Written evidence submitted by Marston's
Pub Company plc
EXECUTIVE SUMMARY
1. We (Marston's PLC) own and operate around
2,150 pubs in England and Wales, five breweries and an extensive
logistical network. We employ over 12,000 people.
2. 1,650 of these pubs sit within Marston's Pub
Company. We run these pubs in partnership with self-employed licensees,
always seeking to share risks and rewards fairly. We have long
used plain english in our agreements and taken a fair rent approach.
3. We have evolved our business approach to our
tenanted and leased pubs and made significant changes in response
to a deep consumer recession and legislative pressures. These
developments have helped to stabilise the performance of our tenants
and lessees and resulted in us being awarded Tenanted/Leased Pub
Company of the Year in the 2011 Publican Awards.
4. Our revised Code of Practice was accredited
by BIIBAS in July 2010. We believe that it sets a very high standard,
which is corroborated by the fact that the BII have not had to
investigate any breaches since its launch.
5. Our tenants and lessees are able to take advantage
of a wide range of agreements including free-trade beer pricing
options and free of tie.
6. Our innovative Retail Agreement, which is
accredited by the British Franchise Association, has been taken
up by over 250 licensees. In a recent survey 93% of these said
that they would recommend the agreement to others for its transparency
and low risk.
7. We have invested heavily to support our licensees
and to share our buying power with them. We have calculated these
benefits to be worth around £28 million in the last 12 months:
an average of £17,000 per pub.
8. We urge the Committee to recognise the substantial
progress which we have made and to allow us to continue to develop
our business without further distraction. This would be the most
effective outcome to enable us to continue to help our licensees
to deal with the challenges posed by the economy, competition
and higher taxes.
TIE OPTIONS
As a pub owning and brewing business the tie is integral
to our operating model. It allows us to share risk and reward
with our tenants and lessees. It also underpins the extensive
brewing and logistics network which we have developed over many
years. We run five classic cask ale breweries from which we are
able to offer our licensees an exceptional range of beers. We
have been able to invest in and expand these breweries thanks
to the close relationship that exists between them and our licensees.
We do recognise, however, that our licensees should
have the ability to weigh up the benefits of a tied agreement
against alternative options. As a result we offer a tied agreement
(Advance) which allows our licensees to buy their beer at prices
bench-marked against the free-trade and a free of tie agreement
(Ultra Advance) which has no purchasing obligations to us. Both
agreements are subject to additional charges, which are specific
to an individual pub. The Advance charge is £4,000 lower
in year one than the benefit of the lower prices which the tenant
receives.
A licensee can consider whether to move onto one
of these agreements at any point in his/her agreement cycle. When
weighing-up such agreements our licensees have to balance the
opportunities of buying their beer more cheaply or of widening
their drinks range against higher fixed costs.
To date, take-up of these options has been limited—around
4% of our pubs have chosen one—because most of our licensees
prefer the attraction of tied agreements where a higher percentage
of the cost base is variable—ie a lower (fixed) rent and
higher (variable) beer prices.
BEER CHOICE
Our tenants and lessees are able to choose from 18
permanently available cask beers, and up to five limited edition
beers per month (over 50 per year), each representing the particular
characteristics of one of our five breweries. Alongside these
we supply an extensive range of lagers, ciders, stouts, bottled
beers, wines, spirits and minerals.
It is exceedingly rare for any of our licensees to
consider this range to be inadequate for his or her customers.
Not only are we keen to sell our own cask beers in our own pubs
but also there is limited demand for a "guest beer"
provision from our licensees.
In a few instances we have agreed specific arrangements
with licensees to allow them to source non-Marston's beers in
return for a compensating fee. It is our experience that such
agreements are normally surrendered once the licensee has experienced
no appreciable up-turn in business.
Where the range of beers is a key trading issue we
urge licensees to consider the Ultra Advance agreement which enables
them to become completely free of tie. So far only three licensees
have taken this option.
AMUSEMENT WITH
PRIZES MACHINES
(AWPS)
We offer one agreement (Ultra Advance) with no AWP
tie. Our Pathway tenancy, Open House base lease and Advance agreements
contain AWP ties.
By actively managing AWPs on behalf of the majority
of our licensees we are able to offer their customers the best
possible gaming machine experience. A recent analysis by Gamestec,
a major supplier of c.9,000 AWPs to the licensed trade, shows
that the turnover generated by AWPs in a tied pub versus a free
trade pub is nearly £12,000 greater per year. A well managed
AWP offer attracts and retains customers who in turn spend more
in the pub on drinks and food.
The data demonstrates that tied licensees gain real
benefit from our professional management of AWPs, which helps
to underpin the profitability of their pubs. The majority of tenants
and lessees do not have the ability to engage the services of
professional companies to manage the gaming machine offer. As
a result we choose, for positive reasons, not to offer an AWP
tie release in our basic tenancy and lease agreements.
SHARING PURCHASING
POWER
A major advantage of the tie to our licensees is
the opportunity to take advantage of our buying power. We offer
competitive rates on a wide range of services from bins to banners.
We have been able to hold back brewers' price increases
from our licensees in 2010 and 2011. We did not increase the price
of our own brewed ale brands for two years between 2008 and 2010.
This year we have raised our beer prices by a weighted average
of only 1%—the prices of over 90% of the draught ales, lagers,
stouts and ciders which we sell have been unchanged this year—against
market movements of up to 4%. In an environment where VAT increased
in January by 2.5% and duty in March by 7%, this support has been
invaluable.
Overall we estimate that the value to our licensees
of these cost savings, deferred price increases, marketing and
training support is close to £5 million in the last 12 months,
which is part of the afore-mentioned £28 million of investment.
THE RETAIL
AGREEMENT: REAL
INNOVATION
Recognising that tenanted community pubs were suffering
disproportionately from the smoking ban, government taxes and
regulations, the consumer downturn and increasing price competition
from big managed pubs and supermarkets we launched our first Retail
Agreement pub in 2009. We expect to have over 250 up and running
by the end of June.
We take responsibility for developing the consumer
offer in these pubs and for paying for the running costs of the
pub. The self employed retailer receives at least 20% of the turnover
from which he/she pays for staff, Council Tax and public liability
insurance retaining the balance for personal remuneration. This
means that the retailer does not have to pay rent or buy beer,
allowing him/her to concentrate on driving sales in challenging
market conditions.
This new innovative agreement has received wide acclaim,
not least from our retailers. In a recent independent survey 85%
of them said that they were making an acceptable living and 93%
would recommend it to others. This agreement attracts three times
more applicants than our traditional agreements thanks to its
transparency and low risk. Having recently gained British Franchise
Accreditation we intend to have 600 such agreements in place by
2013.
The Retail Agreement is real evidence of our willingness
to evolve and adapt to changing circumstances grounded in an appreciation
of the support our licensees need from us and of the expectations
of ever more demanding pub users.
ASSISTANCE TO
LICENSEES IN
TROUBLE
Our revised Code of Practice describes clearly when
and how we will help licensees who are struggling when circumstances
change around them. In the last year we have continued to provide
business advice, rent concessions, lower beer prices and capital
investment to licensees determined to develop their businesses
against strong headwinds. £3 million of rent and beer pricing
support has been complemented by £18 million of capital investment.
IN CONCLUSION
We have continued to develop our business model to
promote the success of our licensees since the last BISC review.
We are committed supporters of the Industry Framework Code and
related initiatives such as PIRRS. It is time now that we are
allowed to continue this good work without further distraction
from investigations and inquiries.
17 June 2011
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