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

Memorandum submitted by Young & Co.'s Brewery Plc


  We understand that the Business and Enterprise Select Committee has decided to take further evidence on this matter and we are therefore pleased to have been given an opportunity to explain to you the benefits of the tie to our tenants and us.


  We believe that Wells & Young's Brewing Company Limited, a company in which we have a 40% stake, will be writing to you separately explaining the benefits of the tie to regional/family brewers. As such, we have not described those benefits in this letter.


  We are aware of the recent submission made by the Independent Family Brewers of Britain (IFBB) to the European Commission Directorate-General for Competition.[25] Amongst other things, this explained a number of benefits to consumers of retaining the tie. We agree with the points made in that document but are not repeating them in this letter.


  We are a long-established business that has operated in Wandsworth, South West London for nearly 180 years. We have a pub estate, mainly located in London and the South East that comprises 217 pubs. Of these, 121 are managed operations owned and operated by us directly for our own account. The remaining 96 pubs are tenanted operations that are operated by third parties (a mix of individuals and companies) who rent them from us and buy drink from us but otherwise run the pubs for their own account.

  Until recently, we owned and operated the Ram Brewery in Wandsworth. However in 2006-07, we disposed of it and merged our brewing, beer brands and wholesale operations with those of Charles Wells Limited to form a new brewing business, Wells & Young's Brewing Company Limited. We own a 40% stake in that company and have an exclusive agreement with it for the supply of beers and wines to our pub estate.

  We are a publicly quoted company with shares listed on AIM, the Alternative Investment Market.


  The vast majority of the pubs in our tenanted estate are run on a traditional basis, that is to say a tied non-assignable tenancy up to five years in length. The tie is a partial drinks tie. Under this model, our tenants rent pubs from us and we supply drinks to them.

  The rent that we charge for the pub itself is based on past beer sales volume and on the level of trade agreed to be achievable at the pub if it were run by an average competent operator; we do not charge a commercial market rate based on the property's value and its location and size. The latter would generally be higher. The rent is regularly reviewed and, as a result, can go up as well as down.

  We are responsible for insuring and maintaining the fabric of the pub. We also, on a case by case basis, pay for or contribute towards the cost of improvements and alterations. All in all, this has seen us invest more than £5 million in our tenanted estate over the last three years.

  Our tenants purchase the pub's inventory and stock in trade from us or from any outgoing tenant.

  All of the above tends to provide a low, or relatively low, entry cost for someone starting a business.

  In addition, to the rent charged for the pub itself, tenants also pay us for the drink supplied to them. The cost per unit is fixed but otherwise the amount paid varies in line with the volume ordered. This helps protect the tenant if there is a reduction in his sales volume. In this way, we share with the tenant the financial consequences of sales increasing or decreasing. For a number of years we have also enhanced the value of drink supplied around Christmas time by offering special discounts for orders placed in or around November and December. For our year ended 28 March 2009, revenue from our tenanted estate amounted to £14.3 million, roughly 12% of our total revenue for the year.


  A model that shares, to a degree, any financial upside or downside encourages the parties to work together. To that end, we have provided, and will continue to provide, whether to new or experienced tenants, an extensive support infrastructure and range of benefits.

  We know that, across its membership, the IFBB valued this support at typically around £8,000 in the first year. We won't attempt to quantify the value of the support we offer to our tenants but believe that, across our tenanted estate, it is not an inconsiderable amount and certainly no less than the figure quoted.

  We have two business development managers responsible for looking after tenants and helping them to grow their business in a sustainable way. With access to our long history and experience of owning and operating pubs, our business managers are able to help tenants put together viable business plans; they also then carry out regular business reviews. Marketing support comes from our in-house marketing team.

  We co-ordinate or host tenant forums; these provide an opportunity for our tenants to share ideas, communicate more and ensure they get the best from each other.

  Departments in our head office (such as finance, marketing and the learning and development team) also give assistance. This is sometimes free or subsidised.

  With the ever increasing amount of red tape, particular focus has been on training and we run a number of useful, relevant, well conducted in-house courses designed to help tenants here. Licensing and health and safety are just two examples of courses run in the last year. We also provide regular regulatory updates so that tenants remain aware of issues.

  Other in-house training courses run or promoted by us include financial management, catering management, wine knowledge, costing and margins, cellar management and marketing.

  On the back of our relationship with an energy consultant, our tenants have been able to work with an independent third party that is able to help them find out the existing contractual terms for their utility services and re-negotiate those terms when their contracts come up for renewal.

  A mystery customer programme, designed to give feedback to tenants on their pubs and help them gauge how they measure up against the demands and individual needs of increasingly demanding and discerning customers, is on-going. Through this, mystery customers visit the tenanted pubs four times throughout the year and report back on their experience. The introduction of this programme has seen standards improve across the estate.

  Tenants can also have their pubs included on our website. This provides a platform for each and every tenanted pub to host its own mini-website within our main site. Each pub has a dedicated page which contains pub information, photos, facilities and opening times which can be updated online at any time and as often as the tenant likes. In addition, tenants can upload menus and use the "What's On" calendar to make sure their customers can get all the information on their pub. We also arrange registration of domain names for pubs upon request and at no cost to the tenant; this allows them to effectively have their very own website with which to market their business.

  Bi-monthly newsletters containing information, promotions and business suggestions are also produced.


  We remain convinced of the benefits of the tie and the tenanted model and hope that we have highlighted the considerable advantage to tenants from the relationship.

  None of the benefits outlined above would be available from us (or would be available but on less beneficial terms) if the relationship with our tenants was simply as a result of a property transaction (ie one of landlord and tenant). Certainly, our level of recent investment would be lower.

  None of our tenants are forced to enter into tied agreements with us. We have been and remain an attractive business partner to many and we continue to receive many applications from prospective tenants, reflecting the high quality and well-established tenant community we have.

13 November 2009

25   This was on the review of competition rules applicable to vertical agreements (Block Exemption Regulation) Back

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