Statutory Code: Price estimates too low, warns ALMR

16-Jan-2014 - Last updated on 16-Jan-2014 at 09:10 GMT

ALMR: The current self-regulatory regime 'has not provided a sufficient check'

Pubcos may have to transfer “considerably more” in profits to their tied tenants than the Government estimates — up to £20,000 per pub — under the proposed statutory code, according to the Association of Licensed Multiple Retailers (ALMR).

The ALMR has warned the Government that it has underestimated the difference between tied and free-of-tie drinks prices, overestimated the value of Special Countervailing or Financial Advantage (SCORFA) benefits and needs to take into account machine tie calculations.

The Government hopes to transfer £102m from pub companies to tenants under the statutory code, which proposes measures such as mandatory free-of-tie and guest beer options.

The ALMR said a “snapshot survey” of its members with tied leases found that, on average, tied prices are 40% to 45% higher, depending on the landlord. The Government has put the figure at 30%.

Margin difference

The trade body said that for an average barrelage pub, of 200 to 300 barrels, the margin difference between a tied and free-of-tie price for wet products is £36,000.

In its response to the Government’s consultation on the statutory code, the ALMR also queried estimates of the value of SCORFA benefits. It said £1,500 to £2,000, rather than the £6,000 to £7,000 valuation in the Government’s consultation, would be a realistic figure.

There was also a margin difference of £7,000 per pub site, on average, where the machine income was tied, the group said.

The ALMR said more can be done to require greater disclosure of “justification and evidence” to support rental assumptions.

It said the current self-regulatory regime “has not provided a sufficient check” and it’s been “impossible to secure effective enforcement” by the Royal Institution of Chartered Surveyors, although the trade body said version six of the UK Pub Industry Framework Code “did make a great deal of progress in this area”.

Rent assessment regulation

The ALMR said: “Regulation of the rent assessment process remains the key to rebalancing risk and reward.”

The group also added: “Enshrining in law the key principle that a tied pub tenant should be no worse off than a free-of-tie tenant and regulating the rent assessment process are the most effective means of delivering immediate benefits to all lessees.”

Submissions to the consultation were published by the Department for Business, Innovations and Skills before Christmas.

The Government said that it would be delaying its response to ensure “careful consideration” of the submissions. Read more of the submissions here.