Supplementary written evidence submitted
by Greene King Pub Partners
Thank you for giving Greene King the opportunity
to provide oral evidence to the Committee on Thursday 7 July.
As you suggested at the end of the session, I think it's important
to provide clarification around some important points in relation
to operating a pub with an integrated brewer and pub operator.
In addition, we felt it important to address the
issue of self regulation versus statutory regulations, as much
of the discussion in both of the recent committee meetings on
30 June and 7 July, focused on this important issue.
At Greene King, our self-regulated Code of Practice
is proving to be very successful. We have not had a single breach
and we are doing everything in our power to ensure this continues.
We police our behaviour and have systems in place to spot any
"issue" so that we can resolve it before it escalates.
This includes a confidential and independent quarterly licensee
survey conducted by Spinnaker Consulting on our performance and
support, alongside IT infrastructure ensuring compliance. We are
absolutely committed to our robust and thorough ways of working.
We understand that proper enforcement of and compliance
with our Code gives us a commercial advantage. The best companies
will continue to attract the best licensees!
All pub companies' Codes are fairly new and some
may no doubt be experiencing teething troubles. However, we believe
that careful monitoring, good licensee communications and vigilant
policing by the Bll and the pub cos, will ensure that any issues
are spotted early and remedial action can be taken.
At Greene King, we are very clear that self-regulation
is the best way forward and that the industry should continue
to be given the opportunity to show that self-regulation works.
A statutory code would mean more bureaucracy/red tape and cost
for everyone involved, including our tenants.
In terms of sanctions for breaches, we believe that
non compliance would be commercial suicide and ultimately affect
our brewing and managed retail pubs also. In such a tightly competitive
industry, commercial advantage is everything and loss of reputation,
leading to loss of quality licensees (and therefore loss of income
to the pub co), would be the most severe sanction.
As a brewer and pub operator for more than 200 years,
Greene King is enormously proud of the reputation that we have
earned. Our business model is built around supporting small pub
businesses through a vertically integrated approach. Eighty percent
of our tied estate comprises short term three-year brewery tenancies.
As Kate Nicholls, Secretary of IPC confirmed in her evidence,
"the real genuine point of low-cost entry is a brewery tenancy,
which is only three years. You are limited to the risk you are
exposing yourself to". Greene King strongly supports that
view.
We know that our tied tenancy model encourages people
to run pubs. Having received 1,285 applicants last year alone,
we know that this model has widespread appeal. The term of the
agreement, the low cost of entry, lower fixed costs and the countervailing
benefits and the support we provide, ensures that these pubs remain
viable in the current climate and for the long-term. The pure
pubco model with the majority of the estate (small and large pubs)
let on long-term leases with full repairing and insuring liability,
and a higher cost of entry, is, in our view, a less attractive
model for the pub industry.
To simply explain the difference, when taking a lease
under assignment a lessee is responsible for assessing the business
fully and ensuring that the information they receive from the
outgoing lessee is an accurate measure of the business before
they pay the premium asked from the outgoing lessee. The pubcos
are not involved in this part of the negotiations. As Ms Nicholls
confirmed, "the problem is where you get people signing up
to very long agreements that are fully repairing and insuring,
and therefore expose themselves to a greater degree of risk."
Conversely, a short term brewery tenancy allows the
licensee to enter a business with a much lower level of ingoing
costs and the option to leave after the term of their agreement,
or earlier by mutual consent, irrelevant of the state of the current
market. We believe that this model should be allowed to continue
without any intervention or restriction.
A Licensee Survey conducted independently by GFK
NOP in May 2010 confirms our views.
574 licensees from Greene King Pub Partners out of
a sample of 1,000 responded over a ten day period and provided
real clarity of what a tied tenancy or lease means to the majority
of licensees. 24% wanted to be free of tie on machines; 92% stated
they gained value from the tie; 64% stated that the low cost of
entry was a value to them and 67% stated our support was fair
to excellent. Only 47 licensees out of the 574 stated that they
didn't think the tied agreement added any value to them, a clear
indication that the majority choose a tied agreement for the benefits
it provides.
If, as a brewery and pub operator, we were forced
to adopt a free of tie option for all our pubs we would simply
become a property company with zero tenant support; totally against
the ethos of Greene King and the fundamental principles of our
relationship with our licensees. The E11.4 million in capital
improvements and the £4.5 million in financial support we
have provided in licensee support to our tenants in the last year
would not be provided without our brewery tenancy model. This
would leave licensees to fend for themselves, resulting in more
small business closures as a consequence. In addition, Greene
King as a brewery would have to seek alternative routes to market
to sustain our award winning British cask ale brands and protect
the thousands of people dependent on the success of our brewery
and distribution business for their livelihood.
We have made significant progress following all the
inquiries since 2004, and your predecessor Committee's subsequent
recommendations. I ask you to consider this when reviewing the
evidence. I hope that you are able to reflect on our licensees'
opinions and our own and thank you for your time in considering
our points of view.
I would be very happy to meet you should you require
any further information or clarification from Greene King.
Simon Longbottom
Managing Director
Greene King Pub Partners
22 July 2011
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