Supplementary written evidence submitted
by the British Beer and Pub Association
INTRODUCTION
1. The BBPA is grateful for the opportunity,
given by the Chairman of the Select Committee, to respond further
to some of the questions and challenges arising from the oral
hearings and to amplify its evidence where relevant. We are also
mindful of a number of statements arising from the oral evidence
given by the IPC and in the written evidence submitted by them
and their constituent bodies that we would like to address.
2. We received a very clear instruction from
the Clerk to the Committee that the report should not exceed 2,000
words and that should we not comply our evidence might be disregarded
or edited. In producing a concise response to the particular questions
raised in the Committee briefing, we were unable to elaborate
in our written evidence.
3. We were surprised to see however, that the
IPC submission was considerably longer at over 10,000 words, and
does not appear to have been disregarded or edited. We would have
welcomed the opportunity to provide a more comprehensive report
to the Committee than the word limit allowed.
ACCREDITATION OF
COMPANY CODES
4. The signatories to the Framework Code (BBPA,
BII and FLVA) set a challenging timetable for the achievement
of accreditation of Company Codes set against an increasingly
difficult economic background, amongst other challenges for the
industry.
5. The BBPA submitted two reports dated 19 July
(attached at Annex 1) and 4 October, Annex 2)[30]
outlining the progress that had been made against the timetable.
We re-iterate the apology Brigid Simmonds gave to the Committee
if the reasons for the slippage were not clear.
These were namely:-
6. The setting up and iterative processes involved
in the accreditation process were more difficult than originally
envisaged, leading to delay for some of those companies who were
early into the process. For example, with regard to your specific
enquiry relating to Admiral Taverns, we can confirm that their
Code was submitted in May 2010 but did not receive accreditation
until November 2010.
7. BII took their own legal advice about the
legal status of Codes and this delayed the accreditation of some
already submitted Codes.
8. Challenges experienced by the smaller pub
owning companies in translating the Framework Code into customs
and practices that had been embedded over a long period of time.
9. The BBPA and BIBAS have worked hard to meet
the timetable and reduce delays but inevitably there were difficulties
that had to be overcome. The accreditation process took, on average,
a period of three months. The BBPA produced guidance to the preparation
of the Codes and prepared a specimen "Tenanted Company Code
of Practice" designed particularly to assist the smaller
companies. In addition BBPA staff and BII personnel have been
involved in providing help and guidance in the preparation and
implementation of the Codes.
10. In addition to the two progress reports,
the BBPA Chief Executive wrote to the Chairman of the BIS Select
Committee on 24 August 2010 to request a meeting but
did not receive a reply. She also met the Minister, Ed Davey,
in February this year and wrote to him twice following up their
discussions. Copies of the presentation[31]
given to him and this correspondence are also enclosed for further
information. (Annex 2)
CODE IMPLEMENTATION
11. The IPC throughout their evidence claim that
the Codes have not been "fully implemented and complied with",
going on to say that the Codes "could have been effective,
but without full implementation and effective compliance, then
no."
12. There is no basis for these comments since
those companies that have completed the accreditation process
(and only three small companies have yet to complete) have implemented
their codes in full and the record on compliance is very good
as evidenced by the small number of minor breaches that have been
reported. Of the 25 minor breaches, seven were adjudicated as
not constituting a breach at all. During the course of the evidence
sessions, these complaints were referred to as "serious"
complaints, which is not an accurate description. None of the
breaches reported to and investigated by the BII were classified
as "serious breaches", which are defined as being "where
there is material impact for the tenant".[32]
13. We would take this opportunity to comment
specifically on Pre-Entry Awareness Training (PEAT). The CGA survey
asked whether new entrants were required to take PEAT before taking
on the lease/tenancy. The IPC evidence mistakenly reports that
98% said NO to this question, when they said YES. It is absolutely
clear that Pre-Entry Training is to be taken before agreements
are signed and the CGA survey confirms that this is the case.
PEAT is an important component in the Code's objective to improve
transparency and understanding.
14. The waiver to be applied by companies in
appropriate circumstances was agreed and circulated to all BBPA
members and copied to the Committee dated 4th October.
While the CGA survey does not indicate that new entrants were
aware that the waiver had been applied, our members report that
the waiver is only applied in the proscribed circumstances. The
survey does indicate that this process is not as formal as we
would like and the BBPA will investigate further on procedures
that could be put in place to make it clearer that the waiver
had been applied.
15. There is, therefore, no evidence to support
the suggestion that any of our members' accredited Codes have
not been implemented. Without full implementation a Code will
lose its accreditation, this has not occurred.
CODE COMPLIANCE
CGA Strategy Survey of Tenants/Lessees
16. We would take this opportunity to comment
and provide additional clarification on the finding so as follows:
17. The tenant/lessee survey was jointing commissioned
with the IPC from CGA to provide an independent assessment of
the availability, recognition and implementation of the Company
Codes of Practice, with both existing tenants/lessees and new
entrants.
18. The report from CGA clearly shows that there
is good awareness of the Code and we would refer you to their
summery key finding attached to this report. (Annex 4)[33]
19. A survey of this nature can only provide
a snapshot of the opinions and perceptions of the respondents
but on any basis of surveys of similar type the survey indicates
a high degree of awareness of Company Codes. The fact that the
survey indicated that 95% of new entrants had a positive relationship
with their Business Development Managers, while 92% of existing
tenants/lessees had a good or satisfactory relationship with their
Company, does not reflect the complaints made by the IPC in this
regard.
20. The survey has helped us to identify key
priorities for the future (listed in our evidence).
21. The ALMR have questioned the timing of the
survey. It was our intention to complete the survey earlier in
the year so as to provide the opportunity for a follow up later
in the year. Unfortunately this did not prove possible primarily
as a result of the delay on the part of IPC in confirming their
agreement to the questions so that the survey could be sanctioned
in sufficient time.
22. The results of the survey were presented
to the BBPA, FLVA, BII and members of the IPC at an event held
in the Sanctuary Hotel on 18 May where members of the
press were present. An invitation was sent also to members of
the Select Committee and other MPs. This was an open event and
none of the parties involved were privy to the results of the
survey until they were presented by CGA at that event.
23. The IPC suggests that the BBPA received the
presentation several days ahead of the IPC. This is not the case.
The results of the survey had been made public and the BBPA received
the data from CGA following the presentation. It was open to IPC
to do the same or to arrange alternative transmission with CGA.
IPC had open access to CGA at all times in this process and it
is not correct to accuse the BBPA of commenting unilaterally in
the press, when the press themselves had attended the event and
reported on it. All other parties had equal opportunity to comment
on the event and the results presented.
STATUS OF
THE CODES
AND STATUTORY
CODE
24. The BBPA has received legal advice (previously
sent to committee and enclosed Annex 5)[34]
that the Codes of Practice are enforceable and the Courts will
take due regard to the existence and obligations entered into
through the Codes when considering a dispute. Therefore, all
tenants and lessees, whether they are new entrants or came
into the industry prior to the introduction of the Industry Framework
Code, are protected by their company's particular Code of Practice
and are able to rely on it in a court of law. In this respect
given that all the Company Codes acknowledge the status of the
RICS guidance and that they will have due regard to it, tenants
will be able to rely on that in the event of a dispute. A sample
of the references made to RICS Guidance in Company Codes are attached.
(Annex 3)
25. The Code has been in operation for nearly
a year for most of the large companies and, as yet, no cases have
yet been brought. In our view, this reflects well on the Code.
26. We recognise that the Code does not go as
far as the IPC would wish and we have explained the reasons for
that in previous submissions to the Committee. Nevertheless, it
does not follow that the Code is ineffective in terms of what
it does cover, nor that it is unenforceable.
27. The Association does not believe it would
be helpful to translate this initiative into a Statutory Code
of Practice for two reasons:
(i) A statutory code would need to be approved
by Parliament but would not impose legal obligations itself. To
that extent making it statutory would be likely to diminish its
status rather than enhance it, since much of what the Framework
Code addresses is not itself governed by statute, whereas currently
the Industry Framework Code and the resulting Company Codes act
in the same way as an Approved Code of Practice (ACoP), which
can also be relied upon on Court in the event that the defendant
has acted outside the terms of the ACoP.
(ii) At the moment we have the flexibility to
respond to experience gained through the Code or changes in the
market and make changes to it quickly. This flexibility would
be lost if the code was made statutory and subject to Parliamentary
procedures in order to change it.
28. As the Chairman recognised during the oral
evidence sessions, there will undoubtedly be additional costs
associated with making the Code statutory which would place further
burdens on companies, tenants and lessees which would not be helpful
at a time when the industry is striving for economic recovery.
The Industry Framework Code of Practice is driving change in the
pub sector, and we believe that it is important to allow the industry
to continue to build on the good start that has been made.
APPOINTMENT OF
AN INDEPENDENT
ADJUDICATOR
29. In response to the suggestion that an Independent
Adjudicator could be appointed to oversee the Codes and provide
mediation, the BBPA would take this opportunity to emphasise again
that there would need to be clear and demonstrable justification
for this given the very low level of complaints to the BII to
date. As we have stated above, there is no evidence of serious
or widespread non-compliance with Codes to warrant such a move,
and it would place a considerable cost burden on the industry.
30. The independence and integrity of the BII
has been brought into question in the course of the Committee's
inquiry. The BII is a professional body which represents many
thousands of licensees many of whom are tenants and lessees who
are directly affected by the pub company tenant/lessee relationship.
As such the BII are in a good position to reflect these interests
in its role as the accreditation body and in the resolution of
complaints. In addition the body that has been set up to oversee
these functions (BIIBAS) also has representation from members
of the IPC as well as pub companies.
31. The strength of the current structure is
the involvement of a number of experienced pub professionals,
a strength that would be lost were it to be overseen by an outside
body or person. We note that the BII are looking to formalize
their processes in the future and we remain committed to ensuring
that self-regulation works. Where there are allegations of improper
behaviour, then we want to see them addressed. The existence of
such a system does not imply that there are lots of complaints
and the BII's report shows that this not so. If a mediation facility
elicits more complaints then surely that is not to detriment of
the process but to its credit.
32. The Committee, correctly in our view, reflected
on the possible and probable costs that would be involved in either
a Statutory Code or the appointment of an independent adjudicator.
Both of these would deflect companies from the path that they
have set themselves in the progress that is being made through
the Codes. The costs of such systems would inevitably fall upon
the tenants/lessees themselves were the system to evolve into
a more litigious approach which would lose the support of those
involved.
33. The escalation from self-regulation and mediation
would inevitably lead to further legal processes which the Select
Committee recognised could result in great deal more cost to the
individual tenant/lessee and create a much more litigious climate
that would prove of little benefit to either party.
OFT REPORT
34. The IPC evidence asserts that "the OFT
2009-10 Report on the sector found clear evidence that this was
resulting in clear consumer detriment".
35. This is a complete contradiction to the OFT
findings published in its final decision following an appeal from
CAMRA which said:
"Having considered the issues raised in the
super-complaint and parties' responses to the OFT consultation,
the OFT has not found evidence of competition problems that are
having a significant impact on consumers."
36. The report goes on to say:
"… we have found that consumers are benefiting
from a significant degree of competition and choice between pubs,
we do not consider that issues relating to the negotiation
process between pub companies and lessees can generally be expected
to result in consumer detriment" (our underline)
37. The OFT consequently found against the super-complaint
and did not refer the complaint to the Competition Commission,
as it was free to do.
BENCHMARKING
38. The BBPA has collected data from its members
which reflects a range of business types and the costs associated
with them. The data has now been collated and we are arranging
a meeting with ALMR to share this with them with a view to making
it freely available to any prospective or existing tenant or lessee.
The data has been collected for the year 2010 and is, therefore,
in step with ALMR data collected over the same period. The data
will be published on the BBPA website and made freely available
to all prospective entrants to the trade.
39. The oral evidence given by IPC explained
that the ALMR benchmarking data is collected from individual and
multiple lessees. The BBPA data is based on individual tenants/lessees
across a wide range to businesses. Much of the data should be
comparable, with the ALMR data differing in one major aspect.
The ALMR data includes managers' salaries which results in a higher
cost base overall. Apart from the inclusion of manager salary/earnings,
which is specific to a multiple retail operation as opposed to
a single tenant/lessee, we believe the two surveys should be complementary.
40. Early indications are that, excluding managers'
salaries, the cost base ranges from 32%-39% of turnover. Enterprise
Inns' quoted figure of 35% falls within this range. This compares
to the ALMR figure which is at the higher end at nearly 39% when
managers' salaries are excluded. This is not surprising given
the nature of the multiple tenancies on which the ALMR figures
are largely based.
FREE OF
TIE OPTIONS
41. We would take this opportunity to emphasise
that the Industry Framework Code of Practice does not preclude
companies from offering free of tie options. Many of our members
already offer a variety of agreements, for example:
— 9 of
our largest members offer free of tie agreements on beer.
— 5 of
these offer to all their tenants and 4 offer to new tenants only.
— 75%
of new tenants are aware of Free of Tie Options.
42. Options currently cover about one third of
the pubs owned by BBPA members, ie approximately 8,000 pubs. Ultimately,
it is for companies and prospective tenants/lessees to make commercial
decisions and assess the balance of risk. Some of the larger companies
are offering what might be defined as "genuinely free of
tie offers", while others are offering free of tie pricing.
The tie is an important ingredient in the mix of pubs here in
the UK, and it provides a low cost of entry and support for people
who want to run their own businesses.
Annex 1
IMPLEMENTATION OF THE PUB INDUSTRY FRAMEWORK
CODE OF PRACTICE
19 JULY 2010
INQUIRY INTO
PUB COMPANIES—2009-10
1. Company Codes and BIIBAS accreditation
Following publication of the Framework Code (the
basis of which was an Agreement signed between BBPA, FLVA and
BII), the BBPA prepared guidance to assist companies prepare their
Codes (attached).
All major pub companies have now either had their
Codes of Practice accredited by BIIBAS (Punch and Enterprise),
or are actively engaged in the process of accreditation which
is expected before the end of July (Admiral, Mitchells and Butlers,
SNPC, Greene King and Marstons). These companies represent more
than 20,000, pubs or 90% of the leased and tenanted pub sector.
All other BBPA members who own more than 150 leased or tenanted
pubs are in the process of having their Codes accredited, representing
99% of BBPA members owning tied pubs. (These companies are described
in the attached timetable as Phase I).
The previous BIS Committee recognised that smaller
companies may need more time to complete the accreditation process
(these companies are referred to as Phase 2). BBPA also prepared
a specimen tenanted company code of practice to assist smaller
companies prepare their codes. We expect such companies to complete
and implement their codes by the end of the year but this does
not preclude them from completing earlier if they are in a position
to do so. For example, George Bateman & Son fall into this
second category but was the first company to receive accreditation
for its code of practice.
2. Code Analysis
In addition to compliance with the new Framework
Code many companies have introduced new agreements and initiatives
offering further choice for prospective pub tenants/lessees and
also for existing tenants on rent review. New initiatives and
lease options are now being offered which include free of tie
guest beers and free of tie leases. A more detailed breakdown
of individual company offers will be prepared and made available
once the current round of accreditation is completed. This is
expected in early/mid August.
We believe that the Framework Code will continue
to ensure far greater transparency and openness between pub companies
and lessees and ensure that new entrants to the trade are far
better prepared and advised than ever before.
3. Pre-entry Training
BBPA has worked with the BII to develop the BII Pre-Entry
Awareness Training (PEAT). This training course is now available
on-line through the BII and is referred to on the BBPA website.
4. Training /Professional Advice Waiver
The Framework Code recognises that there are, in
limited circumstances, good reasons for a waiver to be applied
of the requirement to either complete the training or take professional
advice. Guidance to members about the circumstances under which
the waiver might be applied has been prepared and is currently
being tested and considered.
In respect of the training requirement BBPA members
have shown great enthusiasm for this course and indications are
that many companies will encourage all applicants to take the
training despite their previous experience levels. Some companies
have also indicated they may consider refunding the cost of the
course to individuals who ultimately sign an agreement with them
as a result.
It is intended that the use of the waiver should
be monitored by a CGA survey in conjunction with the BII's own
records regarding the number of candidates taking the course.
5. Information for Prospective Tenants/lessees
on choosing pub company
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 (Copy
attached). A list of BBPA members is provided together with links
to the company website.
http://www.beerandpub.com/industryArticle.aspx?articleId=222.
In addition the PEAT qualification emphasises the
importance of choosing an accredited pub company, the benefits
and obligations incurred in the various routes to market and the
skills required to be successful.
6. Pub Independent Rent Review Scheme
All BBPA members with tenanted and leased pubs have
subscribed to the Pub Industry Independent Rent Review Scheme.
The scheme was established in September 2009 and is operating
very successfully with many disputes being settled by negotiation
without the need for further action by PIRRS. We will obtain a
separate annual report on PIRRS activities for the benefit of
Committee members.
7. Industry Relations
Meetings and discussions have taken place between
the signatories to the Industry Agreement and those representing
tenants/lessees, namely the organisations represented under the
umbrella of the IPC. Areas being explored jointly include:
(a) Licensee Satisfaction Survey:
In association with BII, FLVA
and IPC, the BBPA intends to undertake a survey of new and existing
tenants/lessees to evaluate the effectiveness of the new Code.
This survey will be undertaken by CGA and will cover both new
entrants to the trade and existing tenants and lessees. The surveys
will be carried out over the next 12 months at appropriate intervals.
(b) Industry Benchmarking
BBPA has held talks with IPC
about the ALMR benchmarking scheme and is seeking to explore how
this can be made more relevant for the trade and also how individual
licensees can be encouraged to take part.
As a starting point BBPA is
collecting data available from tenants of member companies which
will be used to develop a range of costings for the tenanted trade
which may complement the ALMR survey. This may also be useful
for smaller companies when preparing shadow P&L's.
8. BDM Relationships
Further progress has been made in developing a more
professional career path for BDM's and BRM's and the BII will
be in a position to supply further information about this.
9. Flow monitoring equipment
BBPA understands that discussions have been taking
place between trading standards and Brulines with regard to the
integrity of the system. Our members are committed to the provision
of a protocol for the operation of flow monitoring equipment which
is an obligation incurred under the industry Code. This will ensure
tenants/lessees are fully aware of the procedures to be followed
and the penalties for buying out.
BBPA has issued clear direction to its members that
charges for any confirmed breach of the tie should not be taken
by direct debit without prior agreement from the tenant/lessee.
10. RICS Guidance
The Framework Code requires pub companies to abide
by RICS guidance. The development of guidance for surveyors has
been pursued over the last six to eight months by a RICS Technical
Working Group with representation from a range of interested parties,
including tenant/lessee groups. We are disappointed that this
is not yet available but understand from RICS that this is partly
due to the process which will be completed later this year.
11. AWP Machine Tie
Individual companies have reviewed their position
and practices in relation to gaming machines. A range of options
are offered by a number of companies and the subject is dealt
with by the PEAT training qualification, where it is made clear
that individuals should not sign up to any agreement if there
are parts they do not wish to accept.
The Framework Code does require that companies must
remove machine income from the divisible balance to ensure revenue
from machines is shared on a more equitable basis and that this
division is transparent.
20 July 2010
Annex 2
LETTER TO ED DAVEY MP, PARLIAMENTARY UNDER
SECRETARY OF STATE, FROM BRIGID SIMMONDS OBE, CHAIRMAN,,BRITISH
BEER & PUB ASSOCIATION
BBPA AND THE
TIE
Thank you for seeing me last Wednesday. I thought
it was a very useful discussion which I would like to continue
and perhaps at our next meeting I can bring both my chairman and
a few senior executives of the pub companies concerned.
As a follow up to our meeting, I am writing to confirm
additional information which the BBPA will provide as soon as
possible.
Brulines: It is our understanding
that information data sharing between companies and their tenants
is common practice. I have already had an informal discussion
with two major pub companies who assure me that they share data
with tenants. In the case of one of them, this information is
also available to tenants on their web site.
Free of Tie: Looking back
to the Select Committee Report, their recommendation was that
over a period of time offering lessees the option of being tied
or being free of the tie was the way forward. They did not however,
propose that this should be in the industry code. Just before
the last General Election we received a letter from The Rt. Hon
John Healey MP proposing that the Industry code of Practice should
be amended to offer tenants a tie/non tie option and a guest beer.
There was no consultation with the BBPA on this response and despite
requests John Healey did not meet with anyone in the industry
to discuss this further. Had he done so we would have explained
why we cannot make changes to the Framework Code because of the
position of our Family Brewers whose business model is based on
the security of vertical integration. In essence if the tie was
broken, many British breweries and pubs would close.
With this explanation in mind however, and as discussed
in my presentation, the major pub companies and regional brewers
have moved to provide a range of free of tie options with flexible
agreements.
You have asked for more details on how many companies
have made this offer; the details of the agreements and the take-up
rates by lessees. We will provide this information as soon as
we can.
Guest Beers: the Select
Committee did not in its last report make any recommendations
on guest beer provision, but again this was covered by the letter
from John Healey. I gave you a similar response to that of Free
of Tie that we are unable to make changes to the Framework Code
because of the effect on Family Brewers who rely on the sale of
their beer to their tenants. I will however come back to you with
details of how many companies are offering free of tie guest beer
provisions and how these work in practice.
Pre-entry Training: You
asked me who paid for pre-entry training. I understand that the
cost is £22 and is paid by those interested in running a
leased or tenanted pub directly to the British Institute of Innkeeping.
You will be interested in the outcome of the licensee
survey which I mentioned to you, and which I am pleased to say
that the IPC has now agreed to conduct jointly with us. We will
be happy to share the outcomes of the survey with you when completed,
which we expect to be in the early part of May.
We will keep you fully briefed on what we are doing
to respond to the criticism of the Select Committee and the continuing
campaign by Fair Pint and others about the Tie. I explained that
at a time when we are still closing 30 pubs a week that there
have been more closures of pubs which are freehold, than pubs
owned by a pub company or family brewers. The figures for closures
in 2009 are as follows:
On the Localism Bill, anything you could do in your
capacity as a Minister supporting business to convince DCLG that
pubs should be allowed to change hands between companies and only
if they are to close should there be an option for the community
to buy them, would be hugely helpful. There is a real danger that
this Bill will affect the pub values and will lead to more closures
as a result rather, than successful community projects. As we
discussed pubs are very much part of the Big Society. Every day,
pubs are offering crèches, free WiFi, places for weddings
and funerals and a centre for the community to meet. We also offer
on average 10 jobs in every pub and recent research from Oxford
Economics confirms that 980,000 people across the UK depend on
beer and pubs for employment.
We discussed post offices and "Post Office Essential".
Whilst I would be delighted to arrange a meeting between the Post
Office and my members, I suggested that you meet with John Longden
who runs Pub is the Hub.
Thank you for a useful discussion which I hope we
can continue.
21 February 2011
Annex 2a
LETTER TO ED DAVEY MP, PARLIAMENTARY UNDER
SECRETARY OF STATE, BRIGID SIMMONDS OBE, CHIEF EXECUTIVE
Following our meeting to discuss the developments
within the pub industry in relation to the introduction of the
industry framework Code of Practice, we are responding to the
questions subsequently raised by your office.
This response is by way of a preliminary response.
A more detailed questionnaire which is being circulated to all
of our members will form a more complete and comprehensive report,
that will be compiled over the next two months.
From the information that we have received we are
able to provide the following responses to the questions as below:
What are the costs involved for each company in
implementing the Codes of Practice?
Implementing costs for BBPA members as a whole are
estimated at approaching £1.5 million, ranging from over
£450,000 for the largest companies to £20,000 for the
smaller family brewer companies owning around 200 tenanted pubs.
Costs are estimated at around £100 per pub for
the smaller companies falling to around £50-£70 per
pub for the larger companies as a result of economies of scale.
There is a further cost associated with each new let, in the provision
of the Code and the promotion of it, estimated at around £100
each.
In regard to the Free of Tie and Guest Beer options,
the Minister would like to know exactly what your members are
offering, particularly the larger companies, and the take up rates
for these offerings. The Minister would like clarity on whether
these options apply solely to new entrants
The answer to this enquiry is not so easy to quantify
across the whole industry given the wide variety of terms offered
by companies. In general terms it is apparent that the smaller
companies that brew beer will have tied agreement with all their
tenants for beer and very often for all other drinks as well.
Within this broad category of "family brewers" there
are some companies offering a free of tie option on bottled beers,
spirits and minerals to certain of its tenants where their location
means they are in direct competition with local supermarkets selling
alcohol more cheaply. In the same category, and again on a restricted
basis, free of tie beer from micro-brewers might be offered. While
the family brewers will often supply "guest beers",
that is beers not brewed by themselves, they are not normally
supplied at free of tie pricing. As I explained at our meeting
the whole business model for family brewers depends on the tie
to their brewery.
The picture is more mixed amongst the larger brewing
and pub owing companies in the variety of options that are offered
to new and existing tenants and lessees. Free of Tie options are
available in a limited number of businesses and take up has been
low, although one larger company currently has 70 Free of Tie
leases, while a similarly sized company has only received one
existing tenant wishing to change the agreement to go Free of
Tie. Free of Tie pricing has been more popular, presumably because
it does not remove the support of the Pub Company which will apply
to Free of Tie agreements. Even here though take up so far has
been relatively low (35 out of a possible 1,600 being reported
by one company). New buying agreements have been put in place
by a major pub company which offers Free of Tie Pricing and a
"buy one get one free" offer. In addition special arrangements
are in place in that company that makes Free of Tie cask ale available
from brewers benefiting from Progressive Beer Duty. While generally
the new agreements are available to both new and existing tenants
and lessees, this last example is only available to new entrants
and existing licensees at the point of rent renewal agreements.
A recent trial offering Free of Tie tenancies, through
marketing agents, has not proved very successful with only around
half those offered finding operators willing to operate on that
basis. The company believes that the lack of business support
that accompanies the Free of Tie option to be a major factor in
the disappointing take up and subsequent success of those that
have been taken up.
In regard to rent levels, the Minister would like
to see evidence of how rents have fallen, and would like clarity
on whether these figures apply only for new entrants to the industry?
The question of rents achieved cannot be divorced
from the decline in "wet rent" occurring as the direct
result of falling beer sales, which is more difficult to estimate.
Companies are reporting a decline in rents over the last two years.
One of the larger companies reports falls of 6%, 9% and 7% through
2009-10, and the first quarter of 2011. This is matched by a 4%
fall in the rent achieved by another large company. The smaller
companies are reporting small falls and in some cases increases
in 2009-10, though these have now fallen into decreases of around
5% in 2010-11. Those same companies report a further discounting
worth around £5.6 million to tenants and lessees of one company
holding nearly 2,000 pubs while a similar sized company increased
discounts by 8.4% in 2010 equivalent to an additional £24/barrel.
Special offers are being offered on cask ales by one large pub
company with competitive prices for micro brewers' beers, and
which also offers free of tie purchasing of SIBA supplied beers
which are within a 30 mile radius of the pub. There is an emerging
pattern of different deals being made available across a wide
variety of business models, offering free of tie pricing, discounts,
free of tie from other products such as wines, spirits and soft
drinks. One company that operates nearly 1,500 pubs has no tie
for wines or spirits.
In regard to business support, how much are your
members investing in this, and in what areas?
Member companies offer a broad range of supportive
activity, some of which they regard as entirely within their normal
business practises and part of a straightforward commercial deal
for rent. Some of this support is quantifiable particularly in
relation to rent concessions/discounts which have been considerable
for some businesses and are also referred to in our response to
Question 3 above.
In terms of more general business support, estimates
range from just over £1,000 per pub to over £3,000.
A medium sized company costs its support at £1,500 per pub
and includes such activity as providing professional advice, samples,
training, equipment and signage, tenants magazine and associated
offers and free glassware. Other companies include marketing support,
free stock, agreements to take advantage of purchasing power with
suppliers to the trade and promoting diversity within the pub
environment and subsidised training courses. Other benefits include
interest free loans, rating and licensing advice, competitive
life assurance through the owning company and beer quality advice
and wine development.
At an average cost of £2,000 per pub, such support
is estimated at £43 million/year. A recent report from the
Independent Family Brewers put the benefits of support to tenants
in their first year of trading at £8,000. While this obviously
falls back to nearer the industry average after that first year,
the cost and the benefit of that support to new entrants to the
trade should not be underestimated.
The Minister would like assurances that the Brulines
system is being used transparently by your members.
Not all member companies have flow monitoring equipment
installed in their estate though most, with the exception of the
smaller companies, do use Brulines to monitor and manage beer
flows. Where they are used companies make the information available
on request and most make the data available to tenants and lessees
through websites and through Business Development Managers. All
companies whose codes are based on the Framework Code accredited
by the BII are obliged to produce a protocol which details how
the data collected is to be used and the procedures to be followed
where a breach of the tie, as indicated by that data, is suspected.
A company with over 2,000 pubs reports that buying outside the
tie gave rise to a cost of £2 million in 2010. £1,300
was recovered, but nearly £700,000 was lost following agreement
by the tenant and lessee of a new approach for the future.
In addition to the questionnaire that we are circulating
to our members for further and more detailed information a survey
has been commissioned by ourselves and the IPC which will look
to see how new entrants and existing tenants and lessees perceive
the Code of Practice and how companies are putting their Company
Codes into effect. This is expected to be published in mid-May
and will inform our report referred to earlier.
As you will see this is a complicated business model.
I think you would find it useful to meet again with me, accompanied
with a few of our senior chief executives of pub companies and
family brewers to discuss this further.
I look forward to hearing from you.
6 April 2011
Annex 3
RICS—WORDING IN CODES
1. ENTERPRISE
When you have completed your own business plan, we
will provide you with our assessment of the Fair Maintainable
Trade (FMT) and retailer profit for the pub, using our estimates
of the performance of the business that might be achieved by a
reasonably efficient operator (Pub Business Assessment). Our assessment
is provided for illustrative purposes only to demonstrate how
we have arrived at our opinion of the rent that is appropriate
for the pub. It is not under any circumstances a guarantee of
potential profit.
We use the widely recognised, industry standard,
valuation methods and follow the guidance published by the Royal
Institution of Chartered Surveyors (RICS), including any updates
or amendments as may be published from time to time.
We will disclose any benchmark information that we
have used to arrive at our assessment of the appropriate level
of costs in our appraisal of Fair Maintainable Trade and resulting
retailer profit.
2. EVERARDS
The guidelines for rent assessment are established
by an independent body (Royal Institution of Chartered Surveyors
- RICS) and applied to all tenancies. The independent body will
keep its rent assessment guidelines under review and, amongst
other matters, any resulting legislative changes and court rulings.
Any resultant changes arising from such developments
of the guidelines will be adopted and applied to all tenancies
on review as and when they are published. In the event of a dispute,
referral to arbitration, independent expert valuer, as the tenancy
agreement may provide, Everards will abide by the RICS guidance.
3. MARSTON'S
We believe that every pub should have a fair market
rent. When we set your initial rent, we want to charge a rent
which is in line with current industry practice and represents
the open-market value of your pub. The rent will be constructed
using the Royal Institution of Chartered Surveyors valuation guidelines
taking into account any legislative changes.
4. PUNCH
We will use recognised open-market valuation methods
established by the Royal Institution of Chartered Surveyors (RICS)
to calculate rent. As a matter of course, we will implement any
changes made by RICS to their guidance.
5. ADMIRAL
Rents are assessed in accordance with the guidelines
established by the Royal Institution of Chartered Surveyors (RICS).
Any changes to the guidelines arising from a review by the RICS
or new legislation will be adopted by Admiral for the purpose
of future rent assessments.
30 Ev Not published. Back
31
Ev not published. Back
32
BII Evidence to the BIS Select Committee, June 2011. Back
33
Ev not published. Back
34
Ev not published. Back
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