Enterprise is making too many assumptions on tenant takings

By Simon Clarke

- Last updated on GMT

Related tags Profit Enterprise

Clarke: "It’s something other than taxation that is pulling down tied tenants’ profits"
Clarke: "It’s something other than taxation that is pulling down tied tenants’ profits"
Following last week’s piece, “Enterprise claims increased taxation is biggest threat to tenant profitability”, for the sake of balance, a response is in order.

Taxation is imposed on the entire industry. Any brewer’s accounts can reveal like-for-like sales and profits are up — despite the burden of taxation. How can they make it work and tied tenants not? It’s something other than taxation that is pulling down tied tenants’ profits.

Over-inflated tied product prices, and rents that don’t fairly reflect this disadvantage, remain the two factors that brewers with managed houses and free-of-tie operators do not have to suffer.

Enterprise Inns recently stated it “estimates that its average tenant earns £45,000”, the same as last year and a drop of only £2,000 in four years from previous estimates. Even Enterprise acknowledges the pressures on publicans’ profitability — rates, minimum wage, utilities and tax. As Enterprise is arguing that there is an increasing tax burden then it has to concede the publican’s profit is diminishing.

It seems disingenuous for Mr Tuppen to accuse others of hearsay and innuendo when in fact Enterprise’s estimates of tenants’ earnings and average turnover per pub are based on its own sweeping assumptions. Enterprise’s suggestions for sales, gross profits and tenants’ costs are guess work, nothing more.

A recent rent review case showed Enterprise demanding a rent of £80,000, the rent settled at the Pubs Independent Rent Review Scheme being £37,500. The implication is it had over-estimated sales by around double that of an independent expert.

On the basis that Enterprise typically over-estimates sales by double, then the average tenant’s earnings (less the notional living allowance of £10,000) would be about half — £17,500. This correlates much more closely to what we, at Morgan & Clarke Chartered Surveyors, are finding on a daily basis.

Enterprise’s figures for average publican trading performance are estimates, not actual figures — so, in fact, these estimates are ‘hearsay’. What Enterprise had was access to open-book accounting in some pubs. In 2010, Milestone (accountants) conducted work for Enterprise.

Pubs with sales of over £6,000 a week were seeing tenants earning around £13,000 a year. This was revealed around the same time the select committee did its own independent survey finding 67% of all tied tenants earned less than £15,000. These are facts, not hearsay. It would surely be incredible to claim that a tied tenant is now earning more than double the figure of 2010.

Is Enterprise expecting to be taken seriously? It claims that its average pub sales are £7,000 a week, profit is 54% and costs 35%. We don’t achieve this in one of the most affluent areas of London. It is utter make believe.

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