Written evidence submitted by Phil Jones |
1. The evidence I am submitting illustrates the
unwillingness of Pubcos in this case Enterprise Inns to adhere
to the previous recommendations of this committee and those of
its predecessors. I have been the licensee of an Enterprise Inns
pub where my parents have been leaseholders for five years. Our
experience of running a tied pub has been financially unrewarding
and emotionally demoralising. Our family have worked to build
not only a business but a focal point for the community. We have
worked hard to support several charities raising many thousands
of pounds. Even in a business that trades at over two hundred
brewer's barrels a year, in the five years we have traded, £798,000
has been paid to Enterprise Inns through rent and tied purchases
a staggering 57% of our turnover and the business has yet to pay
back its initial capital investment.
2. There are fundamental problems with the business
model currently being operated by the Pubcos that cannot be addressed
through a self-regulating, voluntary code of practice. Unfortunately
our experiences show that Enterprise Inns is incapable of changing
its approach towards us and no doubt other tenants. The Pubcos
are extracting a disproportionate income from their pubs leaving
them almost all unviable for the tenants under the current tied
agreements. This has resulted in a massive decline in pubs that
are vital community assets. The evidence is all around us, in
every town and village across the country; either boarded up shells
that were once crucial community assets or hugely under-invested
pubs that are struggling to stay in business.
3. Since the last Committee report much time
has been spent by the BBPA and its members stating that all the
industries problems are now solved with the introduction of their
new Company Codes of Practice, all observing the BBPA Industry
framework and promising as a result of these codes there is no
need for Government intervention. The reality of these codes is
that they do nothing to change the balance of risk and reward
between tenant and landlord of a tied pub. The codes have been
used to distract attention from the real issue affecting tied
pubs; the financial health of tied tenants. Like any business
we do not expect hand outs but should expect (when entering into
a contract) that contract to allow our business to operate freely
and if successful be profitable for both parties. Pubco policies
such as "Business Recovery Plans" would likely be unnecessary
in almost all cases if trading terms were equitable from the outset.
4. Key to redressing this balance, at the very
least is offering all tied tenants the option, periodically, to
go free of the tie with the option accompanied by an open market
rent review. Although this is a key recommendation of the previous
committee, the Pub Companies have failed to address it albeit
a misleading attempt of offering free of tie pricing in new leases
that come attached with Tie Release Fees and a direct uplift in
rent and some leases go further to circumnavigate updated RICS
guidance by removing rent reviews completely but still increase
annually in line with inflation. These so called offers would
actually result in us being further disadvantaged.
5. The cost
of the tie to tenants has been addressed on previous occasions
by the committee however its relevance has never been so fundamentally
important. In 2004 the Trade and Industry Select Committee commented
wholesale price paid by pubcos' tenants is in reality higher than
is available to free house operators because of the higher discounts
that are available to these operators." In that report evidence
showed that the differential between tied and free of tie tenants
per brewer's barrel (BB) was around £100. The 2008 BEC report
revealed in evidence submitted by the ALMR the differential between
tied v free of tie discount had increased to around £140.
Although Enterprise Inns submitted their own evidence suggesting
that discounts of up to £42.12 a BB could be achieved if
over 500 BB were sold, in reality the average tied pub sells 180
BB per year and Enterprise admit that nearly half of tenants receive
no discount at all. In 2011 the widening gap between free of tie
and tied prices becomes more evident.
|Product||FOT Net Price
||Tied List Price||Discount Per
|Stella Artois ||£323.96
This table illustrates that the discount now available to free
of tie tenants ranges from £180-£220 per BB. It should
also be noted that the free of tie were supplied by an independent
wholesaler without any negotiation. It would be reasonable to
assume that if agreement to purchase a certain number of barrels
was made further discounts would be available.
6. The impact of the loss of discount to us is reflected in
the gross profit margin realistically achievable from selling
tied products. While Pubcos would argue they do not set the retail
price, clearly we must attempt to remain competitive with other
retailers including free of tie and managed outlets. As the next
table demonstrates the loss of discount severely affects GP%.
The table also shows that we are now paying at least 60% than
available in the free trade.
|Selling Price to Achieve GP%:
(Prices shown are for 11 gallon kegs. Independent Wholesaler
Price List v Enterprise Inns Retail Price List)
This table illustrates that a free of tie operator can charge
significantly less for a product and is still able to produce
a much higher gross profit margin.
7. To put this table into perspective, this year the BBPA
released statistics claiming that the average price of a pint
in the UK is now £3.06. Using Carling as an example of a
standard UK pint, in order for us to produce a gross profit of
just 40% we would have to charge 23p over the national average.
This would do further harm to our business driving more customers
away to find cheaper alternatives such as free trade and managed
+ DRY RENT
= OPEN MARKET
8. It has been argued by the Pubcos that they offer lower
rents in exchange for higher beer prices that combined equal the
open market rent for a particular business. This is simply not
Roger Whiteside has admitted that a genuine free of tie option
would place their business model in "serious jeopardy".
How can this be the case if the combination of income from tenants
is equal to the open market rent? Surely if a tenant were free
of tie then the Pubcos should be no worse off.
9. The fact is that the total income from each pub is far
in excess of the open market level and Pubcos are protecting bondholders
and shareholders at the expense of their own tenants.
Take an example of a typical wet led community pub such as our
|Turnover ex VAT||350,000.00
|Overall GP % wet/dry split 77%/23% (ALMR report 2010)
|Gross Profit £||175,000.900
|Costs @ 43% (ALMR report 2010)||150,500.00
|Rental Bid @50%||12,250.00
|Potential Profit For Tenant ||£12,500.00
|Tied Tenant Worse off by||£22,500.00
This table shows a direct comparison of the same pub being
let on both a tied and free of tie basis.
10. The table above illustrates that a tied tenant although
seemingly paying a lower rent, the operating profit is much lower
due to the overall gross margin being reduced by the cost of the
tie. The effect of the loss of discount impacts the gross profit
by around £45k (225BBx£200). Therefore the total income
for the Pubcos is approximately £69k (wet rent + dry rent)
it is understood the Pubcos are achieving a barrelage discount
of around £250. This is £34k more than an open market
rent. This examples shows that not only the Pubco extracting double
the open market rent from the business, the tied tenant's potential
earnings are around £10k, at least 22k less than would be
expected in a free of tie business. This is clearly not an equitable
business relationship, nor is it a fair reward for a tenant running
a successful business.
11. Enterprise Inns boast an extensive Brand Portfolio although
the reality is much of the market is foreclosed as many brewers
cannot get their products listed. We have access to 74 cask ales
currently on the Enterprise Inns price list with 67 SIBA delivered
products a total of 141 products. A present there are over 3,000
cask beers being brewed in the UK which means we have access to
less than 5% of the total cask ale market. The tied price list
only has a very limited choice from any brewer. For example Wales's
biggest brewer is Brains and we only have access to three of their
products although in total, 14 ales are brewed throughout the
year. This is a pattern that is seen consistently across the sector
among brewers, severally limiting our opportunity to trial new
products especially seasonal beers.
12. Our experiences of the Brulines system and the procedures
Enterprise Inns employ to police their pubs are totally unacceptable.
We have found the system to be inaccurate on numerous occasions
showing "phantom" data ie dispensing when the pub is
closed. There is data showing before the system was in operation
which was subsequently altered by a Brulines auditor although
some dispense data still remains. There are many instances where
line cleaning is not accounted for on cask ale lines and even
line cleaning attributed to incorrect keg products. The Brulines
system at our pub began to show a substantial positive variance
of over 500gallons which was then eroded over five weeks where
dispense data showed an average of 300 pints per day almost consistently
for three weeks that then showed a negative variance of circa
500 gallons. We have requested an explanation of these 'anomalies'
however we have yet to receive a response. The data has only ever
been used accompanied with threats of fines and at the very worse
forfeiture proceedings. There is no contractual mechanism in our
lease nor in most, if in any at all that would provide the pub
company with the ability to levy such "fines".
13. We have received is a separate damages claim from Enterprise
Inns in which they have accused us purchasing tied products from
an unauthorised source. Enterprise has used Brulines data over
a period of 34 weeks in an attempt to identify a variance between
tied products purchased and dispensed. The total damages claimed
was for 1.92 brewers barrels @ £200 = £384.00 with an
administration charge of £300+VAT. It should be noted that
Enterprise Inns have increased the damages rate from £150
to £200 per brewer's barrel. When an Enterprise Inns BDM
visited he told us to sign the damages claim form to accept the
fine. We refused as we know the data to be wholly inaccurate as
we have not purchased any tied products from an unauthorised source.
14. Notwithstanding our refusal to accept the fine Enterprise
raised an invoice for the damages and added the amount to our
rent account. Had we had a Direct Debit in place for our rent
that amount would have been debited without our authorisation
and in the absence any primary evidence to support their claim,
contrary to the committee being assured by Bridget Simmonds in
her oral evidence on behalf of the BBPA and its members that this
would cease immediately.
15. Since the conclusion of the NMO report commissioned by
Brulines the company released an article entitled; "FACT
OR FICTIONDEBUNKING THE MYTHS ON BRULINES"
the article claimed:
19. Brulines take the data in the report and apply a "fine"
to the tenant for buying outside the tie. Incorrect, Where Brulines
Volume Recovery Service is contracted, each variance is thoroughly
investigated with additional evidence of buying out being sought.
Brulines do not assess "fines" or "levies".
16. Recently Enterprise Inns sent "undercover agents"
into our pub on a Friday night in an attempt to establish whether
we are breach of our lease (buying out of tie). Although we are
not in breach of our lease, it did prompt a visit from our BDM
with further accusations that we were dispensing beer form a cask
ale line that was not registered by the Brulines system. He told
us he had "physical" evidence that we were doing such
and were in breach of our lease. He was asked to supply the evidence
and we invited him to bring an engineer to the pub to inspect
the lines to ensure that Brulines meters are working correctly.
We have not yet had these allegations made in writing. We can
only assume this is an example of the "bullying" tactics
used by Pubco employees that have been highlighted many times
in other evidence.
17. These actions clearly demonstrate that Enterprise Inns
do not wish to work with us and we can assume we are not the only
pub that undergoes covert visits that result in allegations and
threats from Pubco employees. It demonstrates they are continuing
to issue fines to tenants relying solely on the data supplied
by Brulines in the absence of any primary evidence. It also indicates
that Brulines may be issuing statements for the purpose of misleading
a Parliamentary Select Committee. It is also concerning that the
timing of the allegations being made by Enterprise Inns coincides
with our lease renewal this year. It would seem that these allegations
are becoming more frequent in an attempt to build a case to block
our renewal that we are entitled to apply for under the Landlord
and Tenant Act 1954.
18. Since my parents took on the business in 2006, I've yet
to be convinced the any countervailing benefits actually exist.
Two successive Business Development Mangers have added no value
to our business in fact they have been a particular burden on
relationship and our ability to trade. Neither has shown any understanding
the local demographics of the business and many local Enterprise
Inns outlets have failed under their "management".
19. The Pubcos have had seven years in which to change their
business model to redress the concerns of three Parliamentary
Select Committees. The industry is in desperate need of fundamental
change if we wish to see the continuation real pubs being able
to serve the communities in which they are located.
20. This committee must now recommend to the Government that
since the Pubcos will not commit to voluntary change and they
must act to ensure that small businesses are able to compete in
a free and fair market. Many thousands of people have lost their
businesses, homes; many families have been broken apart and most
tragically of all people have lost their lives due to this continuation
of an archaic and restrictive business model.
21. As I have already stated at the very least this committee
should recommend the implementation of a Statutory Industry Code
of Practice enshrined in each lease that gives every tenant the
option of a genuinely free of tie option accompanied by an open
market rent review. I would go further to hope that this committee
would recommend that the issue of Pub Companies and the tied business
model be referred to the Competition Commission for a full inquiry
in the practices of these companies ultimately resulting in the
removal of the supply-tie from our industry completely.
22. This current state of our industry could never have been
the intention of the Conservative Government with the introduction
of the Beer Orders Act 1989. It is time to look at the principles
of that Act and consider the introduction of a New Beer Orders
to ensure a free, competitive market for pubs and brewers alike.
It is the very essence the Competition Act to prevent companies
engaging in practices that distort, restrict or prevent competition.