. Our high streets face extinction. 42% of English towns and villages no longer have a shop of any kind.[16] As many as 27 pubs are closing every week.[17]

When the FSB submitted evidence to the then Trade and Industry Select Committee in 2004 we had 3,135 publican members, today this number is down to 1,473. It is worth noting that the FSB as an organisation has in the same time grown with around 35.000 members. This shattering trend must be halted and the first step to achieving that, the FSB believes, is to abolish the Pubco tie.

  Pubs are not just a part of the local community, in many places they are the local community. They generate employment, growth of the local economy and an opportunity for people to meet and make communities stronger. They are in many ways the glue that binds our local communities together. One FSB members put his frustration in words by saying:

    Pubcos and the government combined are rapidly destroying a significant element of British heritage.[18]


  3.  The concern with Pubcos and their relationship with publicans is not a new issue for the FSB. In 2004, the FSB played an instrumental role in the then Trade and Industry Select Committee inquiry into the relationship between Pubcos and their tenants.

  It is evident that the situation for publicans, despite the 2004 recommendations, by and large remains the same. Therefore the FSB welcomes the re-launch of the Pubco Inquiry by the Business and Enterprise Select Committee.

  In advance of submitting written evidence, the FSB conducted a poll asking our members what they thought of the current situation and whether they felt their situation in relation to their Pubco had improved since 2004.

  99% of the 156 members that responded said it had not, and that they were in exactly the same situation then and now.


  The issues that remain of specific concern for the FSB are the beer tie and its effects on tenants; rents and the way they are calculated; Pubco margins and the discrepancy in price from wholesalers; the level of support Pubcos offer their tenants and last but not least the beer tie as business model for the pub trade. Each of these issues is outlined below with comments and quotes from the respondents to our poll.

  The exclusive purchasing obligations enforced by Pubcos on their tenants remain of great concern to the FSB. In our poll 96% of respondents supported a complete removal of the tie as they felt that would make the market fairer. One respondent said that:

    "Not being tied on beer prices would allow us to sell to our customers at a more competitive price and still make a realistic margin. Better price would increase sales and benefit everyone."[19]

  The way the rents are calculated is still perceived as unfair by respondents, despite the 2004 recommendation of a code of practice. The discrepancy between the wholesale beer prices charged by Pubcos and the rents they charged their tenants is evident to see. One member said:

    "Either remove the tie altogether and review rent or reduce the inflated charges (over £100 more a barrel than one can get out of tie). Just give us a chance to make our business work."[20]

  One suggestion was that all rents should be set by arbitration and be dependent on how well the business is going.

    "The tie could be removed but any losses on the Pubco would have to be passed on in increased rents. However it would free up the brewing market and may lead to more stable prices if Pubcos passed on half the discounts to tenants we would have a better chance."[21]

  So far Pubcos have failed to acknowledge and adjust for local, regional and national trends in volumes when calculating the rents and this has led to excessive turnover projections. In addition Pubcos generally ignore the recommended use of accounting standards resulting in profits being exaggerated, and excessive rents demanded. One FSB Member remarked:

    "The Pubcos have all the power and can force ridiculous unjustified rents on the publican. It is immoral and unfair in the extreme."[22]

  The Pubcos' margins with regard to the prices paid by Pubcos to breweries and those they charge to their tenants is another major area of concern. The perception is that the tied market remains unfair because tied publicans have no choice to make their own decision and to maximise their own profit. It is not unusual that tied landlords pay up to double the price for beer and cider than they would if they were buying on a free market. Another member continued:

    "Pubcos tie in landlords and charge them roughly 1/3 more for beer than the standard wholesale price. There are no benefits as they give nothing in return and even charge for promotional items where breweries give these free when[you buy] wholesale."[23]

  Another member said:

    "Pub companies have the industry in a far worse stranglehold than the brewers ever did. At least the brewers had an interest in selling beer, rather in the Pubco's obsession with "maximising property return".[24]

  The chart below, which further illustrates the problem, was submitted to the FSB as part of the poll. The FSB member is a leaseholder free of tie on wines and spirits who has for the last 10 months been charged by Punch as column A. Due to his present financial difficulties Punch had agreed to charge what they call their "wholesale price" (column B). Included are two other suppliers, as reference, which he is unable to use as he is tied on Beer, Cider and soft drinks.[25]
Punch £
Punch £
Booker £
Waverley TBS £
11gallon kegLeaseWholesale Wholesaler AWholesaler B
Guinness123.59115.21 94.7991.90
Dry Blackthorn Cider112.46 67.8967.37
Fosters Lager115.21 100.0177.9975.25
Kronenbourg Lager132.03 114.2189.1993.17

  The disproportion between the wholesale price and what Pubcos change is clear. Even with the discount from Punch the tenant in the above example could have paid up to £23.31 less for a keg of Guinness, had he been able to buy it from a supplier of his choice. Another FSB member said:

    "Having to pay anywhere between 20 and 30 pound a barrel more because you are tied is a serious amount of money per annum. Ties should be removed and rents capped to help all struggling licensees."[26]

  In those cases where tenants are struggling there still seem to be little help at hand. The recommendations that were made following the 2004 Pubco inquiry, which stated that the business support that Pubcos offer licensees far outweighs the restriction of the tie, seem wholly inadequate. Respondents to the poll said almost exclusively that the business support they receive is only tinkering on the edges and does not help them in any meaningful way. One member said:

    "We are in financial difficulty and enterprise answer was to give rent discount but make us total tie. This to me is giving with one hand and taking from the other![27]

    "Although Pubcos say there is help for pubs that are struggling, this is not true. We do not get our beer etc at discount prices if we are doing well. We are tied to Everards brewery and although we are very happy to stock and sell products purchased via them I would like partial free of tie on non Everards brewed products."[28]

  Another Member said that it is clear that:

    "Pubcos responsibility lies with their shareholders, at the expense of the pub industry, licensees, brewers and the public."[29]

  The beer tie clearly poses a burden on licensees and the FSB questions whether this is an appropriate business model for the pub trade. Four years have passed since the last inquiry and our members still feel a great sense of unfairness. One respondent, who felt very privileged to be running a free house, said that personally she would never enter into a business relationship with a Pubco because of their approach and attitude towards their tenants.

  Other respondents said:

    "I am a licensee at a free house; I have a free house because I refused to be ripped off by these Pubcos. They prey on inexperienced people who have never run a pub before that don't know the trade and rip them off."[30]

    "We are a free house so this is not appropriate. However I would never work for a Pubco for any amount of money as they simply rip off leaseholders."[31]


  The above evidence had led the FSB to believe that the only viable solution resulting in a fairer deal for pub tenants is a complete removal of the tie. This has the significant support of 94% of respondents to our poll. One respondent said:

    "I would rather pay more rent and have no tie to products, leaving us free to shop around for the best prices."[32]

  The amount of pub closures speaks for itself, 27 pubs per week are closing down and FSB members give testimony upon testimony how difficult it is to survive in the pub business today. One FSB member said:

    "Pubcos tie you in to almost everything, your average landlord cannot make any kind of profit if you what to stay competitive. In a lot of cases the landlord will find themselves bankrupt within five to seven years, because of the greed of Pubcos."[33]

  The FSB believes that if the ties were eradicated this would create a level playing field to enable pub landlords to compete with those who are not tied. As it is in the current situation it is impossible for tied tenants to compete with the free houses. One respondent said:

    "The sooner the better before it is too late for the majority of landlords. All publicans need help because of high prices."[34]

  It has been suggested that an alternative to abolishing the tie would be for tenants to leave their pubs altogether. If more tenants refused to take on a tied lease, the Pubcos would eventually have to sell their pubs. As it would be impossible for Punch Taverns, for example, to service a £4bn loan with no pubs let.

  The message is simple. The relationship between Pubcos and landlords is not sustainable and the tie has to go one way or another. One respondent to our poll put it in a simple sentence;

    "Why should I have to buy my beer from Enterprise when they do not produce beer?"[35]


  The FSB is currently running a campaign called Keep Trade Local which seeks to stem the tide of small business closures. The Keep Trade Local campaign is however not only for small retailers, it also incorporates post offices, pharmacies, pubs and all the other independent trades and businesses, that together represent the rich fabric of our society and the bed rock of a stable economy. One FSB member said:

    "Current Pubco policies are completely destroying the Pub business. This present government has out taxed the on trade to give the breweries and the supermarkets the monopolies from rural village to the high street. Look at any town or city and count the independents."[36]


    —  Complete removal of the tie. There is enough proof that the tie does not work as an efficient business model for the pub trade.

    —  Annual indexed rent increases to be stopped and the practice of upward only rent reviews terminated.

    —  Introduce a greater transparency in the rent review process and make paragraphs 144 and 145 in the 2004 Trade and Industry Report enforceable by statute as the FSB believes the voluntary code has not worked.

29 September 2008

16   All Party Parliamentary Small Shops Group report: High Street Britain: 2015 Back

17 Back

18   FSB Member Back

19   FSB Member Back

20   FSB Member Back

21   FSB Member Back

22   FSB Member Back

23   FSB Member Back

24   FSB Member Back

25   FSB member Back

26   FSB Member Back

27   FSB Member Back

28   FSB Member Back

29   FSB Member Back

30   FSB Member Back

31   FSB Member Back

32   FSB Member Back

33   FSB Member Back

34   FSB Member Back

35   FSB Member Back

36   FSB Member Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2009
Prepared 13 May 2009