HC 1369 Pub Companies

Supplementary written evidence submitted by Greene King Pub Partners

Thank you for giving Greene King the opportunity to provide oral evidence to the Committee on Thursday 7th July. As you suggested at the end of the

session, I think it's important to provide clarification around some important points in relation to operating a pub with an integrated brewer and pub operator.

In addition, we felt it important to address the issue of self regulation versus statutory regulations, as much of the discussion in both of the recent committee meetings on 30th June and 7th July, focused on this important issue.

At Greene King, our self-regulated Code of Practice is proving to be very successful. We have not had a single breach and we are doing everything in our power to ensure this continues. We police our behaviour and have systems in place to spot any 'issue' so that we can resolve it before it escalates. This includes a confidential and independent quarterly licensee survey conducted by Spinnaker Consulting on our performance and support, alongside IT infrastructure ensuring compliance. We are absolutely committed to our robust and thorough ways of working.

We understand that proper enforcement of and compliance with our Code gives us a commercial advantage. The best companies will continue to attract the best licensees!

All pub companies' Codes are fairly new and some may no doubt be experiencing teething troubles. However, we believe that careful monitoring, good licensee communications and vigilant policing by the Bll and the pub cos, will ensure that any issues are spotted early and remedial action can be taken.

At Greene King, we are very clear that self-regulation is the best way forward and that the industry should continue to be given the opportunity to show that self-regulation works. A statutory code would mean more bureaucracy/red tape and cost for everyone involved, including our tenants.

In terms of sanctions for breaches, we believe that non compliance would be commercial suicide and ultimately affect our brewing and managed retail pubs also. In such a tightly competitive industry, commercial advantage is everything and loss of reputation, leading to loss of quality licensees (and therefore loss of income to the pub co), would be the most severe sanction.

As a brewer and pub operator for more than 200 years, Greene King is enormously proud of the reputation that we have earned. Our business model is built around supporting small pub businesses through a vertically integrated approach. Eighty percent of our tied estate comprises short term three-year brewery tenancies. As Kate Nicholls, Secretary of IPC confirmed in her evidence, "the real genuine point of low-cost entry is a brewery tenancy, which is only three years. You are limited to the risk you are exposing yourself to". Greene King strongly supports that view.

We know that our tied tenancy model encourages people to run pubs. Having received 1285 applicants last year alone, we know that this model has widespread appeal. The term of the agreement, the low cost of entry, lower fixed costs and the countervailing benefits and the support we provide, ensures that these pubs remain viable in the current climate and for the long-term. The pure pubco model with the majority of the estate (small and large pubs) let on long-term leases with full repairing and insuring liability, and a higher cost of entry, is, in our view, a less attractive model for the pub industry.

To simply explain the difference, when taking a lease under assignment a lessee is responsible for assessing the business fully and ensuring that the information they receive from the outgoing lessee is an accurate measure of the business before they pay the premium asked from the outgoing lessee. The pubcos are not involved in this part of the negotiations. As Ms Nicholls confirmed, "the problem is where you get people signing up to very long agreements that are fully repairing and insuring, and therefore expose themselves to a greater degree of risk."

Conversely, a short term brewery tenancy allows the licensee to enter a business with a much lower level of ingoing costs and the option to leave after the term of their agreement, or earlier by mutual consent, irrelevant of the state of the current market. We believe that this model should be allowed to continue without any intervention or restriction.

A Licensee Survey conducted independently by GFK NOP in May 2010 confirms our views.

574 licensees from Greene King Pub Partners out of a sample of 1,000 responded over a ten day period and provided real clarity of what a tied tenancy or lease means to the majority of licensees. 24% wanted to be free of tie on machines; 92% stated they gained value from the tie; 64% stated that the low cost of entry was a value to them and 67% stated our support was fair to excellent. Only 47 licensees out of the 574 stated that they didn't think the tied agreement added any value to them, a clear indication that the majority choose a tied agreement for the benefits it provides.

If, as a brewery and pub operator, we were forced to adopt a free of tie option for all our pubs we would simply become a property company with zero tenant support; totally against the ethos of Greene King and the fundamental principles of our relationship with our licensees. The E11.4 million in capital improvements and the £4.5 million in financial support we have provided in licensee support to our tenants in the last year would not be provided without our brewery tenancy model. This would leave licensees to fend for themselves, resulting in more small business closures as a consequence. In addition, Greene King as a brewery would have to seek alternative routes to market to sustain our award winning British cask ale brands and protect the thousands of people dependent on the success of our brewery and distribution business for their livelihood.

We have made significant progress following all the inquiries since 2004, and your predecessor Committee's subsequent recommendations. I ask you to consider this when reviewing the evidence. I hope that you are able to reflect on our licensees' opinions and our own and thank you for your time in considering our points of view.

I would be very happy to meet you should you require any further information or clarification from Greene King.

Simon Longbottom

Managing Director

Greene King Pub Partners

22 July 2011