So what will happen with the beer tie?

By Simon Clarke

- Last updated on GMT

Related tags: Price

'Consumers are suffering from the pubco-tenant debate', say Simon Clarke
'Consumers are suffering from the pubco-tenant debate', say Simon Clarke
Greg Mulholland spearheads the growing number of MPs that recognise the tied model for what it is — a failure. Many MPs have indicated the Office of Fair Trading got it wrong.

Even Ed Davey, the ex-employment relations minister, said at the Business, Innovation & Skills Committee hearing in December: “The model of the pubcos does not appear to be working.”

With all this in mind, how can the consumer not be suffering? Leaving loss of community assets and deteriorating venues aside, retail price must be an issue.

With the exception of JD Wetherspoon, which is passing on some of its discount to customers, there seems little price differential to consumers between tied and free-of-tie pubs because the 30,000 tied pubs set the retail price tone.

For a tied licensee to make his derisory profit he buys a nine-gallon cask from his pubco at say £110 (net of VAT) selling at say £3 a pint (including VAT), making a gross profit before costs of 49%.

The free-of-tie operator can buy the same beer direct from the brewer at £55 a cask. Does he sell at a price achieving the same pitiful return as the tied operator — £1.50 a pint — or sell at the same price as the tied operator and achieve 75% gross profit and a healthy income, allowing him to invest in his business and develop a saleable asset?

It’s a no-brainer, so no wonder many question the OFT’s conclusions.

This massive gap in tied and free-of-tie GP should be fairly reflected in the level of rent paid by the respective operators, a countervailing benefit for over-inflated tied product prices being a lower rent, not just marginally lower, but enough to compensate for the disadvantage of tied prices.

The Royal Institution of Chartered Surveyors’ (RICS) new guidance failed to level the playing field. The Government has identified confusion in the interpretation of rent guidance.

The RICS has referred the matter to the Trade Related Valuation Group (TRVG) to consider how to resolve the situation. Rob May, national rent controller for Enterprise, and a number of the surveyors, deriving big fees from the pubcos, comprise the majority of the TRVG, and there is no tied tenant rep within it.

As new company codes require compliance with the RICS guidance on rent assessment, it is vital this hole is plugged to enable rent assessments to be policed and rents to come into line reflecting the disadvantages of being tied.

Only those benefiting from the confusion would have anything to fear from the rent guidance being worded in such a way as to avoid future bafflement.

The RICS made a commitment to review and alter the guidance if necessary and we await its decision on how to rectify the situation.

Related topics: Beer

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