Written evidence submitted by Shepherd
Neame Ltd
1. Shepherd Neame Ltd, which is Britain's oldest
brewery, dating back to the 16th Century, is an integrated independent
family controlled brewery, based in Faversham, Kent. Shepherd
Neame operates 359 No pubs, of which 44 No are managed, 15 No
are leased and 300 No run as traditional tenancies. The Shepherd
Neame estate is located within one hundred miles of the Brewery,
predominantly in Kent, Sussex, Surrey, Essex and London.
2. Following accreditation by the BII, Shepherd
Neame formally implemented its Code of Practice in January 2011.
3. We believe that the Code of Practice has engendered
greater rigour, especially within the context of appointing new
licensees. We consider this to have been beneficial for all parties,
with potential new licensees obtaining better advice before taking
on a public house, and a higher standard of professionalism being
required before appointments are made.
4. The Code of Practice has ensured that greater
focus is given to following correct processes in all dealings
with existing and potential licensees. We have resolved two potential
disputes with licensees within the framework of the Code of Practice.
5. Shepherd Neame maintains a close relationship
with licensees and this is illustrated by the absence of referrals
to PIRRS. In the event of disputes, licensees have full access
to members of the Board. We hold regular social events to recognise
outstanding performance and to celebrate long service.
6. In the light of our experience to date, and
additional benefits being provided for licensees, we will be redrafting
our Code of Practice over the coming months.
7. Shepherd Neame operates traditional tenancies,
which have full protection of the Landlord and Tenant Act. The
traditional tenancy provides a low cost and low risk business
opportunity for potential entrants to the licensed trade. Both
cost and risk are significantly lower for traditional tenants
than for lessees operating FRI leases or owning freehold property.
8. The cost is low because new tenants only have
to purchase the trade inventory at ingoing, together with stock
and the provision of a refundable trading deposit. Typically,
the cost of taking on a tenancy is between £15,000 and £40,000
for a business, with a turnover of between £200,000 and £600,000,
with some houses achieving a turnover in excess of £1 million.
Typically, licensees make a profit of between £20,000 and
£40,000, but this can rise to £100,000.
9. Shepherd Neame retains and maintains the majority
of the fixtures, eg water/gas piping, whilst the tenant provides
the fittings, eg furniture/kitchen equipment.
10. The risk is low because a tenant can issue
six months notice at any time, without penalty. Shepherd Neame
guarantees to take the house back and purchase the inventory if
a new tenant has not been appointed during the notice period.
11. The risk is low because Shepherd Neame maintains
the structure of the pub, decorates and signs the exterior, provides
building insurance and maintains fixtures.
12. Shepherd Neame provides discounts and incentives
(from 27 June 2011) for tied goods, but advises all licensees
that the prices charged for tied goods are higher than would be
obtained by a free trade customer. This represents the wet rent
for the premises.
13. The wet rent is reflective of trading conditions,
effectively reducing when trading conditions are difficult. The
benefits provided for tenants, eg insurance, repair, operational
support, licensing, rating, purchasing benefits and Web site,
equate to a value of £150 per composite barrel, ensuring
that tied tenants have advantageous operational terms as well
as the benefit of the low risk and entry cost for the business.
14. Over the forthcoming year, we will be making
additional investment in digital marketing, training and capital
improvements to our tenanted houses. We have put in place a range
of purchasing agreements, whereby individual tenants can purchase
on similar terms to our managed house division.
15. We believe that there is no market and consequently
no market evidence for free of tie public houses, where the landlord
repairs, maintains and insures the property, with these costs
not being passed onto the tenant. Free of tie leases are all let
on FRI terms, ie with the tenant exposed to the cost of structural
repair and maintenance works and with building insurance charged
back to the tenant.
16. We believe that there would not be a realistic
division of economic benefit, if traditional tenancies were operated
on a free of tie basis. This would eliminate the availability
of this low cost/low risk business opportunity.
17. Within our estate, AWP income is of reducing
importance, but we believe that the current system of income sharing
is fair and transparent. If AWPs were operated on a "free
of tie" basis, then such income would need to be added back
to the divisible balance. This might increase overall costs for
licensees and, given the length of rental agreements, would be
less responsive to market conditions.
18. We believe that estate wide provision of
AWPs leads to higher quality and more frequent replacement of
machines to the benefit of licensees.
19. We believe that there could be considerable
risk for illegal machines if AWPs were to be made free of tie.
20. Shepherd Neame offers a wide range of cask
conditioned ales to its licensees, together with seasonal/special
event beers and output of our pilot brewery. We also provide a
range of "foreign" cask ales on a regular basis.
21. Cask ale is at the heart of our brewery and
the tied estate is essential to retain viability within a highly
competitive market.
22. The provision of "guest beer rights"
for cask ale could reduce cask volumes by 50% and would undoubtedly
have an adverse impact on the viability of the brewery as a whole.
23. The provision of guest beer rights would
distort the wet rent/dry rent balance, resulting in the loss of
the low cost/low risk business opportunity provided by the traditional
tenancy agreement.
24. We do not currently operate flow monitoring
equipment within our traditional tenancies.
25. We consider that to be effective, an industry
benchmarking survey would need to take into account the different
forms of tenure available.
26. We believe that the provision of traditional
tenancies ensures the survival of smaller houses, which would
otherwise cease to trade.
27. Shepherd Neame is committed to maintaining
an open and transparent relationship with licensees. We regularly
survey licensees to monitor the effectiveness of services we provide
and our Business Development Managers achieve an approval rating
of 80% plus.
17 June 2011
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