Memorandum submitted by Peal O' Bells
I wish to lodge my experiences for the inquiry
into the effectiveness of the Trade and Industry Committee's Report
of 2004. In doing so I wish to express my grave concerns as to
the viability of many leased pubs, such as mine, which has seen
profits inexplicably slashed this year, to a point where there
is no longer any point in carrying on the business.
My lease is dated from 1995, shortly before
the latest amendments to the Landlords and Tenants Act, and originally
drawn up by Paramount Pub Company. I became an assignee to the
lease in September 2003, with the then current Pub Company Pyramid,
who then sold to Admiral Taverns who are the current Landlords.
My rent is on a RPI basis—it increases every three years
at the rate of previous Retail Price Index. I am partially tied
to beers, lager and ciders.
Many factors have contributed to such a dire
situation—the credit crunch, poor trading due to a non-existent
Summer, effects of the Smoking Ban, increased and more onerous
Legislation, a Government hell bent on prosecuting the licensed
trade—aimed particularly at traditional public houses, increased
minimum wage and holiday pay, rocketing energy costs, and last
but certainly not least, lack of sympathy (or more importantly
monetary concessions) from our Landlords—the Pub Companies—in
my case Admiral Taverns. My profits have plunged from a Net profit
of £20,376 in 2005-06, to £16,662 in 2006-07, to what
will be very close to a loss in 2007-08—with reduced drawings,
currently standing at none whatsoever, no personal wages and the
prospect of having to inject thousands of pounds just to pay September
2008 quarterly VAT bill.
Despite such difficult trading conditions, as
mentioned above, my Pub Company Admiral Taverns, have actually
increased rent, tried to charge me back rent to beyond my tenure,
and forced me to become embroiled in a legal battle I could ill
afford. Furthermore, at the start of this difficult trading period
and before this rent "issue", I requested financial
assistance to help overcome a cash flow crises in January 2007.
Nothing was forthcoming, and matters have deteriorated to such
a point now, that my wife and I have taken on full time jobs away
from the industry, our pub's hours have been drastically reduced,
we haven't taken drawings or wages for three months, and we are
having to bankroll the business to keep it afloat.
Here follows are the subjects sub-divided, that
I have direct interest in, and included are extracts from the
2004 inquiry, my thoughts on its conclusions and the effect the
recommendations had on the PubCos.
RENT REVIEWS
Inclusion from the 2004 Trade and Industry Committee
Report
Section 8: Clause 151. We commend pubcos which
have already removed upward only rent review (UORR) clauses from
their agreements. We consider this best practice within the industry
and we call upon those pubcos which have not already done so to
remove such clauses as soon as is practicable.
Not a chance—those tenants sitting on
existing agreements will be threatened with INCREASING rents,
not decreasing, if the lease/tenancy was re-negotiated, as is
the case with the removal of the Tie argument. It will be take
it or leave it. Don't forget, Tenants are poorly funded, time
restricted individuals who are isolated in their fight against
the might of the Corporate Company. Is it any wonder that so few
go to arbitration? If any of the Pub Cos were willing to openly
negotiate in front of this inquiry, to set a preciedent, if the
formula for obtaining a Sustainable Rent were agreed between all
the interested parties, this inquiry may have done some good.
Up to that point, any further recommendations, slapped wrists,
etc will be laughed upon by these "Bully Boys", as they
did following the previous inquiry. Only in the past six months
has any "lip service" been paid to the buzz words touted
in 2004, and that is only because of the shock of the re-opening
of the inquiry, which was very much out of the blue.
THE BEER
TIE
Inclusion; Section 8: Clause 133
The theory is that the net cost of the beer
tie to the tenants makes them no worse off than if they were free
of tie. [171]
Well it is ABSOLUTELY STIFLING to our operation
and finances. The tie is strangling it's tenants. It is a restrictive
practice and results in a monopoly of supplies.
The Tied System
Does this benefit the Consumer?
NO, the same price cartel exists (because of
the Pub Co's tied prices to the tenant/lessee, who make up a large
proportion of the trade) that was the prime mover for the Beer
Orders in the 1980's. Choice has increased, in that the there
isn't limited choice of Watney's Red Barrel, or Whitbread Trophy,
or whatever the National or regional Brewer in that particular
area offered. And lager choice has increased, but mainly the Global
brands getting prevalence—not specialist Belgian or German
styles.
Does this benefit the Tenant?
ABSOLUTELY NOT! The products are over priced—my
G.P. on draught products is around 40%—to achieve any higher
would put prices to a point where customers would desert to the
freehouse in the village. Most tenants/lessees choice is limited
to National and Global Brands (excepting those pubs allowed the
SIBA scheme for cask ales), deliveries are non-negotiable, COD
is Cash up-front, ordering up to five days before delivery, and
paying up to four days before delivery, when delivery days are
Monday or Tuesday. Stock control is near impossible, with the
prediction of sales effectively covering two weekends. If there
are high sales, incoming stock the following week will be short,
and when the Pub Co charge £70 for an extra delivery, or
may fine or evict a tenant for "buying out". Service
is poor through the distributor Kuene and Nagel, with no complaint
structure or means to "shop" elsewhere. Deliveries can
be out of the declared time slot, they refuse to take all the
"empties" and the crew changes week by week. The same
draymen rarely deliver twice to the same pub. Hence we get calls
asking for directions, they need explanation of the position of
the drop, and need baby sitting in order to do their job. This
was never the case under the old Brewery tied tenancies.
Does this benefit the Pub Company?
ABSOLUTELY. A subsidiary income on top of their
rent—often outweighing the rental income. Estimating the
Pub Cos bulk discount figure of £120/brewers barrel, (conservative
estimate, given the buying power of the larger Pub Cos) mine is
approximately £18,700 per annum. My current rent is £14,434
per annum on a turnover of circa £200,000. This may appear
to be a favourable rent, and the tie is said to offset below market
rent valuation. But if rental calculations were performed on my
business as recommended by the Committees Report 2004, I am sure
my rent is reasonably fair, tie or no tie. Incidentally, I previously
approached my previous Pub Co, Pyramid, for a free of tie agreement,
and after studying my accounts they offered a new annual rent
of £44,000. As this was financial suicide on my part, I withdrew
my request. This shows how much the Tie is worth to the Pub Cos.
The financial penalties are dealt by the over
inflated prices the Pub Company charges for it's products. See
below for examples:
Product
| Admiral price | Wholesaler Price (Delivered) August 2008
|
| Adnams Bitter 3.7% | £82.01
| £62.49 (Halls of Holywell) |
| Marstons Pedigree 4.5% | £95.53
| £74.99 (Halls of Holywell) |
| |
|
Mainstream lagers and other products as negotiated by freehouses,
can be as much as half the price of tied product list prices.
They are not as declared in Section 7.117, "comparable with
the free market price, if not a little lower than that available
in the free trade if considered on an equivalent basis".
[149]
Please compare to other Business models in our industry:
Non Tied Model:
Take a Nationwide freeholder such as Wetherspoons:
Benefits to the customer—Prices YES, well below average—and
can be up to £1 cheaper per pint.
Benefits in customer choice—yes there is wider choice
especially for cask products and they are outlet manager controlled.
Benefits to the manager—YES—they get paid according
to their ability.
Benefits to the Pub Company—Wetherspoons are a highly
successful company even in these difficult trading conditions,
but offer value for money products.
Individual owned freehouses and small chain freehouses:
Benefits—Products retail generally above Wetherspoons
levels, due to reduced buying power, but Customer choice is unrestricted,
and profits are directly related to the specific business dynamics.
One stop purchase point, as listed by the Pub Cos as being a benefit
to tenants—never listed as a disadvantage by any free-holder
I know.
Through the SIBA direct delivery scheme, I am allowed a "guest"
beer maybe two a week. This is a non—profit making organization,
acting in the interest of independent Regional Cask Breweries,
to market their products in their local area via the Pub Cos.
However, I have to pay around £20 per firkin above the Brewers
wholesale price for the privilege.
Does that benefit the consumer in any way? In choice yes,
but there would be a greater benefit if more pubs were able to
purchase free of tie, both in price and choice.
Does it benefit the tenant—only in the availability
of SIBA listed local cask products—but purchase price is
too high and non-negotiable.
Does it benefit the Pub co? Yes—£20 for every
cask sold without having to spend one penny—money for nothing
for their tenants "privilege" in ordering a "guest"
or local beer.
Does it benefit the brewer? Only in having their beers available
in SIBA listed outlets—but they still have to sell it at
a minimal profit and many micro brewers can't afford the membership
fees.
Section 5: Clause 53. Marketing fees act as a deterrent to
the extension of consumer choice and will usually be reflected
in higher prices to the consumer. If pubcos are serious about
extending consumer choice to include the products of small brewers
they should reconsider their policy on marketing fees.
If £20 per 9g firkin isn't anything other than a "marketing
or mark-up" fee, I don't know what it is.
Choice for the tenant (and hence the customer) is at the
whim of the Pub Co, and their sales director. If the Company wish
to de-list any product, they would do so based on trends National
wide. They do not consider local customer needs—such as
mild in Central and Northern areas, or strong local loyalties.
If they decide to delist a product, we, nor the customer have
a choice. And conversely, if an exciting new product was launched,
and their was local following—it would be impossible for
the tenant to sell it—hence loosing out to any local freehouse.
SERVICE PROVISION
177. Dealing with tenants' complaints quickly and efficiently
is good business practice for all companies. Pubcos should ensure
that a higher level of sales support and technical service is
provided to tenants than they might achieve on their own. The
terms of these procedures and details of the consequences should
complaints and problems not be dealt with to the satisfaction
of both parties should form part of tenants' agreements or a binding
code of practice.
In my experience Very Poor: Cellar services—now
a lottery as to who comes out to what equipment. I had to pay
for flash chiller repair, as well as cellar cooling due to dubious
clauses in my lease. On equipment breakdown—naturally during
evening or weekend service, the office is closed—so no service
is available. All that is offered at other times is a phone number
which we have to call to request the services of an engineer.
No emergency number, no easily accessed lists, nothing. We are
on our own—I've even had a fire in the cellar and called
the office answer phone in a panic—I never even got a response.
Also brought up in during my rent dispute, was the fact
that the Admiral had failed to provide a Landlord's Gas Safety
Certificate, and consequently through their Solicitors, refused
to do so, saying it was my responsibility. This matter is currently
unresolved.
BUILDINGS INSURANCE
A fairly recent addition to the increasing number of financial
burdens on the lessee, we are paying £1054.68 per annum.
In the last week I have tried to make a claim for damage due to
a burst pipe. On a type of pipe that shouldn't have been installed
(poly pipe dated 1972, usually installed underground) under floorboards,
presumably during an extension commissioned prior to the start
of the Lease—pre 1995). Admiral now inform me that there
is an excess of £1,000 on this policy. The damage is not
more than £1000, so I am now that amount out of pocket, from
a policy I have no control over, and has never been sighted. Is
that extortion or mis-representation—don't know the technical
term for it. It would be interesting for every Pub Co to declare
the excess and policy charges, and to actually present the policies.
My outgoing Dilapidations Report should be interesting. Having
already spent £10,971.70 on repairs and renewals in the five
years I've been here, the property should be in excellent order.
However, because of the age of this and many other Pub Co properties,
previous poorly executed additions and repairs beyond my tenure
and the present lease, I'm sure Admiral will use me to bring their
property into such pristine state that it hasn't been in for many,
many years. This seems to be the norm as their profits shrink
the value of their property drops, and their need to "screw"
the tenant still further to the point of no return.
TRAINING
Section 8: Clause 165. It is clearly to the benefit of both
pubcos and their tenants that pubcos should encourage appropriate
business training for prospective and incumbent tenants alike
to improve their business knowledge and performance through courses
such as those run by the British Institute of Innkeeping (BII).
Some tenants who would benefit might be deterred by the cost.
We suggest that as they would benefit from better trained and
more competent tenants, pubcos should consider providing support
to their tenants to attend these courses through the payment of
course fees or grants to enable them to employ cover for the period
when they are absent from the public house.
Training and Support are the benefits touted by the Pub Companies
as justification for the tie. Training is available, though written
details and costs are not freely available, and the only offering
on the Admiral website is "introduction to Licensed Retail
Operation and Personal License courses. No advanced training—no
post application training—the 3 minute `How to Run it Your
Way' audio visual presentation is laughable if it wasn't so misleading.
`A quick overview on running an Admiral pub'. `Potential Landlords
and landladies will find some useful tips here'". SIC! Try
speaking to existing tenants—they might shed some more light
on the subject. At no stage does the video suggest taking legal
or professional business advice—just let our BDM's check
your business plan and your away. Easy steps—nothing is
easy and this shouldn't be suggested—no reality checks,
no true advice. More lambs to the slaughter—they presume
the BDM is a true business advisor—nothing could be further
from the truth in many cases. Support via the BDM is diminishing,
their powers limited, and their resolution of matters contentious.
More resources and power is given to the cellar police who inspect
the cellars for breaches of tie. Any suggestions previously made
by my BDM on business improvement had already been tried, and
he has just been crunching figures to try to make a current loss,
and no Income, into a healthy profit!! Fat chance. His P&L
programme actually came up with an £8,000 per annum loss.
He had no suggestions as to how to turn the business around, my
prices were top end, turnover as good as could be expected, expenses
not unreasonable. The rent based on net profit came out as £4000,
the current rent compared to current turnover stood at only 7%,
compared to an expected return of 12%. He agreed the business
was loosing money, but could do nothing about it.
ARBITRATION
158. The pubcos have argued that if tenants do not agree
with their rent assessment, they should not have entered into
the lease or accepted the rent review.[211] We do not share this
view. In the relationship between pubco and tenant, the tenant
is in the weaker bargaining position. Pubcos should recognise
that they have a responsibility to ensure they do not exploit
their position of economic strength. All tenants should be treated
fairly and rents should be reasonable and sustainable.
My solicitor actually advised me against this Lease—but
it was less onerous than most other leases I'd seen (he was not
of pub trade background). The choice I had at the time was take
it or leave it but there were extremely limited alternatives.
Take a pub on the Pub Co's standard lease terms or never take
a pub. The Pub Co's had the free house market sown up, the few
that were available for sale were snapped up by these greedy operators
keen to make a quick and a sustained long term killing (though
due to the property crash, freeholds are now starting to appear,
with Pub Cos unable to invest due to falling returns and the credit
crunch).
TRADE SELF
HELP?
One particularly unfair trading practice is actually administered
by many of the Pub Companies and Breweries who incidentally also
have Tenanted Subsidiaries, in the form of Managed Operations.
Managed Houses have become less prevalent because of the financial
benefits to the Breweries and Pub Cos to transfer such premises
into Leased Outlets. Punch Taverns have transferred thousands
of Spirit Group houses in such a way. Scottish and Newcastle,
had and still have a substantial managed "wing", as
do Green King, Charles Wells, Thwaites, M&B, Enterprise, Marston's
and many others. These outlets purchase the Breweries products
at drastically reduced rates compared to tenants rates, their
heavily subsidized food prices (eg two meals for a fiver, two
for one offers, drink promotions) are beyond the pricing structure
of individual tenants, and customers are naturally attracted by
the same products offered at prices that the tenanted outlets
cannot match without loosing money.
IN CONCLUSION
I have seen the "writing on the wall" for three
years now, and have entered into correspondence with various "bodies"
with an interest in the industry, but in the interests of trying
to keep this submission concise, they will remain "on file".
All correspondence and details are available in full form if you
require them, correspondents include BERR, my MP Ian Lucas, the
FSB, the BII, All Party Parliamentary Beer Committee, CAMRA, Admiral
Taverns and their predecessor Pyramid. Some as you may expect
have been sympathetic, some such as BERR, BII and CAMRA, misinformed,
unwilling to accept reason, or totally blinkered in their replies.
None have offered any true support, except my MP who is fighting
on the Supermarket front.
Our business is now up for sale, but who in their right minds
would take on a "sinking ship" in an industry which
is drowning itself. I may just walk away and hand the Landlord
the keys. Conversely, we are seen by our customers and our village
as the "Hub" of the community, central to many village
celebrations and events. When we close for good, it will be difficult
to explain the factors behind our decision—other than that
we've given it our body and soul, but our personal financial survival
is more important than our Community obligations.
25 September 2008
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