GMB Welcomes New Report Calling For Parliament To Act To Lower Pub Rents To Stop Local Pubs Closing
We need Parliament to legislate the option to allow tenants to buy products on the open market and pay a fair rent for the building says GMB
GMB, the union for tied pub tenants, welcomed a new report by the Fair Deal for Your Local Campaign setting out why Parliament should introduce the proposed statutory code of practice enabling tenants to buy products on the open market and to pay a fair rent for the building. See notes to editors for text of the report Setting the Record Straight: Debunking the myths about pubco reform.
Steve Kemp, GMB officer for tied pub tenants, said "Fair Deal for Your Local Campaign has put together all the key point as to why Parliament should legislate the proposed statutory code of practice to enable tenants to buy products on the open market and to pay a fair rent for the building
The report well and truly destroys any deliberate misinterpretation of the true facts behind the pubco version of the tied model and its habitual abuse.
No one who reads this comprehensive document, using data and information from the pubco’s own figures, can fail to be persuaded that a market rent only option is the only choice that can be made.
GMB welcome this report in the hope that it forces the Conservative Party to recognise the importance of open markets for consumers and the need for a speedy response to this issue to stop even more pubs closing
Highly indebted property companies own over half of Britain’s pubs. These charge sky high rents to tied tenants of pubs pay interest on massive financially engineered debts. These debts are held mainly by bondholders in offshore tax havens.
Interest payments on these huge debts have to be paid each week before the tenant pours a pint and regardless of whether s/he can make ends meet or not.
To pay these sky high rents a pint of lager is on average 80p per pint higher and ale is 65p per pint higher than justified by inflation and like for like changes in taxes since 1987.
This is pricing pubs out of the market and they have closed in droves.
BIS has promised that Parliament will legislate a free of tie option with tenants able to buy products on the open market and pay a fair rent for the building. The aim is to lower sky high rents charged by pubcos.
The Government’s verdict should be available soon following the widespread consultation on the draft statutory code. We need Parliament to legislate the option to allow tenants to buy products on the open market and pay a fair rent for the building".
Contact Steve Kemp GMB on 07730 898 102 or GMB press office 07921 289880
Notes to Editors
Text of Report Produced by Fair Deal for Your Local Campaign in September 2013
Setting the Record Straight: Debunking the myths about pubco reform- with footnotes
The Government intends to introduce a Statutory Code of Practice covering that part of the pub sector where beer ties are used in pub estates of over 500 properties. These proposals will put on a statutory footing the existing, but not adhered to, principle that a tied tenant should be no worse off than a free of tie tenant and that all tied agreements should be fair and lawful. There is also the ability for the Government to introduce an option for tied tenants to choose to be free of any ties and to have their rent reviewed to a fair open market rent at the time of exercising their option.
There is a lot of resistance to the proposals from those pub property companies that would be subject to the regulation and in particular from groups that lobby on their behalf. For far too long meaningful and much needed change has been avoided as a result of misunderstanding and inaccurate claims.
In this document we set out some of the claims that are being put forward by opponents of reform and we answer those objections with our views of the true picture.
1. "The relationship between tied licensees and large pub companies is working fine – there is no need for reform."
There is an immediate need for reform. Around one third of pubs in the U.K. are owned by pub companies – large property companies which lease pubs out to tenants to run as their own business. These pubs are usually contractually obliged to buy their beer only from the pubco, preventing pub licensees from buying on the open market – this relationship is known as ‘the tie’. The fundamental problem is not the tie but, rather, that the large pubcos take too much from pub profits through inflated beer prices and excessive rents. In too many cases tenants are not aware of the high cost of being tied until after they have signed the agreement.
In six years an 11g keg of Fosters from a major pub company has gone up from £107 (ex VAT) to £151, an increase of £44. In the free trade it cost £77 six years ago, it costs £87 today, an increase of £10. The same duty rates apply, the same duty increases apply, the same increased manufacturing costs apply, the same increased overheads apply, yet the price increase to a tied tenant is nearly FOUR AND A HALF TIMES that of a free of tie publican, in six years, for the same product.
A recent survey by CGA Strategy, commissioned by CAMRA, found that, of the survey respondents, almost three in five licensees (57%) tied to tenanted pub companies with more than 500 pubs earn less than £10,000 a year, compared to only 25% of free-of-tie tenants who earn less than £10,000 a year. Compare this to Enterprise Inns’ most recent financial statement in which it was confirmed that their average income per pub is £65,000 a year. The pubco retains the bulk of a pub’s profits. Pubco licensees have no truly independent adjudicator to settle fair rent disputes – which is why legislation is needed.
2. "The relationship between tied licensees and large pub companies is fair, because tied licensees pay less for their rent in return for paying more for their beer."
The latest Association of Licensed Multiple Retailers (ALMR) Benchmarking Survey, published in 2013, showed that tied rents are actually higher than rents for free of tie pubs! Remember, that in addition to the actual property rent (the ‘dry rent’) the tied tenant also suffers the additional charge of the so-called ‘wet rent.’ This is the extra sum they pay to the pubco for beer over and above that which they would pay if they were to buy the beer in the open market. The cost of beer through the beer tie can be as much as 70% more than the open market price.
By way of example, a tied tenant selling 250 barrels (36 gallons each) every year may pay a ‘wet rent’ of up to £50,000 (250 barrels x £200 per barrel of profit lost due to inflated tied pricing over open market price). If they are paying a ‘dry' (commercial) rent of £50,000 then their total rent of £100,000 could easily be at least 25%, or more, of turnover.
According to the ALMR survey the average free of tie pub rent is only 9% of turnover. This enormous disparity helps to explain the extremely high failure rate of tied pubs. Pub companies argue that they secure large discounts through bulk purchase from brewers and pass this on to tenants. This argument does not stand up to scrutiny. In reality, the pub companies reap substantial profits from retaining most or all of the discounts they achieve.
3. "Proponents of pubco reform are trying to abolish the tie."
The Fair Deal for Your Local campaign does not want to abolish the tie – we want to make the tie work in the manner that it was intended, so that it is beneficial and fair to both the tenant and the pub company. The tie has been exploited by pubcos, leading to tied tenants being charged high rents and excessive beer prices. The reform that we seek to introduce would remedy this major issue and allow the tied model to work in the manner that it was intended. This will make the market more efficient.
Figures from the recent CGA Survey, commissioned by CAMRA, indicate that a full 71% of licensees tied to national pub companies expressed negative sentiments about being tied, compared to 49% of those tied to regional pub companies.. We believe that both pub companies and their licensees should be able to agree that this is not how it should be – and that is why we need reform now.
4. "The implementation of a statutory code/market rent only option will damage the family brewers."
The Statutory Code of Practice recommended by the BIS Select Committee and supported by the Fair Deal for Your Local campaign will only apply to companies with over 500 pubs, thereby excluding family brewers since none of the family brewers have more than 500 pubs.
Moreover, the leased tied pubco model is fundamentally different from the traditional brewery tenancy and the two should not be conflated. Traditional brewery tenancies present a lesser degree of risk to the tenant as the often onerous responsibility for repairs, improvements, alterations and insurance is not borne by the tenant.
The Independent Family Brewers of Britain themselves clearly spelled out the difference between these two models in a letter sent to BIS on 4th November 2011 saying “Leases from pub companies are different in law and in practice from Traditional Brewery Tenancies.”
The Fair Deal for Your Local campaign believes that reform would lead to the pub sector no longer being dominated by the big six pub owning companies, and would allow for much wider ownership with more pubs being owned and run by small/micro breweries. Where the market rent only option is exercised then smaller brewers - including family brewers - will have the ability to market their beers directly to the pubs with the opportunity of increasing distribution and market presence.
5. "The pubcos are crucial to the distribution of smaller brewers."
It has been claimed that the giant pubcos are somehow crucial to the distribution of the beers of smaller brewers and that the new proposed Statutory Code of Practice could seriously undermine the distribution of the smaller brewers' beers, leaving consumers with less choice and helping the bigger brewers to larger profits. This is not so. The Society of Independent Brewers Direct Delivery Scheme (SIBA DDS) certainly allows the small brewer access to an ordering system, which enables the brewer to get their product into pubco pubs. But the small brewer delivers the product directly to the pub, not the pubco – and the licensee has to pay inflated pubco prices for it, even when it is delivered direct from a local brewery.
As an example, a cask of 4.9% ABV cask ale costs £64 to a free of tie tenant. Under the beer tie the pubco pay the brewer between £54 and £68 for the keg, depending on the pubco. From that the brewer pays the duty, staff, ingredients, production and premises costs and delivers the product directly to the tenant. The pubco charges the tenant £109 for the same cask ale. The pubco does nothing more than take the order and payment from the tenant – that’s it – and there are no discounts.
Small brewers who deal directly with tied tenants face removal from the scheme if they don’t comply with the terms of the SIBA DDS agreement. In the case of some pubcos brewers are allowed to list only three products and underachieving products will be removed at the will of the pubco. The pubcos also insist on a low price from the brewer (even though they are then marking it up considerably to their tenants) so the margins achieved by both brewers and tenants are heavily eroded.
A market rent only option would see more pubs being able to trade direct with their local brewers – something that both want! The Fair Deal for Your Local campaign is backed by small brewers as well as publicans!
6. "Self-regulation within the pub company industry has worked."
The problem now, as it has always been, is that under a self-regulated approach there is no mechanism in place to restrain the pubcos from abusing their dominant position and taking more than a fair share of a pub's profits. The BBPA has confirmed that it is not empowered to offer provisions that balance risk and reward.
The self-regulatory body that proposes to govern over PIRRS and PICAS has been unable to confirm, despite written requests that it will seek to deliver the Government's commitments of 'fairness' or that a 'tied licensee should be no worse off than if they were free of tie’.
Section 9.3 of the PICA-Service procedure states that PICAS “will not be bound or fettered by the content of any Statement of Agreed Facts or any Statements or Responses placed before it.” PICAS can therefore effectively dismiss a case in its entirety but will not provide the tenant with reasoned findings or any explanation of its final decision regarding a case.
The very fact that the self regulatory process is unable to offer any reassurance that it seeks to deliver the same commitments as Government indicates there is little or no motivation from the pubcos to address these fundamental issues. The absence of such assurances undermines the credibility of the self-regulatory process and relying on any part of it to deliver meaningful progress, even in its perceived state of independence, remains a meaningless exercise.
7. "The price of beer will increase as a result of a market rent only option for 500+ companies."
If tied tenants were able to buy beer on the open market at a competitive price, this would result in a significant saving. The tenant could then choose to offer beer to their customers at a more competitive price or use the increased profit to reinvest back into their business to make it more attractive to consumers.
No credible evidence is in the public domain to suggest that the buying power of the large pub companies (exerting control over supplier access to their estates) results in discounts being passed on to the licensees or the consumer. In any event the bulk buying discount is largely illusory.
In addition, reform would lead to a greater number of beer options for the consumer. London, for example, has over thirty micro brewers, but currently only a very limited number of the beers produced by micro brewers are available on the price lists of pub companies. With tenants being allowed to opt for a market rent only option and to buy beer on the open market, the availability of beers from micro brewers will increase and beer choice will increase as a result, providing the consumer with more choice than ever before.
8. "Pubco reform/market rent only option will lead to decreased investment in pubs."
One of the biggest problems facing tied tenants has been what Amber Taverns boss, James Baer, has called ‘financial doping’, i.e. the chronic and devastating lack of investment in pub estates by the leased pub owning companies due to huge debt levels. This has greatly damaged pubs. Reform that allows licensees to earn a fair deal would allow for much needed investment in pubco properties.
Further, it would encourage capital investment through increased confidence in pubs from the banking sector. The big banks have a bad experience in the tied pub sector. Both Lloyds Banking Group and Royal Bank of Scotland – and therefore the taxpayer – have lost hundreds of millions of pounds by lending to pub companies or owning their own tied pubs where tenant failures have become too high, as demonstrated by the case of Admiral Pubs.
Increased licensee profitability resulting from market rents and fair wholesale beer prices will make it easier for licenses to raise finance to invest into their pubs.
Under a market rent only/genuine free of tie agreement, pub owning companies/brewers will have one revenue stream – rent only – and as rent is established as a factor of profitability it will be absolutely in the interest of the brewer and pub companies to invest in and support their lessees and tenants. Any rental increase will be a factor of their publican’s performance and success – so the pub owning companies’ revenue will depend on it. Unlike other commercial agreements, pubs are valued according to the Royal Institution of Chartered Surveyors’ rent assessment guidance using a 'profits method' rent that is directly related to just the publican’s profitability. So a market rent only/genuine free of tie option would actually increase the incentive for pub owning companies to invest.
9. “More free houses and free of tie pubs have closed than tied pubs."
We are not aware of any study which has been commissioned into the respective closure rate of tied and free of tie pubs. Research company CGA Strategy segments pubs (and bars) into three groups: 'Non-Managed' (mostly Tied but includes Free of Tie leases and tenancies), ‘Managed’ and 'Free' (which includes those tied on products by brewery loans).
In December 2008 CGA reported a total of 62,479 pubs. Their 2012 figures reveal that this number has dropped to around 57,652. Over the same period the Non-Managed, mostly tied, category has dropped from more than 31,000 to around 27,448, a drop of 12%. The Managed and Free categories have remained relatively stable in number, dropping by only around 606 (6%) and 335 (2%) respectively. Shockingly this shows that there are 4,872 fewer pubs in ownership, according to CGA's numbers, and of them over 80% (3,886) were disposals from the Non Managed (mainly tied) sector.
It is clear that the majority of pubco disposals are not finding their way into the other categories and must therefore be closing for good. This clearly reveals that the previous claims by pubco and their lobbyists that free of tie pubs are closing faster than tied is a misrepresentation of the facts.
So in relative terms the 'Free' group has barely fluctuated whilst Punch and Enterprise alone have quietly disposed of over 5,000 pubs in the past four years which equates to selling off one third of their portfolio.
The pub disposal figures reveal the extraordinary extent of pub disposals by the UK’s giant pubcos.
Figures over the last four years, from the pubcos’ own reports, expose the calamitous reality of the pubco business model with a staggering THIRD of pubs owned by the two largest pubcos being sold off in just four years. Enterprise Inns and Punch Taverns, the two largest pubcos, collectively disposed of over 5,000 pubs between 2008 and 2012 – 33.24% of all of their pubs. In 2008 Enterprise Inns owned 7,763 pubs. By 2012 this figure had dropped to 5,720 pubs. The story is similar for Punch Taverns who in 2012 owned just 4,529 pubs (excluding the Spirit managed estate) having previously owned 7,560 in 2008. 
These statistics expose the catastrophic reality of the pubco tied business model as well as clearly demonstrating the effect this business model has on the viability of pub businesses - and that it is causing thousands of pub closures up and down the country. No other part of the pub sector has seen disposal levels of anything like this, showing that it is the large, leased pubcos and their restrictive tied model, that are failing on a unparalleled scale. This is also in stark contrast to the many smaller pub companies who are succeeding, increasing their figures and taking on pubs – notably they operate completely different business models.
10. "More pubs will close as a result of pubco reform / market rent only option, leading to thousands of job losses."
There is no substance to this claim. Pubco reform will increase licensee profitability, decreasing the number of pubs that close and boosting investment which creates jobs.
In fact it is the absence of a Market Rent Only option that leaves tied tenants vulnerable to strong arm eviction tactics by pub owning companies. The provisions of tied leases and tenancies enables pubcos, brewers and developers the opportunity to circumvent Landlord and Tenant Act 1954 security of tenure protection, simply by inflated price of tied products and limiting the product choice.
This 'loop hole' makes pubco tied pubs prime targets for redevelopment to alternative use, as vacant possession can be easily achieved, something not so easily done if the tenant has the option to go free of tie. With this in mind it is easy to see why the pubcos are in full swing disposal mode, Punch and Enterprise Inns having quietly disposed of almost a third of their estates in the last 4 years, over 5,000 pubs in just two pub companies.
So a market rent only option, as well as allowing licensees to make a fairer living, thus making many more pub businesses viable, would also make it harder for the pubcos to force tenants out and shut pubs for alternative use.
11. "Pubco reform/a market rent only option will have a negative impact on the British economy."
We don’t agree. Reform proposes to rebalance the risk and reward for licensees improving their chances of profitability. In fact, more viable/profitable pub businesses would have a very significant positive effect not only on the local economy but on the UK economy. There would be a notable effect on the national economy as much more of the pub profit would be circulated and reinvested compared to the current situation where the indebtedness of the big pub companies means much of the turnover is simply used to pay off the pubcos’ unsustainable debts. In addition, enabling publicans to act as entrepreneurs would bring about increased confidence in 25,000 small businesses and help create jobs.
12. "Reform/market rent only option will lead to the dominance of international brewers in pubs."
CGA Strategy Outlet figures indicate that there are around 20,000 'free' pubs. If international brewer dominance were a threat it would have already happened - and it hasn’t. Indeed, free houses typically serve a wide range of beers including those from microbrewers, especially ones local to pubs. This reduces ‘food miles’ i.e. the distance from brewery to pub, which is good for the environment.
In fact, it is the main pub companies’ relationship with the big brewers that has led to market dominance in the tied sector preventing over 800 microbrewers from accessing tied pubs. Recent statistics published by the British Beer & Pub Association indicate that though UK beer sales are falling, many brewers are experiencing record sales – such as the Hog’s Back Brewery who have recently signed up to Fair Deal for Your Local, which recorded a 30 per cent growth in sales for the first few months of this year and Ilkley, which increased its brewing capacity by 33 per cent. If international brewers threatened to dominate pubs with reform, then they would be doing so already in free pubs – but that is clearly not the case.
13. "Reform/market rent only option will lead to the closure of some breweries."
It is not accurate to suggest that the giant brewers – Marston’s, Greene King and Heineken, the only ones to be covered by the Statutory Code – would somehow become unviable. These three breweries profit considerably from their managed pubs as well as selling their beer to the off trade and to free-of-tie pubs and it is inconceivable that reform would lead to their collapse. In addition, as stated before, no family brewers will be affected by the Statutory Code since the code will only apply to companies with over 500 pubs, which does not include any family brewers. Further, past reform has not hampered the ability of breweries to thrive. Prior to the 1989 Beer Orders, the big six breweries provided 75% of beer volumes; today, we have the big four breweries producing 76% of beer volumes.
There are over 1000 brewers in the UK brewing in excess of 6,000 individual brews. The current dominance of the pubcos in the beer wholesale market creates significant barriers to entry for the majority of these smaller brewers who can only supply their products to pubco tenants if they are on the pubcos’ exclusively restricted product lists. Punch Taverns and Enterprise Inns combined list is perhaps less than 8% of the total number of beers that would otherwise be available on the open market. A substantial number of products from small and regional brewers are simply not available to their own tenants. A truly open and competitive market will provide plenty of scope for local and regional brewers to promote and distribute their products resulting in enhanced choice for the publican and the consumer.
SIBA list a total number of cask beers in the market as 10,401. Perfect Pint estimate that the number is closer to 13,577. One Enterprise Inn tenant reported to have access to 97 cask beers trough 35 brewers on the ETI listing, 141 cask beers through 45 brewers on the SIBA DDS list and 1542 cask beers through 210 beers on the Flying Firkin list. However, they added that Flying Firkin were offering a special concession which they did not think that many had access to.
The evidence of this is straightforward. The 2012 Annual Report of Greene King, the largest brewing pubco, cited its aim to reduce the size of its estate while simultaneously growing its brewing operation. The report stated that they “will continue to target [pub] disposals during the year to continue the estate reduction plan and reach around 1,200 sites in 2014 [from over 1,500 in 2011]. [...] For Brewing & Brands, the key priorities are to grow our core brand volume and market share.” Clearly, brewers are not in danger of closing, as Greene King’s report itself states.
14. "Reform/market rent only option will lead to a decrease in tax to the Treasury."
Reform would see more tax (income tax, employers’ tax, VAT, etc. plus a potential for more tax on a higher volume of sales as the market rebuilds in a fairer environment) paid as a result of many small businesses making a reasonable bottom line. The Pubs Advisory Service has indicated that it would also see a huge reduction in the amount of tax credits currently being paid to tied licensees, projected as being over £30m per year. If bankruptcy debt write off is factored into local authority business rates and HMRC from failed pubs, this equates to close to £1 million per week. In addition, fairer prices to licensees would lead to lower prices for consumers, which would in turn lead to more beer sales and increased beer duty revenue.
15. "There are only a small number of people calling for pubco reform."
There is actually broad-based support for pubco reform. A recent survey conducted by CGA Strategy for M&C Report’s Tenanted Pub Company Summit found that 94% of tenants supported a Statutory Code of Practice. In fact, the majority of licensee organisations formally support the proposals, as do CAMRA, who have 150,000 members and represent consumers. Support comes from the two leading small business organisations and from the two leading trade unions involved in the pub trade.
The Fair Deal for Your Local campaign, campaigning for a fair deal for pubco publicans, is supported by ten pub industry organisations who have come together on this issue: The Federation of Small Businesses, The Forum of Private Business, CAMRA (The Campaign for Real Ale), the GMB trade union, Fair Pint, Licensees Supporting Licensees, Licensees Unite the Union, Justice for Licensees, The Guild of Master Victuallers and Pubs Advisory Service. All are campaigning for the market rent only option which will mean positive change for pubco publicans, pubs and the communities they serve.
The Fair Deal for Your Local Campaign
 Major pub company price list March 2006 and March 2013. Free trade prices quoted from Redsky Express Wholesalers price list August 2006 and August 2013
 Enterprise Inns Accounts September 2012
 From Simon Clarke, Campaign Manager and Secretary of Independent Pubs Confederation
 Peter Luff’s press release - September 2013
 Free of tie prices taken directly from supplier invoice - September 2013
 SIBA DDS Price List - Price Paid to Brewers by all pubcos - April 2013
 Pubco prices taken directly from Enterprise Inns price list - March 2013
 Confirmed in a freedom of information request submitted by Greg Mulholland MP
 From Simon Clarke, Campaign Manager and Secretary of Independent Pubs Confederation
 PICA-Service Procedure 7th January 2013
 Figures taken from Enterprise Inns and Punch Taverns annual reports available online, 2008 Ent Inns 7763 and Punch 7560 by 2012 Ent Inns 5720 and Punch 4529
 Tenant of Enterprise Inns and Fair Pint campaigner
 Pubs Advisory Service