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

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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