Pubcos: case for the defence

Pubco chiefs got to answer their critics last month when they gave evidence in front of the committee of MPs probing how pub companies treat tenants.

The MA has obtained written submissions from the two biggest pubcos, Punch and Enterprise, plus the British Beer & Pub Association (BBPA), and this week outlines their main arguments.

The Business and Enterprise Committee (Bec) wants to know how pubcos have responded to recommendations of the 2004 Trade & Industry Select Committee (Tisc) report. From the pubco giants, the message was: we have listened, we have acted, and ending the status quo would help neither tenant nor pubco.

Pubcos have acted on Tisc recommendations:​

i) End upward-only rent agreements

Both pubcos say they don't enforce any existing upward-only rent agreements and new contracts don't contain the clause.

ii) More flexibility in product choice for tenants​

Enterprise points to the Society of Independent Brewers' Direct Delivery Scheme, which began in 2005. More than 300 breweries supplied almost 1,400 different beers to Enterprise pubs in 12 months. Punch says its range has increased since Tisc. It now offers 79 cask-ale brands, 70 keg ales and 24 lagers. Since March 2006, the number of tied agreements in wine and spirits has halved.

iii) Have an inexpensive and efficient system of arbitration​

Punch says its rent mediation procedure involves an "independent external expert" and is "less confrontational than arbitration". Only if this fails will it go to external arbitration — just 11 cases have been determined by arbitrator in the past 12 months.

iv) Rent concessions should be granted if tenants experience financial difficulty through no fault of their own​

Punch says its focus is on helping licensees in areas such as marketing and developing new income streams. Enterprise says its Code of Practice lets tenants request a rent review if circumstances change — in the year to September 2008, 29 of 37 reviews led to rent reductions. In 18 months to September 2008, around 1,800 pubs received £12m worth of help via discounts and/or rent concessions.

v) There should be clear guidelines for rent valuations and pubcos should provide a breakdown of how rent is calculated​

Enterprise says its rent assessment and negotiation process is fair and open. Only a small number have been referred to independent experts. Assumptions used to calculate rent are disclosed, along with an estimated profit and loss account. However, it rejects Tisc's call for a detailed profit assessment being included on leases. It says calculations taken at the time of review are pertinent, not those used at an earlier assessment.

vi) Pubcos to fund licensee training​

Punch says its 10-day Modern Licensee Retailing course for incoming hosts, priced at £995, offers a "considerable discount". Enterprise has a five-day compulsory Business Foundation Programme for inexperienced newcomers — more than 600 have attended in the past 12 months. Punch's own "heavily subsidised" training courses attracted 2,155 licensees over the past 12 months, the company says.

vii) Support from business development managers (BDMs) should be reviewed​

Punch has restructured its support from BDMs (known as business relationship managers, BRMs). This includes reducing the size of their geographical areas and the number of licensees they support. BRMs have regular performance reviews and appraisals. Punch says a 2008 survey showed licensees gave BDMs an average of 3.9 out of five. Enterprise has invested "significant sums" in training and developing BDMs.

viii) Tenants should receive independent advice before taking a lease as a condition of entry​

Enterprise says in 2004 such advice was made a condition of getting a lease through assignment; all new business plans must be reviewed and signed off by an independent financial advisor. In addition, its new tenancy agreement makes compulsory the use of a qualified trade accountant. Punch has a mandatory requirement that prospective licensees use specialist accountants.

ix) Pubcos should state the discounts tenants can receive, how this compares to free-market discounts and how much discount is passed to tenants​

Punch says: "We do not believe [the average free-market discount] exists, as the freetrade is completely different, with a different set of economics driving it." Enterprise says: "The specific prices paid by [Enterprise] to its suppliers should have no bearing on the decision-making process for a tenant or lessee."

x) The BBPA code of practice to ensure pubcos treat tenants fairly should be updated​

The BBPA says its updated code fulfils Tisc's recommendations — for example, it details the role of BDMs and places more emphasis on dispute procedures, disclosing information and requiring incoming hosts to take professional advice. Punch and Enterprise point to changes to their own codes after they were accredited by the BII Benchmarking and Accreditation Service in 2007. Enterprise says, since its accreditation, it has never been contacted regarding complaints of code breaches.

The beer tie is not the problem​

The BBPA says tenanted pubs would be worse off if the tie didn't exist. "With a fixed rent pubcos would not be sharing the pain of loss of sales and would have little interest in supporting their tenants," the group says.

No more regulation needed​

"The cumulative impact of red tape is damaging the thousands of small businesses that make up our industry," says Punch. The BBPA fears further legislation "could well see pub-owning companies simply operate as pure property companies and withdraw from their flexible approach to business support and investment".

AWP tie is good for tenants​

Pubcos defended support for the gaming machine tie, which the Tisc report urged an end to. Punch says the tie keeps machine standards higher, tenants benefit from economies of scale, and pubcos can monitor income and act if takings slip. Punch also revealed that 32% of its leased and tenanted pubs — 2,442 sites — have no machine tie. Enterprise says 1,696 of its pubs run machines under a deal, introduced in 2007, where Enterprise carries all of the costs associated with AWP provision.