Pub Companies - Business and Enterprise Committee Contents

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.


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.


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:

Admiral priceWholesaler 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.


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.


  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.


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.


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).


  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.


  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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