Business, Innovation and Skills CommitteeFurther written evidence submitted by the British Beer & Pub Association

Further Information for the Select Committee

Following the oral evidence session on Tuesday 12th June, I am grateful for the opportunity to provide a copy of our submission to the Department for Business Innovation and Skills in response to their consultation on pub companies and tenants.1

I also promised to provide the Select Committee with additional information as follows:

Legal Position of the Industry Framework Code

Version 5 of the Industry Framework Code (IFC) was published in December 2010 and included the provisions that conferred and confirmed the legal enforceability of the Industry Framework Code. For existing tenants and lessees, this was conferred by a “Collateral Agreement” and all lessees and tenants were sent letters from their pub companies confirming this. For new tenants and lessees legal status was incorporated by way of “reference”. The BBPA sought legal advice from Robert Howe QC, who then wrote to Ed Davey MP, the Minister at the time to “confirm that in my opinion ... That action in accordance with his advice will confer legal enforceability of the Industry Framework Code for both new entrants and existing tenants and leaseholders”. The letters were explicit in saying that “The same applies to any successor code as may be agreed by the BBPA”. Government lawyers agreed with this advice.

Members of the Committee raised the recent Enterprise Inns case where incorrect press reporting suggested that their lawyers said that the Code was not legally binding. Enterprise Inns are absolutely clear that the Industry Framework Code is legally binding in law. If they had said otherwise, they could have argued that the lessee could not bring a claim which relied on the Code of Practice. These discussions required the Judge to understand why they offered a rent review in 2011, when the lease did not provide for one, but their Code of Practice did. All BBPA member companies are quite clear that the Industry Framework Code is legally binding.

ALMR Benchmarking Survey and Rents

I was asked whether the ALMR Benchmarking report found that tied pubs’ rents as a percentage of turnover, were greater than free-of-tie pubs.

The latest ALMR Benchmarking Report, July 2012 includes information on rents in the section entitled “Ownership and the tie”. The 2012 report indicates a differential of 1.6% on rents as between the “majority tied” estate and the “majority not tied” of 12.3% and 10.7% respectively, expressed as a percentage of turnover. As the report itself acknowledges the “data is necessarily based on smaller samples than the main survey and should be used with caution”. The trend data however, only shows rent as a percentage of turnover and if the survey includes more and larger pubs this year with higher turnover, the rent as a percentage of turnover would quite possibly be lower, as appears to be the case in the “majority not tied” category. ALMR report a three-fold increase in pubs reporting into the survey which will have some influence, particularly on trend data.

Without more detailed knowledge of the data source, the numbers of pubs involved and the inclusion or not within the categories, it is difficult to assess these findings which appear to run contrary to the experience in the market being reported by our members. It is also significant that, in terms of overall costs, controllable costs were lower in leasehold estates with a majority of tied pubs (41.9%), than in those with a majority of untied pubs (48.4%).

It might be worth noting that the report suggesting that the ALMR data showed an increase in rents for tied pubs came from a French bank agent, who has since acknowledged that he misread it.

Rents

I also promised to send you further detail on rent levels in the tenanted/leased sector. In 2011 we reported to the BIS Select Committee that “Rents have responded to the market and have declined by over 20% in real terms since 2008.” Rents are still coming down,

A recent survey of BBPA members found that on average rents across their tied leased and tenanted estates (reflecting c.20,000 pubs) fell by 5%.

A prominent pub sector analyst has commented that the BIS impact assessment fails to reflect higher rents in the free-of-tie market, as reflected by Wellington (a FOT company) charging an average rent of £33k versus Punch Taverns’ £27k and Enterprise Inns’ £31k. “Given the relative quality of these estates, this is consistent with the OFTs conclusion (in 2011) that tied tenants are no worse off than free-of-tie tenants”.

BDMs

I told the Select Committee that in one company, a recent independent HIM! Annual Survey found that there was a real acknowledgement of the improved performance of BDMs, most of which have now completed the Bll training course.

A sample of recent surveys for large companies reads as follows:

Marstons: A recent survey by HIM! found that 72% of tenants surveyed said their BDM was “very” or “somewhat useful” and 68% said that their BDM understood their business.

Punch Taverns: “Does your BRM understand your business”—Punch rated over 70% agreed (an increase on last year) Punch internal survey in late 2012. Over 70% of Partners rated Punch BRM “Good/Very Good”—a significant increase. All Punch BRMs are now Level 4 qualified.

Admiral: 82% of licensees find their BDM useful (43% find them very useful). 25% of our BDMs have already passed the level 4 qualification with the remainder on track to pass over the next six months.

Star Bars (Heineken); the recent HIM! survey found that BDM’s rated as useful or very useful rose by +8% to 76% in the last year. All our BDMs have completed the Multiple Retail Management (MRM) programme and will receive final Bll Level 4 accreditation on 4th July. Our target for all new BDM’s to complete the MRM programme is nine months from joining the business,

Enterprise Inns: In a recent customer satisfaction survey, the proportions of Enterprise Publicans expressing their satisfaction with their relationship with the company and with their Regional Manager were 82% and 83% respectively. Regional Managers have been achieving the Multiple Licensed Premises Management qualification in a rolling programme since 2012, with all Enterprise RMs expected to be level 4 qualified by the end of 2013.

I hope this letter is useful. If you require any further information, please do not hesitate to let me know. I am copying this letter to Jo Swinson MP, Minister at BIS.

Brigid Simmonds OBE
Chief Executive

cc. Jo Swinson MP, Parliamentary Under Secretary of State for Employment Relations and Consumer Affairs

20 June 2013