Pub Companies - Business, Innovation and Skills Committee Contents

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.


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.


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.


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.


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.


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.


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.


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.


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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Prepared 6 October 2011