Pub companies: follow-up - Business, Innovation and Skills Committee Contents

Memorandum submitted by Martin and Alan Hand


  As lessees of an Enterprise owned public house operating to a Whitbread lease since 1995, I wish to submit the following regarding the operation of tied leases which I believe are inappropriate in today's market environment.


  1.  The product cost per barrel charged by Enterprise versus other sources of supply such as Cash & Carry operators is excessive and results in managed pubs enjoying an unfair and significant selling price advantage over beer tied operators. The consumer ends up paying higher costs and the lessee has margins squeezed too tightly.

  2.  The process for establishing a fair rent currently favours Pubcos since where there is dispute the Lessee finds arbitration too high a cost to mount a challenge.

  3.  Pubcos state that the high product cost which they charge lessees provides for the cost of services which they make available such as training etc and also helps to offset/subsidise rent charges. This results in a total lack of clarity between true rental costs and the cost of services which they offer. In addition it results in lessees paying for the services on offer which very many of them they do not require or use.

  4.  Concerns have been expressed that if the beer tie is removed then brewers will assume the same powerful negotiating position regarding product pricing as is currently operated by Pubcos.


  1.  That the beer tie be removed which will bring clarity to the opaque situation which exists between true rental costs and cost of services provided by Pubcos.

  2.  A low cost effective method for arbitration to settle rental disputes should be established.

  3.  If Pubcos believe that the services they currently provide are important then they could continue to offer them and lessees are free to pay for the particular services they wish to use. Alternatively there are many independent companies providing training across a whole range of activities who would be willing to provide comparable training to those currently operated by Pubcos.

  4.  The concerns expressed that removing the beer tie would result in the brewers taking a similar position on product costing to that currently operated by Pubcos misses the point that Lessees currently have no option to purchase other than from one source and no right of appeal on the charges levied. The element of competition is reintroduced when Lessees are free to purchase from a range of suppliers who will need to compete or will see their product sales decline. Surely a better position than a having a Pubco as the single supplier, with freedom to charge whatever they wish without the purchaser, the lessee, having the right to appeal.

  5.  The possibility of lessees establishing a buying group should not be discounted nor should the opportunity for Pubcos to provide that service on behalf of lessees since they have the operating procedures and structures to meet that need and since the Pubcos could be free to supply any lessee which would provide competition between Pubcos to maximise their product sales and grow that part of their business.

  6.  The alternative to a total removal of the beer tie could be the introduction of an optional arrangement which allows the lessee to contract in or out of the beer tie. My belief is that if this option were implemented then in a very short time the beer tie would cease to exist through lack of demand.

  7.  If the Pubcos believe that their business model is such a good thing for the total industry and the consumer as they claim then they should not need to oppose the lessee having the option to contract out since if they are right then few lessees would choose to contract out!!! We believe that the above reflects a reasonably balanced view of the way forward to achieve what is necessary to enable a thriving pub trade, fairly rewarded and providing employment for thousands of people to survive and to achieve a fair cost per pint to the consumer.

10 November 2009

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