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


Memorandum submitted by Phil Liddell

  As a lessee with one of the major Pub Companies, (and member of CAMRA, and on occasions, a beer "consumer") I wish to register my severe disappointment at the failure of the OFT to act upon the CAMRA super complaint. Although I acknowledge the technicalities behind the decision, the fact that not even a market study has been instigated shows the board's lack of understanding of the subject. The fact of the matter is that the customer does suffer in both choice and price. The Pub Cos own a large percentage of the pubs in this Country. Although they are not dominating in specific regions, as did the Big Brewers at the time of the 1988 Beer Orders, they do hold a form of cartel. By charging over the odds in rent, and hiking the costs of tied goods to their tenants, they force the price of products to an unsustainable level. This is demonstrated in towns where say a Wetherspoons is in direct competition. To attract customers, the local tied pubs are forced to either reduce their tied product prices below a viable level and look at alternative means to reimburse the shortfall, or go out of business. Why do you think you see so many closed pubs in towns, or Lease For Sale, with tenants desperately trying to exit the industry. Pubs in villages such as mine, survive on the "edge" because there is no direct competition on price. There is one freehouse, but they set their prices just below the other tied houses, so that they are still better value for money, but their profit margins are much, much better. There is no need for them to "discount", when there is no competition—other than the Supermarkets, where the customer can buy alcohol at a fraction of the price. That is where my missing customers have gone incidentally. A Wetherspoons in our area would kill all the tied pubs off instantly—the few customers we currently attract would be tempted by freetrade prices.

  In the report, Simon Williams, OFT Senior Director, said: "Any strategy by a pub-owning company which compromises the competitive position of its tied pubs would not be sustainable, as this would result in a loss of sales. Pub-owning companies are not therefore protected from competition by virtue of the supply ties agreed with their lessees."

  I think it's pretty obvious that tied pubs are generally unsustainable in the present state, with so many closed and others for sale. However, it's not the Pub Companies that suffer the loss, it's the individual tenants. It has been stated that the Pub Companies do not share the risk of the business—absolutely correct. These individuals have suffered in silence, many thousands going out of business as the systematic abuse of this system is exploited by the Pub Cos.

  For a very small cross section of unhappy tenants, please take a look at some of the tenant support groups, Buying a pub business, Pub Revolution Supporters group (facebook), Fair pint, you will gain a small appreciation of the desperation that some tenants have endured in their dealings with the major Pub Companies—many losing all their savings, their house, their families in the process. There is a massive silent majority, who's voices haven't been heard and who haven't had anywhere to turn. I personally know of a quite a few who have disappeared following the collapse of their life and business. It is about time someone put an end to this corporate bullying, this exploitation of peoples lives, by the liars from these organisations.

  The pub closures are only the tip of the iceberg. The only reason the tenants with businesses for sale (such as myself) don't leave immediately is because the price of pub leased property has collapsed to a point where every tenant will take a massive loss on their business. This will put bankrupt them, cost them their house if they still possess one, or put them out on the streets. Mine will cost me approx £30K to exit, unless I sell the business, and I will still have "lost" £20K over six years. The "leased model" has been only recently (over 20 years) been instigated by the pub companies, and will not survive as the tenanted tied model that has survived 100 years. It is largely the Pub Companies fault that the for sale leased market has collapsed, because of the desperate "fire sale" of their properties as the Banks started to call in their "toxic loans". It has not been helped by the property market decline, but this shouldn't have rendered a complete collapse of values as has happened. The Pub Cos have further devalued the value of leased businesses by virtue of the business model being virtually unviable. they are worthless, yet many thousands have bought into them, believing the hype the BDM's have put across.

  You only have to look at the SIBA DDS scheme to get an small appreciation of the exploitation delivered by the Pub Cos against the tenant, the Supplier (Brewer) and the customer. The only way I can supply my customers with a local product, is by the DDS scheme. The Brewer has to join this scheme at a cost upwards of £300, then has an annual registration fee. I order and purchase this Brewers beer direct from SIBA (non-profit making), who pass the order on to the Brewer. The Brewer delivers direct, hence minimalising their carbon footprint, and I sell it to the customer. However, the Pub Company dictates the price I pay, and the price paid to the Brewery. The Brewery's price is driven down by the Pub Company £5 to £10 below their normal retail price. The Pub Co in turn charges me around £30 above the price they pay the Brewer, hence making a fat 30 odd percent profit for doing absolutely nothing. Instead of buying a product for 90 pence a pint, I have to buy the product for £1.35, therefore to cover my rent (again going to he Pub Co), wages, rates energy bills, etc. etc., I have to make a gross profit of at least 50%, hence the customer pays around £2.70 a pint, when I could be charging £1.80. Now before the Government retorts that that will encourage binge drinking, I wouldn't set my price at £1.80—I would like to actually see a profit in my business—I would set a fair market price.

  As I have only taken £200 out of my business in wages/drawings during the past 18 months, I think it only fair that I actually earn a liveable wage. My wife and I have been forced to work outside the pub during the past year and a half, to stem the debts and cash flow problems. I have recently trimmed the business to the bare minimum, removed our food offering, and now offer only drinks—we are a pub after all. My staff has been cut from four full time (including my wife and I) and six part time workers, to one full time (me) and four part time. I no longer work outside of the pub, and my last month's wage from the pub yielded the £200 mentioned above. My wife is continuing to finance the family. We will be lucky to see out the next three months. Am I classed as a competent operator, is my FMT true at it's present rate, or at the inflated level we operated at previously. There is a an enormous way to go to allow tenants a fair deal, but it is far too late to save many of us. An immediate abolition of the tie for long term leases should be the first step, with no retribution on rents. That will never happen now. There are many questions remaining unanswered    such as Insurance charges which act as a "stealth" income for the Pub Cos. These will take years to sort, probably through the Courts, which ever way, be it rent arbitration etc, it will cost money that I don't have. That is why many are looking to grasp the nettle and take matters into their own hands. There is a deep feeling of anger and injustice and the system failing us. Until the Corporate might of the greedy Pub Companies is diminished, there is no hope for me or for that matter, the traditional British pub.

22 October 2009






 
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