Written evidence submitted by the British
Beer & Pub Association
REPORT ON THE IMPLEMENTATION OF THE PUB INDUSTRY
FRAMEWORK CODE OF PRACTICE
INTRODUCTION
1. The need for change has been acknowledged
by the BBPA and its member companies both to the Committee[1]
and the then Secretary of State (BIS) to whom the BBPA wrote in
July 2009,[2]
expressing its commitment "to working with all relevant interested
parties to address many of the issues raised in the Report and
(seeking) to address these through a number of mechanisms."
2. The prime vehicle for achieving that change
has been the "Industry Framework Code" which was agreed
between the BBPA, the BII and the FLVA in January 2010, following
the inquiry conducted by the BIS Select Committee.
3. Trading conditions remain difficult across
the pub sector, which has suffered not only the economic effects
of recession felt by many businesses but has been subject to regulatory
changes and tax increases which have had significant effects on
the pub trade.
4. Rents have responded to the market and have
declined by over 20% in real terms since 2008. Additional business
support to tenants/lessees in the last year totals almost £265
million. This includes additional discounts and concessions, marketing
support, capital investment training and other support such as
passing on cost savings, free stock, and freezing duty increases.
As a result the closure rate of tied pubs is at a lower rate (3.2%)
than the free trade (5.1%).[3]
5. To inform this report the BBPA has collated
information from its members and, with IPC, has jointly commissioned
a survey of tenants/lessees from CGA jointly with IPC. (CGA survey
results attached at Annex A).
6. The CGA Survey results indicate that good
progress has been made with awareness of Company Codes recorded
as being high, with the uptake of training and transparency of
information and dissemination also scoring highly. The survey
is instructive and indicates where improvements can be made.
7. In response to the Committee's specific questions
we report as follows:
BBPA/IPC DIALOGUE
8. The BBPA and the IPC worked together to draft
the questions for the CGA Tenants Survey which were agreed between
our two organisations, the BII and FLVA. Discussions have also
taken place on various aspects of the Code with individual members
of IPC by working with the BII.
ROBUSTNESS OF
CODES OF
PRACTICE
9. Company Codes have to comply with the Industry
Framework Code and the accreditation process ensures that they
do. Any inconsistencies or clarifications required are referred
back to the company concerned for rectification which has to be
completed before accreditation is awarded.
10. All major companies have gone beyond the
Industry Framework in offering alternative purchasing arrangements
and other facets of the Code. For example, nine BBPA member companies,
including the major companies, now offer either free of tie or
free of tie pricing which are available on new agreements or existing
agreements on renewal, covering around 1/3rd of members' pubs.
11. Companies continue to develop alternative
agreements including "franchise" arrangements based
on a share of the pub turnover.
12. Wines, spirits and soft drinks are more often
tied in the smaller companies with some exceptions but all the
larger companies and 12 companies in all covering over 65% of
the market offer free of tie agreements on a combination of wines,
spirits and soft drinks or all three.
COMPLIANCE
13. The BII report that there have been no major
breaches of members' Codes. A number of complaints have been bought
to their attention and have been resolved. BII will report more
comprehensively.
BII POLICING OF
CODES
14. The BII have been robust in their investigation
of complaints and effective in their resolution of problems and
can report further.
ENFORCEABILITY
15. No issues have been bought to our attention.
The Codes have been widely accepted and have bedded in well. This
assessment has been borne out by the independent survey conducted
by CGA Strategy, which indicate that awareness of Company Codes
is very high and where the satisfaction level of new tenants and
lessees with their pub owning companies has been reported at 93%
being satisfactory or good, as against 82% for existing lessees.
A similar satisfaction level is demonstrated in the relationship
with Business Development Managers.
AWP MACHINES
16. Company codes now ensure that the income
split on machines is clear and transparency has been enhanced
by showing tied machine income below the divisible balance. Five
of the largest pub owning companies offer a free of tie option
on machines either upon request or to specific tenants or lessees
and while most of the smaller companies retain the machine, three
of those offer free of tie machines. Within the companies there
are also a variety of other forms of agreement, particularly in
the larger companies, on machines from free of tie to differing
arrangements on the income split.
FLOW MONITORING
EQUIPMENT
17. Most companies have Flow Monitoring Equipment
installed in their pub estates, though not in all their pubs.
All companies make the data freely available to tenants or lessees,
or available upon request. No member companies take fines by direct
debit without the authorisation of licensees.
BBPA ADVICE TO
PROSPECTIVE PUBLICANS
18. BBPA has placed on its website detailed information
for prospective tenants and lessees highlighting the importance
of selecting a pub company partner with BIIBAS accreditation.
A list of BBPA members is provided together with links to company
websites.[4]
19. In addition the BBPA worked with the BII
on the development of the Pre-Entry Awareness Training (PEAT).[5]
The course includes information and explanation as to the differences
and options within the pub sector.
20. Member companies also offer a variety of
training support packages centred around the operational requirements
and marketing of the business. CGA Survey reports that 83% of
new entrants took advantage of the training opportunities.
RICS GUIDANCE
21. BBPA welcomes the RICS guidance which is
provided to their members to assist in the making of a market
judgement as to rental values. Tied rents do not simply reflect
the price differential between tied products and non-tied prices
but take into account the benefits of company support (£265
million in 2010) and the balance of risk which is shared in the
tied model and absent in simple rental agreements.
BENCHMARKING
22. BBPA members through their Codes bring the
ALMR bench-marking survey to the attention to all prospective
tenants. The ALMR survey provides data drawn from Managed Houses.
The BBPA has drawn together data from the tenanted/leased sector
based on a survey of member companies, which refers to the calendar
year 2009-10.
COMPLAINTS PROCEDURES
23. In addition to the BII procedures referred
to above, the BBPA, BII, FLVA and members of the IPC, have funded
and co-operated in the PIRRS[6]
scheme.
24. The scheme was established in September 2009
and produced its first annual report in 2010.[7]
25. PIRRS' primary success is its ability to
resolve disputes beforehand, negating costs. The scheme has motivated
companies and their tenants/lessees to negotiate in a more constructive
manner. The majority of disputes are resolved before any independent
evaluation and resolution is required.
FREE OF
TIE OPTIONS
26. The BBPA is constrained by Competition law
from requiring companies to offer free of tie options through
the Framework Code or any other vehicle. Furthermore, the TISC
report of 2004[8]
concurred with the DTI's conclusion that "a statutory requirement
on pubcos to allow all tied tenants the option of offering a guest
beer of a particular type, for example cask ales and regional
or national specialities, would run contrary to EU competition
law". Nevertheless member companies have listened to the
Committee, and now offer a range of options that were not previously
available.
27. It has been suggested that companies, particularly
those owning more than 500 pubs, should offer all their licensees
a "free of tie option with open market rent". For companies
to offer such an option ignores the effect that such an arrangement
would have on the contracts for supply that they are able to secure
and the return they would anticipate in converting the income
lost into straight-forward rental agreements.
28. A "free market rent" is what the
market will bear and is difficult to predict. Market rent is derived
from the estimate of what turnover and profit could reasonably
be expected from a pub and what a prospective tenant/lessee is
willing and able to offer as rent. In this respect the pub market
is similar to the housing market, where prices might be evaluated
by an agent but will often be exceeded or not depending on the
overall market and the requirements of the buyer.
29. Some pub companies have shown a willingness
to offer "free of tie" or free of tie pricing options'.
Such options shift the balance of risk from the company to the
licensee insofar as the rent forms a much larger fixed cost which
will not be offset by the lower risk option of paying part of
that rent through the higher product prices charged under tied
agreements. The application of the RICS guidance to rent evaluation
inevitably results in the rise of the fixed rent exposing those
pubs to increased risk in the event of a down-turn in trading.
30. Companies with fewer than 500 pubs will be
adversely affected if larger companies were to release a substantial
part of their estates from the tie. Family brewers and small independent
brewers would find their route to market curtailed, since those
free of the tie will probably purchase their beer from larger
brewers who, as a result of economies of scale, can offer more
competitive prices. This would reduce choice for consumers. Coincidentally,
the larger estates of tied pubs also offer a route to market to
those family and small independent brewers. The OFT recently confirmed
its findings that the tie is not detrimental to the consumer.
BII GUIDANCE
31. The BII will report its action and progress.
CONCLUSION AND
RECOMMENDATIONS
32. The BBPA and its members are not complacent,
and while recognising the progress that has been made we will
continue to improve.
33. Together with our members and in co-operation
with the BII, the FLVA and others, we will seek to:
— Raise
awareness of PIRRS;
— Encourage
greater take up of pre-entry training (PEAT);
— Raise
awareness of business support available; Improve the information
accessibility and content on its website;
— Repeat
the CGA survey at a later date to monitor progress;
— Consider
the need for improved/further guidance to companies;
— Review
the availability and accessibility of Guidance to prospective
entrants;
— Encourage
and promote the introduction of BDM training;
— Review
the Industry Framework Code.
34. The Industry Code of Practice has not only
enabled our members to improve overall business practice, but
is also a valuable marketing tool in attracting high calibre tenants
for the future. In its first year, the Code has had a huge impact
in ensuring a high level of information and transparency between
companies and their tenants and lessees. The influence of the
Code will be ongoing. We hope the Committee will appreciate the
change in culture that has been achieved.
17 June 2011
1 BIS Committee - Fifth Report Pub companies: follow-up:
published 23rd February 2010 Back
2
Letter from the BBPA Chairman to Lord Peter Mandelson dated 9th
July 2009 Back
3
CGA data Back
4
http://www.beerandpub.com/industryArticle.aspx?articleId=222 Back
5
PEAT is an e-learning package that identifies the
main issues which need to be considered and investigated before
signing a pub tenancy or lease agreement. More information is
available at http://bii.bii.org/topical/preentryawarenesstrainingpeat
Back
6
Pub Independent Rent Review Scheme (PIRRS) Back
7
http://www.pirrscheme.com/images/pirrs%20annual%20report.pdf Back
8
Second Report from the Trade and Industry Committee, Session 2004-05,
Pub Companies, HC 128-I
Back
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