Written evidence submitted by Admiral
Taverns
1. Admiral Taverns ("Admiral") was
formed in December 2003 and operates 1,350 pubs across England
and Wales. Admiral welcomes the opportunity to inform the Committee
on the progress made since the "Pub Companies: follow up"
report of March 2010. Admiral accepts that the March 2010 report
made some valid and timely criticisms of the leased and tenanted
pub sector. By taking these recommendations to heart, and surpassing
them in places, we are strengthening our business and those of
our licensees. We have therefore addressed the recommendations
in the Admiral Taverns Code of Practice which is now central to
the improvement of our operational processes.
ADMIRAL'S
ETHOS
2. Admiral has a distinctive strengthening ethos
which enables us to derive a competitive advantage in attracting
and retaining good licensees. Our ethos is founded on three principles:
(a) Simplicity of Agreement and Operational
Practices
3. We recognise that licensees are busy people.
We therefore keep our processes and agreements simple and transparent
for our licensees.
(b) Flexibility of Approach
4. Our business thrives by ensuring we have the
right licensee in the right pub on the right deal, ie licensees
are motivated to work with us to succeed. We are therefore comfortable
with customising any form of letting agreement, whether tied,
part tied or free-of-tie, which is fair to both Admiral and the
Licensee.
(c) Delegation of Authority
5. We devolve an unusual degree of authority
to our Business Development Managers ("BDM's") who work
directly with licensees and who are empowered to manage almost
all aspects of the company's relationship with a licensee. This
enables Admiral's licensees to get issues addressed quickly and
decisively in almost all situations. We therefore employ some
of the very best and most experienced BDM's in the industry who
provide commercial and personal support to licensees. Over 50%
of our BDM's have experience of being a licensee and we support
the BII's plan to provide ongoing development for BDM's.
BBPA FRAMEWORK CODE
OF PRACTICE
6. Admiral is a member of the BBPA and received
accreditation from the British Institute of Innkeeping Benchmarking
and Accreditation Service ("BIIBAS") for its Code in
November 2010. We recognise that the BBPA Framework Code of Practice
is the minimum standard expected and therefore our Code incorporates
all aspects of the BBPA Framework Code, and also provides additional
detail and information, particularly around the pre-let process
and the respective obligations of the agreements.
7. Our Code is intrinsic to our relationship
with licensees, and our employees are aware of the importance
of the Code's contents and spirit. A copy of our Code has been
issued to every Admiral licensee holding a substantive agreement,
whether the agreement was signed after the Code's accreditation
or not. Following advice from the BII, we have only asked licensees
to confirm receipt of the Code.
Lease Assignments
8. Our Code requires assignees to provide information
to incoming licensees (similar to the information provided by
Admiral to licensees entering a new agreement). However, as the
assignor has not been required to sign up to the Code's obligations,
this cannot be enforced by Admiral. To address this issue, assignments
are managed by an Operations Director who ensures that incoming
licensees have received adequate information before taking an
assignment.
Training and Professional Advice
9. Admiral is determined that licensees only
enter a substantive agreement once they understand the commitments
they are entering: over 90% of our new licensees take a 6 month
agreement before signing a substantive agreement. This "try
before you buy" agreement enables the licensee to assess
the business and to develop a trading relationship with Admiral
before making a significant commitment. The only time a 6 month
agreement is not used is where the incoming licensee is familiar
with running the business (eg is the manager for the prior licensee)
or has extensive experience of running leased and tenanted pubs.
10. Admiral endorses the BII's Pre-Entry Awareness
Training ("PEAT") which provides a good general understanding
for inexperienced licensees. Licensees entering a substantive
agreement must provide a copy of their PEAT certificate unless
they have taken independent legal advice or have at least three
years' successful experience of running a leased and tenanted
business. The senior manager in charge of recruitment is the only
Admiral employee able to sanction an exemption from PEAT.
11. All licensees are encouraged to take independent
legal advice before signing any agreement. This is specified within
our Code and in all relevant communications prior to signing.
If the licensee states that they do not wish to take independent
advice, they are required to confirm that this decision has been
taken despite our advice.
12. These policies are having a positive impact
on licensee success. Although the first 12 months of any new business
is when the likelihood of failure is highest, Admiral has seen
only eight early departures from 108 substantive agreements signed
over the last year.
Upward-only rent review clauses
13. Admiral has removed any upward only rent
review clauses from new agreements, but there are some old agreements
which have an upward-only clause. Our Code confirms that we will
remove this clause through a deed of variation when asked although
we may ask for a contribution from the licensee for this variation
(no such charge has yet been levied).
Amusement ("AWP") Machines
14. Admiral has removed AWP income from the divisible
balance used in rent calculations where AWP income is tied. However,
we include machine income in the divisible balance where the licensee
is free-of-tie for machines.
15. Admiral is flexible about machine tie arrangements.
Our Code states that we will release the tie on machines, but
this will require a rent discussion: we have added wording about
this free-of-tie option in pre-let correspondence to ensure that
licensees understand its implications before deciding which type
of agreement to take.
16. This flexibility can be seen from the differing
share terms agreed with licensees. In over 200 sites the licensee
takes all net (after supplier costs) income from AWP machines,
with other licensees taking 90%, 85%, 75%, 65%, 60% or 50% of
net income. Most licensees enjoy the entire net income from juke
boxes and pool tables.
17. Admiral also offers a share arrangement with
machine suppliers which increases licensee income from lower machine
income sites. This share arrangement is popular and we now have
around 450 machines on this arrangement.
18. Pub companies historically received royalties
from machines suppliers and our Code states that we may take a
royalty. However, we have started to remove royalties from our
AWP equipment and to-date we have removed royalties from over
1/3 of tied AWP machines. By completion, circa £500,000 of
annual income will have been transferred to licensees.
Flow monitoring equipment
19. Admiral employs flow monitoring equipment
and makes its information available to licensees free-of-charge.
Admiral does not solely rely on this equipment to determine tie
breaches, but employs Cellar Inspectors to confirm physical evidence
of buying out.
20. The previous Committee identified that some
pub companies charged breach fines by direct debit without licensee
authority: Admiral has never taken direct debits for fines without
agreement from the licensee.
POLICING THE
CODES
21. Admiral welcomes the BII's role in enforcing
company Codes and considers the BII to be impartial in any review
of complaints. We recognise the importance of the BII accreditation
of our Code and believe that its removal would adversely impact
our recruitment of licensees. We consider the BII to be an effective
body to ensure compliance with individual Codes.
22. The BII has received three calls to its Legal
Helpline regarding Admiral. None of these calls related to compliance
with our Code and all enquiries were resolved to the satisfaction
of both the licensee and BII.
PUB RENT
EVALUATIONS
RICS Guidance
23. Admiral welcomes RICS' 2010 guidance on pub
rental valuations and has confirmed within its Code that any changes
made by RICS to it guidelines will be adopted by Admiral for rent
reviews.
Benchmarking
24. Admiral incorporates the ALMR's cost benchmarking
information in its Profit and Loss assessments, making it available
on the supporting sheets to supplement the actual costs used in
the rental assessment which we try to establish with the licensee.
This enables anyone reviewing a Profit and Loss assessment to
compare its outputs with the ALMR benchmarks.
Rent assessments
25. Admiral intends to set sustainable rents
for each site, whether for lettings, rent reviews, renewals or
rent concessions. This has resulted in Admiral keeping rents well
below pub company averages - our current average annual rent is
£14,000. Rent reviews during 2010 reduced rents by an average
2.8%: 68% of reviews either reduced rents or kept them unchanged.
This, along with other movements, resulted in headline rents reducing
within the like-for-like estate by 4.5% during 2009 and 6.4% in
2010 or by 15% in 2009/10 once the effect of inflation is included.
These headline reductions, in addition to further non-contractual
support provided to licensees, amounted to more than £4 million.
Pubs independent rent review scheme (PIRRS)
26. Admiral supported the introduction of PIRRS
as an independent low cost solution to rent disagreements. Our
Code confirms that, irrespective of the letting agreement's wording,
the licensee can choose an independent expert rather than appoint
an arbitrator, or can use PIRRS. However, given our sustainable
rent ethos, no review or renewal since Admiral's formation has
resulted in a rent being settled by an external body.
FLEXIBILITY IN
BEER TIE
AND PRICING
27. One of Admiral's key attributes is the flexibility
afforded to BDM's in agreeing terms with a licensee. This flexibility
covers all aspects of the relationship with the licensee including
tie arrangements.
28. Our standard tie includes beer, cider and
flavoured alcoholic beverages ("FABS"), but excludes
wines, spirits and minerals. However, a BDM can agree any tie
variant with a licensee. Consequently, over 140 sites are free-of-tie
for bottled product, over 130 are free-of-tie for cider, over
600 are free-of-tie for FABS and over 100 licensees have operated
under entirely free-of-tie arrangements during the last year.
29. We have over 50 sites which have guest beer
rights, enabling the licensee to buy cask and bottle conditioned
beers outside the tie. Admiral is happy to agree guest beer arrangements
with licensees when requested. However, licensee demand for guest
beer rights is limited as we offer access to the Society of Independent
Brewers' Direct Delivery Scheme which provides an extensive range
of local beers.
Pricing
30. Admiral does not adopt a single pricing model,
but allows BDM's to offer pricing that meets a licensee's specific
needs. Discounts provided to licensees range from £25 to
£130 per barrel: few licensees do not receive a discount.
31. Admiral provides 25% of its pubs with additional
non-contractual discount and we have not passed on in full suppliers'
wholesale price increases in recent years. The cost to Admiral
of this additional discount was over £1,400,000 in the last
year.
32. Consequently, the average net tied price
to licensees has increased by only 1.3% compound over the last
2 years if the impact of duty is removed. This percentage lags
significantly both the rate of inflation and supplier increases
to Admiral.
CONCLUSION
33. Admiral's distinctive ethos enables us to
develop strong, sustainable relationships with licensees, and
our flexibility regarding ties, pricing and machines allows letting
agreements to be structured to suit licensees' requirements. We
are however far from complacent and continue to make improvements
beyond the previous Committee's requirements by introducing more
forms of licensee support, strengthening the calibre of our employees
and enhancing our operating practices to ensure that Admiral is
regarded by licensees as a constructive business partner.
34. We at Admiral take our Code seriously and
have invested over £200,000 in its implementation. We believe
that our Code, and the further enhancements we have made, have
already had a positive effect on licensee relationships and have
reduced the already small number of disputes we have historically
experienced. We were therefore pleased with the results of the
independent survey of licensees recently conducted by CGA which
revealed a good and strengthening relationship between licensees
and pub owners.
17 June 2011
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