Sunday, April 17, 2011

From Some Time Ago:

Open letter to the Chief Executives of Pub Co's in the UK
Why spend £1.13 on a bottle of Becks when you could get it for 49p? Ending the Feudal system of Tied Pubs in Britain

I pay £26.67 for a case of 24 Becks. Sainsbury’s sell it for £11.99. Why do I do this?

Because I’m part of a little recognised Feudal system that still operates in this fair isle. I have a 20 year tied lease on a pub called The Sun and Doves. I've been running the pub for ten years. In this time we've won awards for being one of London's best bars, best value food, and for being child friendly. We've had national and international press for exhibiting art, oh and lots of other coverage for things we do, just because we work hard and try hard. We try to be good at what we do.

September 25th 2005 is the date of my second rent review. My Freeholder is looking to increase my rent from 54K to 82K. Why? Well, why not try? Because they can. I will dispute my rent increase but it will cost me a lot of money and we’ll end up settling on something in the middle that, really, I can’t afford to pay.Towards the end of 2004 the Dept of Trade and Industry held a series of Select Committee Hearings into the relationship between PubCo’s and their Tenants. It got a lot of press coverage but did not change the tied system much. This is a little bit of detail of what it’s all about. The tied lease is an outrage I’ve been studying for ten years through immersion therapy. It affects about 80% of all pubs in Britain but not many lay people know what’s going on. It’s why beer in pubs is so expensive and also the main reason for your noticing dilapidated, falling apart and run down pubs all over Britain. Since our 2000 rent review - when rent went up from 32K to 54K - our turnover has dropped more than 200K a year largely because of hugely increased competition for exactly the market we opened up in 1995.Since taking on the lease in 1995 I have spent over 200K, and remortgaged my home, on improving the premises - and making the business what it is. Before I took over the building the pub was turning over about £1,500 a week. Now it’s more like £15,000. The Freeholders have not spent a penny, have never given product support, training, loans or any other kind of help you might expect would be available to a business that sells large amounts of beer.My nominal Freeholder is Scottish & Newcastle Pub Enterprises (S&NPE) although the pub is part of an estate owned by Royal Bank of Scotland that's managed by S&NPE. A 'tied' lease is where the Freeholder 'nominates' the brewery that the Lease holder (tenant) must buy beer from . In our case the nominated supplier is Scottish Courage (owned by S&N plc). The price of beer bought through the tie is then set by the Freeholder rather than the brewer.IN EUROPEAN LAW tied business of this kind is not allowed. Article 85, I think it is, states something along these lines ‘unless ‘counterveiling benefits’ provided by the Freeholder outweigh, or measurably balance against the increased costs of purchasing a product through a tied agreement’. Some franchises for example provide substantial support such as business and product training and brand advertising.The price of beer set by the Freeholder is marked against the brewers ‘national wholesale list price’ at a discount. The amount of discount is not negotiable and generally applies across its estate whether one or one thousand barrels are bought by a tenant.The Freeholder has a call centre which takes beer orders from its estate which are processed to be delivered by the brewer. In return for this service the Freeholder becomes a purchaser and benefits enormous volume discounts on the beer bought through the estate. The beer is sold at a much higher price and gives the Freeholder an income stream in addition to rent.In our case S&NPE our ‘discount’ is £42.26 per brewer’s barrel (36 gallons). In practice this ‘discount’ is a ruse established by the large national Freeholders (Punch, Unique, Enterprise, S&NPE etc) working together (as they always do when it comes to rent and beer prices) to establish that the tie is not in contravention of European Law.If we were free of tie, on our current barrelage (300 a year) we could get a volume discount from Scottish Courage - note same supplier we use now - approaching £100 a barrel. We are paying what amounts to around 30K to 40K a year more for our beer than we would if we were not tied. no one ever pays a full wholesale price for beer because no one ever is charged this rate.In a free of tie pub, the Lease holder or owner would negotiate a discount off the national full list price through a combination of shopping around between brewers to get the most competitive deal against the amount of beer that the outlet sells (the volume). At this point the brewers would also discuss the amount of product support (free stock) and direct financial support available to help strengthen sales and increase volume.S&NPE recently won the Publican ‘Pub Company of the Year’ award. An industry prize to the company that shows the most forward thinking and so on stuff in the business. S&NPE’s boss was proud to get the awards and said it was the result of their continual investment in the estate and their dynamic partnerships with their tenants. Baloney.

No comments:

Post a Comment