Pub Companies - Business, Innovation and Skills Committee Contents


Written evidence submitted by Fuller, Smith & Turner plc

1.  INTRODUCTION

In this report Fuller, Smith & Turner P.L.C. is pleased to take the opportunity to respond to the committee's call for evidence that the recommendations set out by the BISC in 2010 have been adopted.

2.  HISTORY

Fuller Smith & Turner PLC have been brewing beer and running pubs from their Chiswick Brewery headquarters since 1845. Today we brew over 200,000 barrels of cask conditioned ales and run 365 pubs throughout the south of England. We are one of a number of successful independent family brewers who like similar independent companies in other industries are passionate about their people, their pubs and their business model.

The model revolves around a tie on wet products and takes it's origin from a desire to sell our own cask ale beers at the finest quality possible. By buying pubs brewers such as Fuller Smith & Turner were able to produce and distribute quality beers to be enjoyed locally by their customers. As transport facilities improved so the distribution network has expanded to the present levels of production stated above.

Our estate of pubs is made up of 166 Managed and 196 Tenanted houses all of which operate under the full wet tied system.

3.  THE TIE

With the security of the tie, Fuller's buy, insure and maintain the properties operated by our tenants. The tie system provides a lower cost of entry for a tenant setting up in business and creates new employment opportunities for entrepreneurs. As business increases or decreases the tied system allows for the financial impact to be shared between company and tenant thus decreasing the risk of failure and closed pubs.

4.  THE CURRENT SITUATION IN THE PUB INDUSTRY

The past three years have seen an unprecedented period of change and challenge for our industry.

The smoking ban, an increase of over 35% in beer duty in 36 months and the recession, allied with aggressive pricing strategies by supermarkets have put an enormous strain on the pub market.

Whilst, we have not been immune to pub closures within our own estate we do firmly believe that the number of closures have been far greater in the free market where banks and property landlords are less understanding than pub companies such as ourselves. There is no advantage to us to see good landlords/tenants suffer and leave our business as our fortunes are so closely aligned. This is why in the main we have increased the support available during these trying times.

5.  FULLER SMITH & TURNER SURVEY OF TENANTS

In the past year we conducted a survey of all of tenants who are on a substantial agreement (three years or more) with the company.

Highlights from the report were that:

—  (a)  76% are happy with the head office support they receive;

—  (b)  71% are happy with the training support they receive;

—  (c)  95% agree or strongly agree they are happy with the relationship with their BDM (Business Development Manager);

—  (d)  90% agree we keep them informed of legislation changes;

—  (e)  `85% are happy with the marketing and support they receive;

—  (f)  85% say the BDM has a good understanding of their business;

—  (g)  98% believe their BDM acts with honesty and integrity;

—  (h)  80% believe their BDM is innovative;

—  and most importantly

—  (i)  80% would renew the agreement they have with the company.

We also regularly hold open forums with tenants to find out how they believe we can improve our business relationships.

6.  BISC COMMITTEE RECOMMENDATIONS AND EVIDENCE OF COMPLIANCE

We would now like to comment on the action Fuller Smith & Turner has taken to comply with the BIS Committee recommendations:

—  (a)  Code of Practice

—     Our Code of Practice was submitted to the BII in April 2010 and was accredited by BIIBAS on 3 June 2010.

—  (b)  Coverage of Codes

—     The Codes apply to all tenants or lessees on a substantial agreement with Fuller Smith & Turner. The Codes were explained to each tenant who signed to say they had received the code. All new tenants receive the code as part of the letting procedure.

—  (c)  PEAT (Pre-Entry Awareness Training)

—     We insist of all new applicants with the exception of anyone who has been in the trade for some years to undertake the PEAT qualification.

Guest Ales

—     We operate rotational guest ales once per fortnight which tenants are able to take the opportunity to stock. However, our own portfolio of ales is so strong only 33% of tenants take advantage of the scheme.

—  (d)  Rent Reviews

—     To further confirm the removal of upward only clauses, during 2010-11 rent reviews carried out by the company resulted in 31% remaining static, 19% were reduced and 50% increased. Overall rents at review fell by over 6% during the year.

—     A shadow rent calculation is provided at rent review.

—  (e)  AWP Machines

—     We operate a tie on machines on a 50/50 split basis. Once again we believe the tied system serves both tenant and company well in that we keep a close watch on the quality of machine, the income and the need to change or improve the machine as income slows. We employ a consultant to deal with these matters who tenants can contact should they have any issues.

—     We have completely removed machines from the divisible balance on rents.

—  (f)  Brulines Flow Monitoring Equipment

—     Brulines is installed in 80% of our houses. We believe we have one of the most constructive approaches to deficits and the lowest occurrences of actual buying out of the tie throughout the industry.

—  (g)  PIRRS

—     We fully support the PIRRS scheme and every tenant during rent negotiations are informed of its existence. It is also a part of the Code of Practice of which as previously said every tenant possesses a copy. We have had no referrals.

—  (h)  RPI

—     We believe nobody envisaged RPI figures rising to the levels they have. Over the past three years we applied negative RPI when it became applicable to all rents but more importantly we have capped RPI at a maximum of 3% since 2008 whenever the RPI figure has risen above that level.

—  (i)  Business Support

—     We believe that during the past year various companies have introduced new ideas to their tenancies and leases to make them more attractive to applicants. Whether by way of freedom of the tie, partial freedom or improved allowances and services it confirms that in a competitive market place the best agreements will prevail. We believe the committee should take note of this thought that if an agreement were not competitive then new applicants are unlikely to apply.

—     For our part we have always had very competitive rent levels together with a host of services some of which are listed below. This fully justifies the difference between a free of tie and tied rent system.

—  Some of the very best pubs throughout the South East of England.

—  A portfolio of fine ales arguably the best in the country.

—  Lessees enjoy £44 discount per own produced beers and £24 on beers produced outside of Fuller's. Likewise tenants receive £20 and £10 respectively.

—  Capital Investment in our houses is at an all time high.

—  Revenue Investment and repairs to houses reached a new high in 2010-11.

—  Training courses were increased in number and reduced in price to an average of £50 per course.

—  RPI has been capped at 3%.

—  Free Rating Advice for all tenants.

—  Free signage for both lessees and tenants.

—  Free design advice when a tenant/lessee wishes to carry out a refurbishment of the house.

—  Minerals at a very low wholesale price direct from Britvic.

—  In house magazine with over £1,000 at cost offers per annum.

—  Master Cellar scheme which pays out over £1,000 at cost in beer if achieved.

—  Free membership of the BII.

—  Mystery Visitor twice per annum free of charge.

—  (l)  Business Development Managers

—     In the past we have used the Ashridge Management School to assist in training Business Development Managers in all aspects of their business.

—     We fully support the new BDM training modules proposed by the BII and have booked the two newest members of our team on to the first courses that should be available later this year. We have a mentor system in place for new BDM's and each is assigned a buddy to make sure they have access to any information they require.

—     We have 196 pubs with 5 BDM's each being responsible for circa 40 pubs. Our tenants expect and we insist on a call rate at worst of once every eight weeks. Many houses are visited far more often than this.

—  (m)  Restrictive Covenants

—     We have removed restrictive covenants.

8.  CGA SURVEY

We fully co-operated in the independent survey carried out by CGA and recognise that whilst the results are heading in the right direction there is still more to do across the industry to ensure fairness to all.

We fully encourage greater awareness campaigns on the following subjects:

—  making sure every tenant and applicant is aware of the Code of Practice;

—  Making tenants aware of the PIRRS scheme;

—  aking tenants aware that upward only rent reviews have been removed from the majority of agreements; and

—  ensuring every tenant is aware that any breach of the Codes should be reported to the BII who will carry out a full investigation and report on Breaches made by Companies. We further believe that by using this scheme any rogue company practices will be indentified as will any rogue BDM's.

9.  CONCLUSION

We acknowledge that there was a need for change in the pub industry however you will see from our own survey results that tenants of Fuller Smith & Turner have a high regard for the way we operate the company and believe we have a good landlord/tenant relationship.

It is generally acknowledged that having the discipline of a more extensive and exacting industry code has been a positive and productive process for our company. Not only has the exercise been instructive in looking at our own internal procedures, we believe it has better informed tenants and lessees with more rigorous and transparent processes being beneficial to all concerned.

We believe we have met the majority of the BIS enquiry recommendations (bar the question of a tie which is deep rooted in our business model) and argue that we have gone beyond them with many innovative and additional ways of supporting our tenants.

The Industry Framework Code of Practice is driving change in the pub sector, and we believe that it is now important to allow the industry to continue to build on the good start that has been made.

We also have very strong feelings about the strength of our business model compared to others and if there are problems with individual landlords they should be addressed by them.

We urge the committee not to tinker further with the livelihoods of good businesses such as Fuller's that have been in existence for over 165 years to achieve headlines they seek elsewhere. We would also like to thank the committee for allowing us to take the opportunity to update the position at Fuller's since the new Code of Practice was introduced and would welcome dialogue with any member of the committee should they so wish.

16 June 2011



 
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Prepared 6 October 2011