Memorandum submitted by Young & Co.'s
Brewery Plc
INTRODUCTION
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.
BENEFITS OF
THE TIE
TO A
REGIONAL/FAMILY
BREWER
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.
BENEFITS OF
THE TIE
TO THE
CONSUMER
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.
YOUNG'S
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.
OUR TENANTED
OPERATIONS
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.
TENANT SUPPORT
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.
CONCLUSION
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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