Supplementary evidence from Punch Taverns
SUMMARY OF THE TISC RECOMMENDATIONS ALONG
WITH PUNCH WORKING PRACTICES
1. IN SUMMARY
1.1 We will continue to provide choice and
flexibility to our Licensees with regard to our agreements, our
drinks product range and pricing and the availability of appropriate
training and support packages. This will be demanded of us in
this challenging market and increasingly competitive market place.
1.2 We will continue to ensure that Licensee
issues and disputes are addressed in a timely and sensitive manner,
maintaining our exceptionally low customer complaint numbers and
external arbitration references.
1.3 We are fully supportive of the Committee's
recommendations regarding the availability of business information
and appropriate due diligence by Licensees taking an assignment
or new business. On assignments however, this is still heavily
dependent upon the conduct and disclosure of the exiting licensee.
1.4 We will continue to advise prospective
Licensees to seek independent advice from a solicitor, valuer
and a building surveyor. Our selection, interview and offer process
continues to be one of the most thorough in the industry. This
ensures Licensees are provided with details of the prices to be
paid, net of discounts, for supplies, enabling them to prepare
a business plan, including full projected profit and loss statements.
1.5 Although we have not removed the tie
we will continue to be open with our Licensees about our AWP agreement
and the treatment of AWP income within the rental calculation.
We believe the tie is essential to ensuring we continue to secure
the best income generating machines across our estate. The royalties
we receive do not increase the rents to our Licensees. The decision
to install an AWP machine is entirely at the Licensee's discretion.
1.6 We will continue to have a sensible
and supportive approach to redressing the balance of rent where
it jeopardises the sustainability of a fair maintainable trade.
We will not have upward-only rent review provisions in our leases.
It is not however this company's responsibility to ensure a minimum
level of profit to a Licensee throughout the term of a Licensee's
1.7 We will continue to review the support
provided to our Licensees and continue to increase the capability
of our BRMs and field operational teams. Our partnership, specialist
support teams and managed house experience determine that it is
in both our interests to respond to market changes, thereby enabling
our Licensees with the best possible opportunity to succeed.
1.8 We will continue to promote and evolve
our Customer Charter, as our articles by which all employees operate
on a day to day basis, giving our Licensees a standard of quality
and service to expect.
2. OUR SPECIFIC
THE TISC RECOMMENDATIONS
"In the absence of the legislative option
we recommend that pubcos allow their tenants more flexibility
in their choice of the products they sell"
Our wet product range available to licensees
has further increased since the TISC report:
2.1 79 standard cask ale brands from national,
regional and local brewers;
2.2 70 keg ales and 24 lagers;
2.3 a further additional 70 cask ale brands through
the "Finest Cask" scheme, with 867 outlets registered;
2.4 353 wines presented in an educational retail
brochure and 200 spirit brands.
We will continue to enhance our range, providing
choice and flexibility to Licensees, as dictated by an ever evolving
We have further expanded the range of wines
and spirits on offer through the acquisition of Mathew Clarke
Wholesale in April 2007, enabling us to introduce more competitive
Our flexible agreement means we offer choice
and freedom on many non beer products.
Since March 2006 the number of tied agreements
in the Wines and Spirits category has halved.
3. Calls for pubco/tenant agreements to have
"an inexpensive and efficient system of arbitration with
fully independent arbitrations or experts to resolve disputes
without imposing legal costs on the other side"
3.1 We are committed to an open and honest
dialogue with our Licensees and this is publicised in our BII
accredited Customer Charter.
3.2 We believe this is evidenced by only
11 rental and lease negotiations being determined by an arbitrator
over the last 12 months.
3.3 A number of feedback mechanisms have
been introduced since the last review to ensure that Licensees
can raise their concerns and issues at an early stage For example,
askdeborah, is an email address that is widely publicised and
goes direct to Deborah Kemp, the MD of our Leased business, where
it is responded to by telephone within 24 hours.
3.4 Complaints procedures are clearly outlined
to Licensees in our BII accredited Charter, which has a section
on dealing with disputes over rent.
3.5 We continue to operate our internal
rent mediation procedure, involving an independent external expert
whose role is to mediate between the parties. This is much less
confrontational than arbitration and helps understand the real
business issues in dispute, as opposed to just determining the
rent. The costs are met by the company. This process has been
in place since June 2003, well before the TISC enquiry.
3.6 Only then, if this process fails, does
the dispute go to external arbitrationthis is extremely
4. "Pubcos should insist that tenants
assigning leases give prospective tenants the same level of information
the pubco gives. Incoming tenants `should not sign agreements
until they are aware of an incumbent's profit-and loss accounts'"
4.1 It is not in our interests to see any
Licensee fail following misrepresentation by an individual selling
their business on.
4.2 We fully agreed with the Committee's
recommendations regarding information to be provided to Licensees
taking assigned businesses.
4.3 However, we also agreed with the Committee's
comment that, as landlords, we do not have the right to unreasonably
withhold consent to assignment and can only offer advice to prospective
4.4 Through our BII accredited Charter,
we clearly communicate the process for assigning a lease agreement,
including the areas a potential assignee should seekclarity on,
particularly with regard to the business being sold.
4.5 We have a dedicated Transfer (plain
English for assignment) team to guide Licensees through this process.
This service is offered to the seller and the incoming Licensee.
4.6 The Transfer Team will send any prospective
Licensee interested in transferring their business an information
pack, which clearly sets out exactly what is involved, what they
need to do and the fees involved. A schedule of outstanding repairs
is always done to minimise onerous repair obligations being passed
4.7 When an individual buys a business by
way of transfer, we urge them to take financial and legal advice,
and we urge them to carry out a building survey on the pub and
prepare a business plan and full profit-and-loss account.
4.8 We do not have the right, and in the
majority of cases, are not privy to, information passing hands
or the financial arrangement between parties.
5. "We believe that many of the disputes
that arise between pubcos and their tenants would be eliminated
if pubcos insisted as a condition of acceptance that tenants obtained
all necessary professional advice"
5.1 The need for professional advice forms
a key element of our new "Customer" (our term for Licensee)
induction process. Our selection, interview and offer process
is one of the most thorough in the industry.
5.2 Since the TISC report, we have introduced
the role of Selection Co-ordinator to support a new Licensee right
through their "recruitment experience", from initial
phone call through to selection interview and contact with the
5.3 We advise any prospective Licensee to
seek independent advice from a solicitor, valuer and a building
surveyor. We have a mandatory requirement that prospective Licensees
show us they are using professional accountants with knowledge
of the industry, or use Milestone, our recommended accountants.
5.4 We ensure Licensees are aware of their
obligations under our agreement and our Business Relationship
Managers work through the company's "flying start" guide,
ensuring that the essentials are fully understood. This is covered
in our mandatory and award winning Modern Licensed Retailer 10-day
training course that all new Licensees go on.
5.5 Recent licensing changes, introducing
the requirement for personal licences and a Designated Premises
Supervisor have assisted in raising the bar for new entrants into
6. "We believe pubcos should advise
their tenants of the average discount they receive, how this compares
to the free-market discounts available and how much of this discount
pubcos are passing on to their tenants"
6.1 The committee stated in it's conclusions
on this issue that, as with any commercial contract, the details
of our contracts with individual suppliers should remain confidential.
6.2 We still believe the critical piece
of information required to enable a Licensee to produce a business
plan is the price, net of discounts, that he/she will pay for
his/her supplies. We provide this information to all prospective
Licensees to ensure they can produce a comprehensive business
plan, including a full projected profit and loss statement.
6.3 As to an average free-market discount,
we do not believe such a thing exists, as the free-trade market
is a completely different model with a different set of economics
driving it. To realise the best market discounts a free trade
operator must contract himself to one brand owner, consequently
limiting the number of beer products he can sell.
6.4 The rent is assessed having full regard
and disclosure on the net price of all products, remembering that
an increasing proportion of the Licensees' turnover is contributed
to from food and non tied products.
See the following Chart prepared by Nielson,
setting out the gradual change in drinks volume from 2005-07.
7. "We recommend the AWP machine tie
be removed. If the AWP machine tie is not to be removed quickly,
there is no reason why pubcos could not introduce more transparency
about their contractual relationships with their AWP operators"
7.1 The Committee concluded, correctly in
our view, that the machine tie improves takings from AWPs. (See
Paragraph 19 in TISC Report Conclusions).
7.2 However, we continue to disagree with
the Committee's view that the benefits of this are insufficient
and that the tie should therefore be removed. We still believe
there is a strong correlation between the quality of the machine
supplied and its earning potential.
7.3 We are very open with our Licensees
about our AWP agreements and the treatment of income in the profits
method of rental valuation.
7.4 We have a dedicated team who are specialists
in the field with the ability to analyse and understand the marketplace
and then assist Licensees in making informed decisions. This,
in turn, drives revenue for the Licensee.
8. "Upward-only rent reviews should
be removed `as soon as is practicable'"
8.1 Our agreement does not contain an upward-only
rent review provision. We continue to convert old agreements as
they come up for renewal.
8.2 Irrespective of the agreement, the company
adopts a sensible and supportive approach to redressing the balance
of rent where it jeopardises the sustainability of a fair maintainable
9. "Pubcos should recognise that they
have a responsibility to ensure they do not exploit their position
of economic strength"
9.1 The number of leases available within
the market has increased by 7% since the original TISC report.
This offers real choice of business opportunities and pub companies
to an individual looking to take a tied lease in the market place.
9.2 Our success depends upon the success
of our Licensees. It is not in our interests to exploit our Licensees
and see them fail as this incurs considerably costs to us in trading
voids, re letting and BRM time.
9.3 Licensee naivety and poor judgement
should not however be confused as exploitation, and regrettably
despite our best endeavours some Licensees' businesses do fail.
10. Recommends rent concessions "where
tenants experience financial difficulty through no fault of their
own, for example, due to demographic changes or because the pub
is closed for repairs"
10.1 We always seek to ensure rents are
assessed on a fair maintainable trade, making them sustainable,
with a margin of safety for trading downturns and unforeseen circumstances.
10.2 In the current trading conditions we
are working closely with our Licensees to ensure that they are
able to respond to new market opportunities, developing new income
streams to protect and grow their business. Supporting the Licensee
to grow sales usually has a much more positive impact than automatically
reducing the rent.
10.3 The company does adopt a sensible and
supportive approach to redressing the balance of rent where it
jeopardises the sustainability of a reduced ongoing fair maintainable
trade. Our considerable experience ensures that every business
case is looked at individually; endeavouring to offer appropriate
support in a timely way. This may involve a rent concession.
10.4 We believe that, going forward, our
Licensees will have to continue to diversify, responding to changing
consumer demands. Our role is to help educate and support them
through this as neither party is immune to these consumer trends
and economic downturns. Consequently we try to help them help
themselves as opposed to just relying upon a rent concession.
11. "Pubcos should consider paying course
fees, or giving grants, to tenants who attend courses such as
those run by the BII so they can employ staff while they are training"
11.1 Licensee and staff training Is fundamental
to the support we offer. This is evidenced by our mandatory approach
for new entrants through our 10-day introductory MLR course, which
is priced at £995 which is a considerable discount, to enable
Licensees to attend.
11.2 We also have a series of training programmes
recognised as winners through NITA awards. These are heavily subsidised
by the company, including, in many cases, offering a money-back
guarantee if the delegates believe the course has failed to deliver
on its objectives.
11.3 Over the past 12 months, 2155 Licensees
have attended our courses which amounts to 8,924 training days
11.4 We have also listened to feedback from
our Licensees on how we evolve our training. As a result of this
we decided to "move" the cellar section of our MLR course
back into the Licensee's pub, enabling them to get real time training
on site at considerably less cost to them.
12. "We recommend that the industry
should review the support offered to tenants to ensure the application
of best practice in the provision of support to individual businesses"
12.1 Our operational team continue to be
at the heart of our business, with considerable investment and
in field coaching to improve their experience, expertise and consistency
of delivery to the Licensee.
12.2 This is evidenced by the fact that
seven of our BRMs have been short listed for BRM of the Year in
the Association of Licensed Multiple Retailers 2008 Awards, out
of a total industry selection of 17.
12.3 Since the TISC inquiry we have taken
a number of steps to improve the capability of our BRMs and field
operational teams. Over the last six months we have restructured
our operational business to improve the support we provide to
our licensees. This has included:
Recognising the importance of the
BRM role in the field, reducing the size of their geographical
areas and the number of Licensees they support.
Establishing the new role of Operations
Manager to build the skills and capabilities of our BRMs in field
Aligning all our specialist field
roles of catering executives, machine manages and property managers
to smaller Operational Managers territories.
12.4 All BRMs have regular performance reviews
and appraisals and these are audited by senior managers to highlight
any trends in Licensee complaints received.
13. "Pubcos should ensure a higher level
of sales support and service is provided to tenants than they
might achieve on their own. The terms of these and details of
consequences should form part of tenants |"
13.1 We agreed with the committee that
the pub company model generally balances the costs and benefits
available to Licensees. In particular, the model gives Licensees
a low-cost entry into the business and continues to reward entrepreneurial
13.2 We offer a comprehensive support
package including industry-leading training, marketing and promotional
advice as evidenced by our submission.
13.3 Our commitments are clearly outlined
to our Licensees in our Customer Charter.
THE CONTINUING LEVEL OF SUPPORT AND SERVICES
AVAILABLE TO LICENSEES
1. Since the last enquiry we have continued
to build upon and improve the quality and appropriateness of the
services and support we offer. These are scheduled below, and
are offered free of charge or at a discounted price, reflecting
special commercial or financial advantage to the licensee.
1.1 To improve licensees key skills and overall
1.1.1 "Flying start" a structured
induction and development programme for new licensees, with BRMs
visiting more frequently during the first six months (the Flying
Start Programme follows at the end of this Appendix) (not printed
1.1.2 Modern Licensee Retailing (MLR) Two
week training programme covering all aspects of running a business
and licensed premises.
1.1.3 ½ day Chalkboarding course.
1.1.4 "Profit through Beer" one
day course covering all aspects of beer from range to promotions.
1.1.5 "Profit through Finance"
one day course covering all aspects of finance.
1.1.6 "Profit through Quality"
one day course covering quality & perfect serve.
1.1.7 "Profit through Sport" one
day course covering how to sport in pubs.
1.1.8 "Profit through Catering"
one day course covering all aspects of starting a food offer.
1.1.9 Investment Support package ISP a 1-2-1
consultation to evaluate and implement an investment.
1.1.10 Assisted Cellar Excellence "ACE"
1-2-1 cellar training in customers own pub.
1.2 Support to enable our Licensees to compete
in a challenging market, adapting to capitalise on market opportunities
1.2.1 Free "How to Guides"Series
of 10 self help guides covering:
Merchandising & Chalk boarding
1.2.2 Quarterly "Marketing Matters"
magazineproviding a promotional planner and marketing ideas
for the forthcoming season. Access to promotional deals through
1.2.3 Monthly "Inspiration" magazineproviding
hints and tips with up to date legislation news.
1.2.4 Annual Road shows spread across eight
geographical locationsa combination of trade suppliers
and business seminars to inspire and support licensees with ideas,
deals and the confidence to try out new drinks, food, and marketing
1.2.5 A PR helpline and web based self help
tool to help deal with issues or marketing opportunities.
1.2.6 A Design and Print team to help put
together menus, banners, posters or any marketing idea or request.
1.2.7 A general Helpline facility "Frontline"
to answer any query, or request specialist help and support for
1.2.8 "Recipe for Success" In
house 1-2-1 catering supporteven where there is no kitchen,
support offered on low volume, back bar solutions.
1.2.9 "Big Orange Buying Directory"
Access to competitive pricing on a range of goods and services
made available through a group purchasing directory. It covers
food, equipment, non-consumables, clothing, chemicals and pest
control offering discounts of up to 60%.
1.2.10 Extended "credit terms"
during difficult trading conditions the business does offer the
facility of extended credit terms by way of repayment plans, fixtures
and fittings purchase scheme, deposit build up schemes and cash
with order trading terms. We also offer weekly repayment terms
for large annual fees like licensing, where Punch pay up front
and spread the cost over the year to the licensee.
1.3 Specialist help and support around business
change and statutory compliance
1.3.1 Property and investment support to
comply with statutory notices and regulationssmoking, licensing,
and new Energy Performance Certificates EPC.
1.3.2 Marketing pubs for assignment on Punch
web siteco-ordinate interest, lettings boards if necessary.
1.3.3 Competitive Insurance on Business
interruption, F&F, stock.
1.3.4 Rating advice through approved agentsaccess
to advice and appeals following change in business circumstancessmoking
1.3.5 Licensing advice through our in house
licensing teamprocess DPS changes, variations and enforcement
1.3.6 Benefits of block "Insurance"
cover ensuring even high risk customers are insuredflood
areas, near football grounds, high crime areas.
1.3.7 An annual landlords gas safety record.
1.3.8 Annual cellar cooling maintenance.
1.4 Financial Support
1.4.1 Our structured business diagnostic
BRM tool ensures that every licensee is supported through an individual
review, offering the right support in a timely way.
1.4.2 In the current trading conditions
we are working closely with our Licensees to ensure that they
are able to respond to new market opportunities, developing new
income streams to protect and grow their business.
1.4.3 We believe that, going forward, our
Licensees will have to continue to diversify and to focus on changing
consumer demands and our role is to help educate and support them.
Neither our Licensees, nor ourselves are immune to changing consumer
trends and economic downturns.
1.4.4 The business support provided to Licensees
with problems during the last 12 months is estimated to be in
the region of £16 million, broken down in to the following
Rent concessions and rent free periods.
Additional Discount off the contracted price
Support to introduce a retail beer promotion"Bartop".
Free stock given to Licensees by BRMs to support
in house promotional activity.
General marketing and promotional support funded
BRM spend behind recovery planseg Accountancy
services, marketing and promotional activities, menu planning
and printing, banners, staff uniforms, football, darts leagues.
We have made significant changes to our operational
business since the last inquiry. These changes have required high
levels of investment on our behalf and have centred on our absolute
commitment to improve the relationship that we have with our Licensees
and our genuine desire to help them run sustainable and successful
2.1 We have always recognised and promoted
the importance of the relationship between our Licensee's and
the operations team, specifically the Business Relationship Manager
(BRM). This recognition has been supported by the regular surveys
of our Licensees which have consistently highlighted the importance
that they attach to this relationship and the support and value
that they derive from it. Following on from the last inquiry we
have continued to invest significantly in developing the skills
and capabilities of all of the operational team but in particular
we have focused on improving the performance of the BRM. One of
the most significant investments that we have made is to restructure
the field operations team and introduce the role of Operations
2.2 Role of Operations Manager
2.2.1 The Operations Manager role was introduced
in September 2007 and is focused on two interlinked objectives.
2.2.2 Developing the skills and capabilities
of our BRM's via regular one to one trade visit accompaniments,
ongoing coaching and support and performance management.
2.2.3 Enhancing our Licensees experience
by ensuring that we are increasingly responsive to their needs
and are able to effectively resolve queries and issues in a timely
2.2.4 Operations Managers have responsibility
and accountability for managing five BRMs who each support circa
50 Licensees within a tight geographical area. This ensures that
they are able to both understand the local marketplace in which
their Licensees operate and develop a positive working relationship
with those Licensees.
2.2.5 At the time of the last enquiry and
prior to the introduction of the Operations Manager role, 10 Business
Relationship Managers reported directly into a Regional Operations
Director who had responsibility for circa 500 Licensees
across an entire geographical region.
2.2.6 We have significantly improved on
the previous structure with the sole intention of delivering an
improved experience for our Licensees by developing the quality
of the Business Relationship Manager and ensuring that our business
is responsive to their needs.
2.3 Developing the skills of our BRMs
2.3.1 In addition to these structural changes
we have invested in a dedicated Operations Manager who is responsible
for delivering the technical development of our BRMs.
2.3.2 Through a NITA nominated modular based
training programme BRMs are quickly able to develop the technical
competency in all of the required disciplines that then enable
them to effectively support our Licensees.
2.3.3 Since the last inquiry we have completed
4,042 training days and have robust individual development plans
for each of our BRMs that encompass all of the technical and behavioural
2.3.4 These plans are owned by the Operations
Manager who takes full responsibility for ensuring that the individual
BRM is performing at the required level and is able to establish
an appropriate relationship with our Licensees and add value to
2.3.5 The structural changes outlined above
combined with an on-going commitment to developing our people
have resulted in tangible improvements in the quality of our BRM
population and how they are perceived by our Licensees.
2.3.6 In the 2008 ALMR (Association of Licensed
Multiple Retailers) Operations Manager Guild, we entered 11 BRMs
and out of that 11 we had seven out of the total of 18 (39%) go
forward to the final stages.
2.3.7 More importantly in a recent survey
of 20% of our Licensees they gave an average score of 3.9 (highest
score 5) when asked would you recommend your BRM to another Licensees.
2.3.8 In addition to focusing on the development
of our existing BRMs we have improved our ability to attract high
quality individuals to join our business as BRMs. We have BRMs
who have proven experience in retailing and the necessary skills
and motivation to help our Licensees develop their businesses.
Recently we have recruited individuals from as diverse backgrounds
as Starbucks and Marks & Spencer.
2.4 Improved ways of working
2.4.1 Since the last inquiry we have reviewed
all of our "ways of working" and made improvements that
ensure greater structure and transparency in our relationship
with our Licensees.
2.4.2 We operate to a standard structured
8 week call cycle whereby each BRM will conduct a planned face
to face review with each of their Licensees focusing on the individual
opportunities and issues in that business at that specific time.
2.4.3 The details of the visit are recorded
and signed by both parties providing clarity around commitments
made by both the BRM and our Licensee. These record sheets are
returned to our head office where they are scanned and stored;
this ensures that if a complaint or issue arises we have an accurate
record of events and can resolve the Licensees concerns.
2.4.4 We recognise that our new Licensees
need additional support and consequently we have put a huge amount
of focus into ensuring that any new Licensee is given the very
best opportunity to succeed.
2.4.5 Since the last Inquiry we have introduced
our "Flying Start" programme which provides more intensive
and structured support to new Licensees throughout their first
six months. In this time we effectively double the contact that
the BRM has, with a structured review of the business taking place
every four weeks. This is also backed up by additional contacts
either face to face or via the telephone.
2.4.6 The Flying Start programme covers
all of the key areas that a new Licensee needs to be aware of
and reviews these in a logical sequence, ensuring that the necessary
business controls are established in the critical first few weeks.
3.1 In July 2008 we upgraded our online
Licensee "Your Place" web site, as part of our ongoing
efforts to help them drive trade and build sustainable businesses.
3.2 Your Place includes a range of enhanced
features such as more content in easyto-find sections, quick links
to the newest information, a range of virtual and downloadable
resources and the latest Brulines data.
3.3 Automated registration has also been
introduced which means Licensees can gain access to the site in
seconds. It is already receiving over 100,000 hits per month and
we are encouraging Licensees to log on and take advantage of the
online resource to help maximise their pub profitability.
3.4 Key areas of the website include:
3.4.1 Flow monitoringfor those Licensees
who have Brulines installed at their pub they can access the detailed
information it captures about their draught sales. This allows
Licensees to schedule and assess promotions, plan rotas and check
online cleaning frequency.
3.4.2 Design Point of Salethe design
and print online service allows Licensees to design their own
banners, posters and tent cards using templates. Licensees can
choose their favourite design and add their own personal details
before ordering and purchasing their items online.
3.4.3 Marketing informationLicensees
can flick through the pages of all our support guides and promotions
using page turning software.
3.4.4 Financea range of information
is available to help Licensees understand and manage their finance,
including details on cash flow, cash management, break even and
3.4.5 Developmentdetails of all our
training courses are to hand with an outline of the content for
each course, testimonials and how to book.
3.4.6 Foodfrom introducing a simple
food offer to enhancing an existing food offer this section contains
useful information to help Licensees to cash in on this income
3.4.7 Responsibilityfrom licensing
support to noise control, this section provides Licensees with
information on all areas of responsible retailing.
3.4.8 There will be even more focus around
online activities for 2009 as ebusiness is at the top of our agenda.
DRINK SUPPLIERS AND BRANDS AVAILABLE TO PUNCH
(46 IN TOTAL
AND 225 BRANDS
||Number of brands|
| Coors Brewers||21
|Number of brands
||Regional Suppliers||Number of brands
|Belhaven Brewery||1||SA Brain & Co
|Black Sheep Brewery||2
||Wolverhampton & Dudley||7
|Charles Wells||6||Young & Co
|Danbiel Thwaites||2||Hardy & Hansons
|Everards Brewery||1||Otter Brewery
|George Bateman & Sons||4
||Ales of Scilly||1|
|Harvey & Son||1||Hambleton Ales
|Hook Norton Brewery||2
|JW Lees and Co||1||Exmoor
|Refresh UK||4||Sharps Brewery
|Ringwood Brewery||1||Shepherd Neame
|Robert Cain & Co||2
Total46 beer suppliers and 225 brands
In addition to the contracted suppliers detailed above, during
the last three years Punch has sources beers from a further 35
Small Independent Brewers Association ("SIBA") members
under the rotational cask ale schemes. Of the above 46 beer suppliers,
17 are also members of SIBA, giving a total of 52 SIBA members
whose ales have been available to Licensees.
SUPPLIERS (46 IN
|Allies Domecq Spirits & Wines||Hallgarten Wines Ltd
|Bacardi Brown-Forman Brands||Hayman Ltd
|Bibendum Wine Ltd||KC Brands Ltd
|Britvic Soft Drink Ltd||LIQUIDe Ltd
|BRL Hardy Wine Co||Marne & Champagne Diffusion UK
|Budweiser Budvar UK Ltd||Mathew Clark Brands Ltd
|HP Bulmer||Maxxium UK Ltd
|Burn Stewart Distiller Plc||Paragon Vintners
|Casa Julia PLC||Percy Fox & Co (UK)
|Cave Direct||Percy Fox & Co (USA)
|Cellar Trends||Pernod Ricard UK Ltd
|Coco-Cola Enterprises Ltd||Red Bull Company Ltd (RBCL)
|Constellation (UK)||Showerings Ireland Ltd
|Cott Beverages Ltd (Midland Di||SHS Sales & Marketing
|E & J Gallo Winery||Silver Spring Mineral Water Co
|Entbe Ltd||Stowford Press
|FIOR Brands Ltd||Strathmore Mineral Water Co
|First Drink Brands Ltd||Thatchers Cider
|First Quench||Ubevco Distributors Ltd
|GbI International Ltd||United Brands
|Grape Expectations||Waverley Vintners Ltd
|H & A Prestige Packing Co Ltd||H Weston & Son
|Halewood International Ltd||Wine & Spirit International
COMPARISON OF COSTS OF PURCHASE VS COST OF TIED LEASE
1. Capital in-going costspurchase vs tied lease
Capital in-going costs
|Fixtures & Fittings||
||£12,000||Fixtures & Fittings
|Stock & Glassware||
||£3,500||Stock & Glassware
|Total Cash Required||
||£236,500||Total Cash Required
Source: Punch estimates
2. Annual Costspurchase vs tied lease
|Min required return on capital invested
||15%||£35,475||Min required return on capital invested
|Free Trade Barrelage Discount||£90 per|
|Total Annual Costs||
||£48,425||Total Annual Costs
Source: Punch estimates
3. In the assessment, we have assumed that in addition
to interest or rent, a Licensee should be seeking a reasonable
return on the money invested in the business at the outset. We
have suggested a return required to 15% on a freehold purchase
and 25% on a long lease. We have used a free trade discount of
£90/brl, but made no allowance for the much greater produce
range and suypport services available under the tied lease model.
[A more detailed verson of this analysis has been adopted by Deutsche
Bank in their analysis of the pub sector ("The Bear Pit",
31 October 2003)].
4. Even with the extra return criteria, in the current
market a Licensee who leases rather than purchases would save
some £9,800 per annum and make capital cost savings of £210,000.
Although the Licensee would not gain on the capital appreciation
of the freehold, the Licensee has an asset which is assignable.
It is worth noting that the average assignment premium paid by
in-going lessees on an assignment if £71k in the Punch estate.
5. A further major issue is risk. Should the value of
the property fall for some reason, the whole of this value would
be felt by the owner, generally in the form of "negative
equity", whereas the Licensee is largely protected. The purchaser
is also highly susceptible to an interest rate increase. If borrowing
rates rise, every 1% rise in interest rates in the example above
would cost a pub purchasers £4,550 per annum.
OUR APPROACH TO MANAGING AWP MACHINES
1. Our approach to managing AWP Machines:
1.1 We believe that royalties should be treated in exactly
the same way that discounts are treated on beer. They reflect
the purchasing power of the pub company. It also provides certainty
of supply for the machine suppliers, enabling them to invest in
new product development. This innovation and investment into the
industry enhancing sales and consumer interest in continuing to
play AWP machines. Without this many supplies would not be able
to supply the free market without materially reviewing their pricing
structure upwards. This is not dissimilar to the TISC committee's
observation of what would happen with the brewers and brand owners
if the beer tie went.
1.2 The dry rent (share of machine income) is a variable income
stream, always representing a % share of the income realised through
the case in the box of the AWP.
1.3 In order to protect this income Punch employs a dedicated
team who are specialists in the field with the ability to analyse
and understand the marketplace and then assist Licensees in making
1.4 Within 20 days of taking a pub, we can guarantee a visit
from a Machine & Vending Manager to conduct a full review
of the opportunities on site and assist the Licensee to maximise
his potential cash flow. This is always conducted to deliver the
Licensee's requirements and to be in harmony with the ambience
of the outlet.
1.5 In addition to the field based staff, a small central
team that we provide the field with the best levels of delivery
available in the marketplace.
1.6 In ensuring choice of supplier we currently have both
national suppliers listed and 35 regional suppliers to which a
Licensee can transfer his business at any time.
1.7 Machine testing the approval is a key area, managed through
an approved machine rental list. The difference between a poor
and a good machine is probably around 15%, but annualised could
be significantly greater, compunded by a series of poor purchase
recommendations. In the last year alone we have tested over 150
different AWP machines and approved only 39 to the rent list.
1.8 In order that we continue to maximise income potential
for every site we have a seven rent banded list. This covers a
range of rents from £76.65 down to £26.46. We believe
this gives the Licensee the ability to match income and potential
income with the correct grade, and therefore rent, machine.
1.9 In recent years the industry has polarised to two manufacturers
and any further erosion could possibly result in a more limited,
certainly more expensive choice of machine.
1.10 The graph below shows the cash in box available after
VAT, AMLD (Amusement Machine Licence Duty) and rent. The net effect
is that Punch tracks at £20 minimum per week over a free