Small Business, Enterpise and Employment Bill

Supplementary written evidence submitted by Shepherd Neame (SB 49)

We are writing to you, following oral evidence given to the Small Business Enterprise and Employment Bill Committee concerning the Pub Adjudicator and Statutory Code by Mr. Dave Mountford on 14th October and by Mr. Simon Clarke on 16th October 2014, to correct any misleading impressions given about Shepherd Neame.

By Mr. Mountford’s own admission, he is choosing to raise these points because the Chief Executive of Shepherd Neame, Jonathan Neame, is also Chairman of the British Beer and Pub Association.

By way of background, Shepherd Neame is Britain’s Oldest Brewer, based in Faversham, Kent. We own and operate 347 pubs of which 299 are tenanted or leased, and the vast majority of these on the traditional tied tenancy model protected under the Landlord and Tenant Act, with rent reviews every three years and tenants able to issue six months’ notice to quit at any time.

Our constituency MP is the Rt. Hon. Hugh Robertson and he would be happy to be consulted if the Committee wishes for an independent assessment of our contribution to the local economy.

In the company’s recent annual report, we highlighted the improving performance of our tenanted business, after many years of continuous investment during the years of economic downturn. Specifically, we referenced increased business support in areas such as food development, coffee offer and licensee training. Additionally we highlighted investment in our existing tenanted estate was up by 16% to £3.7m for the year ended June 20th 2014. Furthermore, at our financial year end, our estate was fully let, licensee applications were up on the prior year and, independently verified, licensee satisfaction scores were also up.

In answer to some of the specific points made in oral evidence and in the report entitled ‘What’s there to Cheer About?’, we would draw the Committee’s attention to the following:

· Between July 1st 2013 and June 30th 2014, Shepherd Neame appointed 67 new tenants.

· The average tenure for our licensees per pub is 5.4 years.

· Three pubs – The Chequers, Doddington; the Bricklayers Arms, Dover and Chequers, Lamberhurst – were specifically identified as having high turnover of tenants. It is true that the operation of these pubs has been particularly challenging but the implication in the evidence is exaggerated. The facts are as follows:

o Chequers, Lamberhurst : 5 tenants since 2006 (not 8 as stated)

o Chequers, Doddington : 5 tenants since 2007 (the tenant prior to 2007 had been at the pub for more than 20 years)

o Bricklayers Arms, Dover : 6 tenants over 12 years (not 7 as stated)

· We analyse these 16 tenures as follows:

o Ongoing tenants : 3

o Appointed as temporary tenants only : 2

o Transfer to alternate pub : 2

o Personal, family or ill health departure : 4

o Business failure : 5

· Business failure is always disappointing but it would be incorrect to imply that all such failure should be attributed to the behaviour of the landlord.

· Although fulfilling repair obligations is not part of the Code, we have in total invested £126K in these three outlets in the last six years and given full or partial rent reductions on several occasions in each outlet including on occasions charging £1 per week for a period of time to allow the tenant to build the business.

· It is, of course, very frustrating for the landlord when licensees move on quickly, but it is perhaps testimony to the flexibility of the tenanted system that, when circumstances change, tenants can issue six months’ notice to quit and leave the challenge to recruit a new tenant to the landlord. The alternative in situations where a landlord cannot find a new licensee is to shut the pub and so the community loses a vital facility.

· It is alleged that we do not maintain our buildings. We have had one incident, the Chequers, Lamberhurst, where the Parish Council wrote to ask us to carry out work which we have now done. In this particular instance we were in discussions with a third party to acquire adjacent property which may have resulted in a significant development of the pub. Sadly, this did not subsequently materialise. We are in regular and ongoing dialogue with Conservation and Building Inspectors in local Councils about all our pubs.

· Within the report, ‘What’s there to Cheer about?’, it is alleged (p.4) that Shepherd Neame investment level in our estate is reducing. This is wholly incorrect. We cannot reconcile the quoted 2011 and 2012 numbers with any number we have; the 2013 number includes managed house investment and new acquisitions. The investment in our existing tenanted estate for 2014 was £3.7m, up 16% on the prior year, which was up by a similar amount on the year before that.

· In Mr. Clarke’s evidence on October 16th, he states that we put a perceived value of £6,000 a year on the provision of the website. We do not. We cannot find his reference. In our formal submission to the most recent Select Committee Enquiry, we have estimated the total SCORFA benefit to our licensees at £25K per annum including below market rent, discounts on beer, property investment and business support services. With regard to web services, we provide the hosting, maintenance and development of web and social media sites, a helpline, training and marketing advice as part of our overall business support package

· It is implied in oral evidence and in the ‘What’s there to Cheer About?’ report that brewers have increased beer prices significantly above the rate of inflation in recent years. We have not. For the record, our increases (ex duty) are as follows:

Standard Ale Standard Lager

2011 0.0% 0.0%

2012 2.7% 3.0%

2013 1.9% 1.9%

2014 2.8% 2.8%

Furthermore, the excise duty cuts in 2013 and 2014 have been passed on to our tenants in full.

· It is implied in Mr. Mountford’s evidence that Shepherd Neame are in breach of the voluntary Code of Practice, but he has brought no evidence of this. No formal written complaints concerning Code breaches have been lodged with us. There have been no referrals to PICAS and no rent reviews determined by PIRRS. To the best of our knowledge, tenants have relied on third party involvement from Fair Pint in two specific situations, both of which were resolved amicably. Such third party advice and involvement is encouraged by the Code and is not prima facie evidence of bad practice by the landlord.

Shepherd Neame has consistently increased investment and added business support services to our tenanted offer throughout the last few years against a difficult trading environment. During this time we have also introduced significant procedural changes to update our own Company Code and adopt the Industry Standard Code Version 6. We are not 100% perfect nor do we profess to be so but we seek continuous improvement in all we do and pride ourselves in generally having an excellent working relationship and good dialogue with our licensees. Any ‘assertions’ or ‘evidence’ tabled against us should be set against the backdrop of countless discussions, negotiations and actions taking place between the brewery and its licensees every week. In a 2009 survey of our tenants conducted by Elliott People 88% agreed or strongly agreed that they were happy with their relationship with Shepherd Neame. In a 2013 HIM survey 94% of our tenants stated that they think the company ‘sticks to the Code of Practice’.

In summary, we hope that the Committee will find this information useful and will take a proportionate and balanced view based on factual evidence when reaching its ultimate conclusion.

October 2014