Is the grass greener on the other side?

It would appear the recent government defeat brings MRO one step closer to reality. The focus now inevitably turns to what will it mean, not just for the industry but for licensees and of course the consumer.

The sanctioning of MRO was welcomed by many in the trade, particularly those who’ve campaigned vociferously for much needed reform to the pubco’s rapacious modus operandi.  ​

Unsurprisingly, the major brewers and pubcos have been somewhat less enthusiastic. If the BBPA’s chief executive Brigid Simmonds is to be believed, pubcos won’t be incentivised to invest in their estates; resulting in additional pub closures and job losses.  

It seems some in the mainstream press have swallowed this hook line and sinker. Allister Heath writing in the Daily Telegraph​ states, “Far from helping small landlords and improving the diversity of beer and food on offer, the so-called “market rate option” for tenants will lead to yet more public houses closing and accelerate the catastrophic decline of a once great British tradition”.

So let me get this right. Empowering tenants with the ability to pick and choose which beers to sell and allowing them to develop their businesses so as to reflect the needs of customers will somehow result in 1,400 more pubs closing? I’m sorry, but I’m not seeing it.

Such scaremongering shouldn’t fool anyone. It is something we’ve long been accustomed to hearing from an organisation that finds itself increasingly on the back foot.   

Select Committees​

Let’s not forget that since 2004, four Select Committees have convened to look into the way pubcos treat their tenants. A whole host recommendations have been put forward, all aimed at ensuring greater protection for licensees. To date none have been implemented.

It’s obvious to all the industry has been content to drag its feet in the hope everyone would eventually lose interest and move on. Thanks to a small number of committed reformists, as well as the dedicated efforts of a certain group of MPs, pressure has remained intense; ensuring the plight of pubs and licensees remains at the forefront of media attention.

What everyone now finally recognises is that above all else tenants need flexibility – being dictated to in terms of what they can and can’t sell is no longer a viable option. 

Without MRO large numbers of tied pubs will continue to close. One of the primary reasons for the high rate of closures is the failure of tied pubs to meet the expectations of customer, both with regard to product range and price.

For this unenviable legacy licensees can thank their supposed ‘partner’. The reality is that pubco price lists are not a reflection of current consumer demand, rather a testimony to the products which guarantee the best returns.  

Tenants by contrast need to offer products customers want to drink not products pubcos want them to sell.

This conflict of interest illustrates the extent to which decision making is pubco-driven not market-driven; a mind-set that goes a long way to explaining the demise of so many tied pubs.  

The implications of this are all too apparent. The current arrangement incentivises both pubcos and brewers to hike prices, enabling pubcos to profit handsomely as a result of the tie whilst allowing big brewers the opportunity to offset the financial impact of falling volumes as micro-brewers make substantive inroads into a declining market.  

It also ensures tied tenants are unable to compete with their free-of-tie counterparts or supermarkets. In fact quite the opposite – the annual beer price hike, to which tied tenants have become accustomed, merely ensures the price differential between tied pubs and the rest of the market continues to widen. When you factor in the added obstacle of restricted product range it’s not difficult to see why so many tied pubs are falling by the wayside.

Of course, pubcos maintain the tied tenant is compensated by a below market rent. The feeling amongst many tied tenants I’ve spoken to is they’re paying a market rent as well as inflated prices for their products.

Little wonder so many see so little reward for so much endeavour.  

The New World​

The arrival of so many new brewers and beers on the scene illustrates the extent to which the archaic tied model has lost touch with the realities of a rapidly changing market place. The BBPA is stuck in a time warp – content to continue promoting a business model that is simply no longer unsustainable.

In the halcyon days when consumers felt less inclined to question the need to go to the pub, the range of products on offer were perhaps less significant. Those days are long gone.

The customer has evolved to become much more discerning, far more choice orientated.

A cursory glance at the range of products on supermarket shelves tells us two things – how far the world has moved on and the extent to which tied pubs have been left trailing in its wake.

Contrast the supermarket offering with a visit to a tied pub. As you enter you’ll be confronted by many of the branded fonts you’d have seen twenty years ago. The tied pub is quite literally a place where time has stood still.

The problem is that in today’s world there’s no place for institutions that fail to move with the times. A stroll down any High Street testifies to that fact all too vividly.

What I find particularly puzzling is that whilst the BBPA are quick to cite all manner of reasons why pubs have become less attractive, (supermarket pricing and the recession) they refuse to acknowledge that it is those very factors that dictate reform is now inevitable.  

Is it not odd that an organisation that purportedly represents pubs seems so bereft of ideas? Little wonder Greg Mulholland labelled them “thoroughly discredited and not trusted in Westminster”.

So, assuming it comes into being, what will MRO ultimately deliver?

Fledgling brewers​

MRO will give fledgling brewers access to hitherto closed markets, enabling them to invest with confidence and giving additional momentum to the unprecedented growth achieved thus far.  

In fact there is evidence to suggest this process is already underway - many micro-brewers are already widening their distribution network by swapping beer with counterparts in other parts of the country.

MRO will give impetus to this process, allowing it to be expanded and refined.

Licensees ​

Needless to say, Brigid Simmonds has been keen down to play down the significance of MRO.

If she’s to be believed then “the grass is always greener – this could not be more true for proponents of free-of-tie who maintain their beer would be automatically cheaper and the choice wider. This is not necessarily true and if it was, it is highly likely that they will be tied to a different distributor or wholesaler, who in return for cheaper drinks will insist on loyalty to their brand or range of products”.

The reality is MRO will give licensees what they’ve desperately needed for some considerable time - unlimited access to the full range of products currently available to their free-of-tie counterparts.

In addition market conditions will be permitted to prevail, allowing licensees to negotiate prices/discounts with brewers keen to grow market share. The price at the pump will reflect the market not extortionate mark-ups applied by pubcos desperate to service unenviable debt mountains. 

(It’s possible licensees could take a leaf out of the pubco book by coming together to form buyers’ clubs – thereby increasing their negotiating power). 

Once licensees begin to make a decent return, they can begin to legislate for the long-term rather than the day-to-day existence that is the current reality for many. The confidence generated will convince many to begin investing in their businesses, re-assured by the fact that they’ll be the primary beneficiaries of any additional turnover derived from that investment.

Consumers​

Consumer perceptions of tied pubs are frequently negative – limited choice and eye watering prices at the pumps invariably result in many being spurned by cash strapped consumers in favour of cheaper alternatives.

MRO will put pubs on an equal footing; ensuring a level playing field so that all licensees have the opportunity to be competitive.

This will in turn benefit the consumer.

Freed from the constraints of the tie licensees will be able to focus on utilising their undoubted entrepreneurial skills, making their businesses attractive to new clientele rather than fighting protracted battles with their so called ‘partner’.

This will in turn benefit the consumer.

So, is the grass greener on the other side?

In an industry where corporate greed has been permitted to hold sway for far too long, the answer to that surely has to be an emphatic yes, doesn’t it?