Memorandum submitted by Business in Sport
and Leisure
INTRODUCTION
Business In Sport and Leisure (BISL) is an umbrella
organisation for over 100 companies in the private sector of sport
and leisure industry. Members of BISL listed on the London Stock
Exchange and in private equity ownership have a combined market
value in excess of £40 billion. BISL has a long established
working group on liquor licensing and published its first paper
on licensing law reform in 2003.
Has the Licensing Act 2003 had an effect on competition
within the market?
BISL is not aware of the Licensing Act 2003
having any impact on competition within the pub market. We do
not think that any competition concerns have emerged since 2004
when the OFT and Trade and Industry Select Committee found none.
However, we would like to note that despite
the Licensing Act 2003 initially being envisaged as a deregulatory
piece of legislation, its impact has been to increase the administrative
burden for operators in the licensed trade, for example through
requirements around advertising and applying for variations in
licences. The local nature of the Act has resulted in widespread
inconsistency of application by licensing authorities with some
imposing unwarranted but punitive conditions on licences and others
building strong partnerships with the licensed trade.
To what extent have revisions to the framework
codes of practice met the Committee's concerns?
Revisions to the framework codes of practice
have adopted most of the recommendations of the Trade and Industry
Select Committee, for example on the avoidance of upward only
rent reviews, the disclosure of information and the taking of
legal and professional advice by prospective tenants. BISL understands
that the Pubcos place a premium on ensuring the transparency of
their lease agreements. Pubcos clearly explain the agreements
that they enter into with tenants, providing for example complete
guides to the letting and assignment process and plain English
agreements with simple summaries. They also advise prospective
tenants to take legal advice and insist that they take financial
advice before signing the agreement.
To what extent are the codes applied by the pubcos?
BISL believes that the recommendations of the
Committee's 2004 inquiry have been met, with Pubcos applying the
amended codes of practice, on rent reviews, support for tenants,
for example through BDMs, disclosure of information and requiring
professional advice for prospective tenants. In the current difficult
economic climate, several Pubcos, for example Greene King and
Enterprise Inns, have seen profits fall as they bolstered their
tenants through rent concessions and trading support. As discussed
below BISL believes this is indicative of how the present relationship
between pub companies and tenants is working well by sharing the
costs of the economic downturn.
Is there a need for further regulation of the
industry?
BISL is of the firm opinion that the last thing
that the pub industry needs in the current difficult economic
times is any more regulation. There are many reasons for the current
problems that pubs are facing, not least the effects of the smoking
ban, aggressive supermarket discounting and loss-leading, the
rising cost of utilities and raw materials, the credit crunch
and the resulting downturn in consumer spending and punitive taxation
increases, particularly on beer duty. We certainly do not feel
that the role that Pubcos play in the industry is driving pubs
to fail or the root cause of the estimated 36 pub closures a week.
Indeed, we believe that the flexibility that Pubcos have been
able to operate over rent concessions and the support services
their provide is helping rather than hindering their tenants and
lessees.
BISL is aware of the recent campaign attacking
the relationship between Pubcos and tenants, in particular the
beer tie. In 2004, the OFT and the Trade and Industry Select Committee
found that there was no fundamental case to answer on the beer
tie. BISL firmly believes that that situation has not changed
and there are no competition concerns.
There are in fact several significant benefits
to the beer tie, for example the initial capital investment required
by new lessees is lower and the pain of tough conditions is shared,
with tenants more likely to receive support from a landlord with
a vested interest (ie a Pubco) than from a bank calling in loans.
Under the tie, beer prices increase only once a year rather than
at any time as for free traders, with Pubcos operating transparency
over the increases. Moreover, Pubcos have a vested interest in
growing sales through providing a high level of support. Punch
Taverns, for example, provides its lessees with marketing support,
training, specialist help, not least the £40m invested in
smoking ban adjustments across its estate, and financial help
and support, such as rent concessions.
Rent is a fixed cost whereas beer costs are
variable. Tenant and lessee beer prices are higher than for freehouses
but the prices are clearly set out in writing in advance and,
more importantly, the whole model for a free trader is different.
Free traders borrow from a bank to buy their pub whereas the Pubco
finds the capital to buy a pub and establishes its beer prices
against this cost, whilst investing in the pub through, for example,
refurbishment. The beer tie enables Pubcos to keep rents lower
than free market rates and there seems little appetite amongst
tenants for rents to rise. Enterprise Inns, for example, have
noted that only a small percentage of their tenants have opted
for their Retail Partnership Agreement, which offsets lower beer
prices against a higher rent. Support services and advice are
also available from the Pubco. Without the beer tie, rents would
rise and investment in support services would decrease.
29 September 2008
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