Memorandum submitted by Shepherd Neame
Ltd
Shepherd Neame is a family controlled, independent
brewer based in Faversham, Kent. We own and operate 368 pubs
of which 321 are tenanted and 47 managed. The Company
was established in 1698 and employs 325 people in Faversham.
We operate the traditional integrated brewing and pub model.
Shepherd Neame registered its interest in the
initial BEC Enquiry but was not asked to give evidence as the
remit focused very much on the Pubco lease model. Since that time
there has been a wide ranging Industry debate that has raised
issues beyond the original BEC remit. We therefore feel it is
important for us to register our interest in this debate.
Shepherd Neame, like other traditional family
brewers, offers tenancy agreements with characteristics fundamentally
different from many of the lease agreements offered by other operators.
Our model, our business practices and our tenancy agreements are
similar but not identical to other IFBB members, but are materially
different in a number of key respects from Pubco leases.
— Our tenants can run a Shepherd Neame
pub for as long as they like and are protected under the Landlord
and Tenant Act.
— They are subject to one, three or five
year rent reviews according to individual circumstances and agreement
between the parties when they take the pub.
— The brewery is responsible for project
management and payment of all external decoration, signage, lighting,
major and minor structural repairs within the building.
— We pay for building insurance, and do
not charge this back to tenants.
— We pay for and project manage all structural
developments. As part of this process, we frequently will pay
for and install new inventory, ie tables, chairs, pictures, etc
for the benefit of the tenant.
— We hold the Premise Licence for all house
and pay annual fees and make all necessary applications for variations.
We provide full support in the event of reviews.
— The brewery owns and maintains most "hard
fixtures", ie electrical wiring, central heating, gas and
water piping, bar back fitting, etc
— The tenant only pays for the stock in
trade and inventory on ingoing. The typical cost of entering one
of our pubs is c£15-30,000. There is no goodwill payable
at the beginning or end of the agreement; and the interest in
non-transferable.
— We provide free of charge a full rating
service.
— We pay for, maintain and are responsible
for all health and safety and quality issues related to the supply
of beer including dispense equipment, refrigeration, provision
of glassware, gas and flow and electric equipment.
— We take out death in service benefit
for our tenants.
— We work in partnership with our tenants
through our Business Development Managers to identify how to maximise
the offer for the pub in food, liquor and accommodation. We provide
considerable marketing support, promotions, on line support and
general advice.
We regularly survey our licensees on their attitude
towards the Company. I include a copy of a recent survey benchmarking
our performance in a variety of areas compared with other family
brewers. In the main family brewers score very highly compared
to other operators within the sector. Within this strong peer
group we score very well in certain categories such as the relationship
with our Business Development Managers but there is of course
room for some improvement elsewhere. Importantly, 67% of our tenants
are neutral or agree with the phrase "my rent is fair".
Only 15 of our pubs have been granted a
lease with transferable rights (at the behest of the licensees
themselves). All other agreements allow the tenant to issue six
months notice to quit ie similar to a shorthold residential letting.
If the tenant issues notice to quit then the onus and responsibility
lies entirely with the brewery to find a replacement licensee.
If we fail to do so within the notice period, we are obliged to
buy back the inventory and stock in trade from the tenant.
In short we believe that this is a flexible
low cost and mutually beneficial arrangement that compels landlord
and tenant to work together in a constructive manner to achieve
the common goal of growing the business. Of course it is true—particularly,
at a time when the on trade is under so much pressure and there
is a recession—that the relationship does not always work
perfectly. Nonetheless there appears to be a high satisfaction
rating for our support and services from our tenants. It is as
much in our interests as it is in theirs to ensure that our current
business model is not undermined in any way.
Almost all protagonists within this heated debate
would agree that the family Brewer Tenancy Model is not the problem.
I have taken the liberty of including an extract from an interview
on the "You and Yours" programme with Mike Bell of Fair
Pint and myself. In this Mike gives a strong endorsement of our
model.
Shepherd Neame is a long established business
that is determined to remain an independent family brewer and
pub operator for many years to come. The model that we operate
has evolved over generations and will continue to evolve to ensure
that we attract the right quality licensees to our pubs and thereby
maintain a sustainable level of trade.
We are aware of and support the submissions
that have been made by the IFBB and the BBPA to this process and
to the EU Block Exemption Review process.
We recognise that BISC will wish to look at
all aspects of this debate. From our perspective the loss of the
tie or any enforced variation to our business model could be devastating.
Furthermore, any reference to the Competition Commission could
create a high level of uncertainty in our business at a time when
we are all focussed on trying to help licensees work their way
out of the recession.
16 November 2009
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