Enterprise chief believes pubco model will still be around in 10 years

Enterprise Inns has around 7,700 pubs in the UK, with all but a 100, operated under a tied agreement. Here Simon Townsend, the company's cheif operating officer answers our questions on the current model.

What are the benefits of being tied?

There's clearly a lot less initial capital investment. And in tougher trading conditions tenants and lessees are more likely to be supported by a landlord than they are by a bank. Banks are calling in their lending, but clearly we have a vested interest in a pub continuing to trade successfully.

And in terms of price increases for beer, if you are a freetrader you are always subject to them. But with us it's only once a year. There are those who say in tough times the tie makes it tougher, but I would say that because our interests are aligned in tough times, we share the pain, as we make less wholesale margin. In The Publican's Market Report 72 per cent of tenants said they would rather pay more rent and go tie-free - does the size of that figure surprise you?

No, it doesn't. I would imagine those who would respond to something like that are the ones who are selective and want to pay less for their beer and more for their rent. But, we have an agreement - the Retail Partnership Agreement - which has exactly that option. And the number who choose the higher rent, lower beer price option is in single figures. The whole point of it is your rent is a fixed cost, but your beer price is variable.

That's hugely important: it supports the whole value and the benefit of the tie. It aligns the interest between landlord and tenant to a massive degree and particularly in tough times when beer volumes might be falling.

One of the criticisms from the Fair Pint campaign is that the recommendations from the 2004 Trade & Industry Select Committee inquiry have not been met. How do you respond to this?

We think that's totally wrong. It's a completely flawed criticism and I don't think it's supported by the evidence. In relation to Enterprise I'm very satisfied we made a formal response.

There were, however, some areas we disagreed with. For example, the recommendation relating to range of drinks. I would say that the range that Enterprise offers is probably the most extensive in the entire marketplace.

What do you think the outcome of the Business & Enterprise Commitee (BEC) review will be?

We need to be clear what it is. This is a review of the outcome of the previous review.

From Enterprise's point of view, I'm happy with the performance of the organisation in relation to the previous review and I'm satisfied our business has progressed in line with the recommendations, where we agreed with them. But I'll be very clear about one recommendation where we disagreed with them and that was the freeing up of the machine tie.

We hear from many licensees who are not happy with their tie deal - are things fully explained before they sign up?

I absolutely believe our agreements are clear, as well as our code of practices which make clear the obligations we have. We also provide a complete guide to the letting and assignment process. We expect a licensee to take their own legal advice and we also require them to take financial advice. Do you think the current pubco model will still be around in 10 years time?

Absolutely. At its heart the whole tied and leased model only works if it works in the best interests of all the parties involved. I passionately believe it does do that. Our interest is having good, profitable, open trading pubs and I think the model, managed effectively by both parties, is the best possible way to continue to operate the majority of pubs in the UK.

The Market Report shows tied licensees are paying £26 more for a barrel of beer than freehouses but anecdotally we have heard this figure can be as high as £100 - how do you justify the price difference?

The whole price that a tenant or lessee pays is clearly prescribed in advance, in writing, in full as part of the contract they enter into. Whatever price difference is there and has always been there and is completely transparent and declared up front.

For a freetrader, obviously the model is different. They had to go to a bank to borrow half a million quid to buy the pub. We've had to find the capital to buy the pub against which we will then establish beer prices. You really can't compare the discounts people receive. They aren't designed to be the same, it's a different business model.

For a tied tenant who feels they are disadvantaged then perhaps the answer is to go buy a freehouse.Would you run a tied pub?

Definitely - I wouldn't be doing the job I do if I thought I wouldn't, shouldn't or couldn't.