Pub Companies - Business and Enterprise Committee Contents

Supplementary evidence from Punch Taverns




  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 agreement.

  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.


"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; and

    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 market place.

  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 pricing.

  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 arbitration—this is extremely rare.

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 Licensees.

  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 on.

  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 BRM.

  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 the trade.

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 trade.

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 delivered.

  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 with Licensees.

    —  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 activity.

  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.



  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 business capability

  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 here).

  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:

    —  Beer Festivals

    —  101 ideas

    —  Big Screens and TVs

    —  Key Events

    —  Ladies

    —  Machines

    —  Merchandising & Chalk boarding

    —  PR

    —  Pub games

    —  Students

  1.2.2  Quarterly "Marketing Matters" magazine—providing a promotional planner and marketing ideas for the forthcoming season. Access to promotional deals through "Connect" brochure.

  1.2.3  Monthly "Inspiration" magazine—providing hints and tips with up to date legislation news.

  1.2.4  Annual Road shows spread across eight geographical locations—a 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 offers.

  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 the licensee.

  1.2.8  "Recipe for Success" In house 1-2-1 catering support—even 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 regulations—smoking, licensing, and new Energy Performance Certificates EPC.

  1.3.2  Marketing pubs for assignment on Punch web site—co-ordinate interest, lettings boards if necessary.

  1.3.3  Competitive Insurance on Business interruption, F&F, stock.

  1.3.4  Rating advice through approved agents—access to advice and appeals following change in business circumstances—smoking for example.

  1.3.5  Licensing advice through our in house licensing team—process DPS changes, variations and enforcement action.

  1.3.6  Benefits of block "Insurance" cover ensuring even high risk customers are insured—flood 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 key areas:

    Rent concessions and rent free periods.

    Additional Discount off the contracted price list.

    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 through suppliers.

    BRM spend behind recovery plans—eg Accountancy services, marketing and promotional activities, menu planning and printing, banners, staff uniforms, football, darts leagues.

1.5  Summary

  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 businesses.


  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 Manager.

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 fashion.

  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 elements required.

  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 their business.

  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 monitoring—for 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 Sale—the 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 information—Licensees can flick through the pages of all our support guides and promotions using page turning software.

    3.4.4  Finance—a range of information is available to help Licensees understand and manage their finance, including details on cash flow, cash management, break even and retail pricing.

    3.4.5  Development—details 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  Food—from 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 stream.

    3.4.7  Responsibility—from 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.



National Suppliers Number of brands
Coors Brewers21
Interbrew UK39
Scottish Courage28
Anheuser Busch3

Regional Suppliers
Number of brands Regional SuppliersNumber of brands
Adnams3Robinsons Brewery 1
Belhaven Brewery1SA Brain & Co 3
Black Sheep Brewery2 Timothy Taylors2
Butcombe Brewery1Wadworth 1
Caledoniam Brewery4 Wolverhampton & Dudley7
Charles Wells6Young & Co 3
Danbiel Thwaites2Hardy & Hansons 3
Everards Brewery1Otter Brewery 1
George Bateman & Sons4 Ales of Scilly1
Greene King5Ridleys 2
Harvey & Son1Hambleton Ales 1
Heineken UK1Hobsons 2
Highgate Brewery3Cotleigh 1
Holsten Distributors2 Nottingham2
Hook Norton Brewery2 Titanic3
JW Lees and Co1Exmoor 1
Jennings Bros4Fullers 1
Refresh UK4Sharps Brewery 1
Ringwood Brewery1Shepherd Neame 1
Robert Cain & Co2 Beer Sellervarious

Total—46 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.

Allies Domecq Spirits & WinesHallgarten Wines Ltd
Bacardi Brown-Forman BrandsHayman Ltd
Bibendum Wine LtdKC Brands Ltd
Britvic Soft Drink LtdLIQUIDe Ltd
BRL Hardy Wine CoMarne & Champagne Diffusion UK
Budweiser Budvar UK LtdMathew Clark Brands Ltd
HP BulmerMaxxium UK Ltd
Burn Stewart Distiller PlcParagon Vintners
Casa Julia PLCPercy Fox & Co (UK)
Cave DirectPercy Fox & Co (USA)
Cellar TrendsPernod Ricard UK Ltd
Coco-Cola Enterprises LtdRed Bull Company Ltd (RBCL)
Constellation (UK)Showerings Ireland Ltd
Cott Beverages Ltd (Midland DiSHS Sales & Marketing
E & J Gallo WinerySilver Spring Mineral Water Co
Entbe LtdStowford Press
FIOR Brands LtdStrathmore Mineral Water Co
First Drink Brands LtdThatchers Cider
First QuenchUbevco Distributors Ltd
GbI International LtdUnited Brands
Grape ExpectationsWaverley Vintners Ltd
H & A Prestige Packing Co LtdH Weston & Son
Halewood International LtdWine & Spirit International



1.   Capital in-going costs—purchase vs tied lease

Capital in-going costs
Buy Lease
Purchase price£650,000
Loan70% LTV£455,000
Balance£195,000 Depositrent£8,000
Stamp Duty4%£26,000 Stamp Duty£3,048
Fixtures & Fittings £12,000Fixtures & Fittings £12,000
Stock & Glassware £3,500Stock & Glassware £3,500
Total Cash Required £236,500Total Cash Required £26,548

Source: Punch estimates

2.   Annual Costs—purchase vs tied lease

Annual Costs
Interest7%£31,850 Rent£32,000
Min required return on capital invested 15%£35,475Min required return on capital invested 25%£6,637
Free Trade Barrelage Discount£90 per
Total Annual Costs £48,425Total Annual Costs £38,637

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.



  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 informed decisions.

    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 trade site.

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