This most difficult and complex issue in the pub industry probably hasn’t got any easier after a landmark victory in parliament yesterday for anti-PubCo campaigners. But whatever your views, no one except the campaigners has come out of this looking good.
I’ve not written much about the long-running battle between the biggest pub companies in Britain (pubcos) and the publicans who feel ripped off and/or abused by them. I’ve taken no joy whatsoever in writing about it when I have. It’s the most emotive, bitter and unpleasant issue I’ve come across in my time as a beer writer, and beer writing is meant to be a joy.
THE BACKGROUND
If you don’t know the history of this dispute, here it is in brief (if you do, skip to the next bit). For most of the twentieth century, pubs were owned by the breweries that supplied them with beer. Breweries paid for things such as upkeep and decoration in return for the pub not selling anyone else’s beer but theirs. (There’s more in my book Man Walks into a Pub on how this came about). In 1989, the government decided this was anti-competitive, and passed the Beer Orders, which severely limited the number of pubs any one brewery was allowed to own. Thousand of pubs instantly hit the market, and were bought up by investment banks, repackaged, split up, parcelled out, and eventually came under the ownership of a few big pub companies accounting for about half of Britain’s pubs.
These pubcos were not tied to any one brewery, but many felt that the situation was even less openly competitive than it had been before: pubcos could drive hard deals with the brewers that supplied them, and the range of beers in a typical boozer actually shrank. Instead of Whitbread beers in Whitbread pubs, Courage beers in Courage pubs and so on, the same big national brands were installed wherever you went. And crucially, from a publican’s perspective, the pubs were still tied – not to a brewery, but to a property-owning company which had astonishing debts after buying thousands of pubs just at the time Britain’s leisure habits changed and we started doing most of our drinking at home.
The tied deal offered by a pubco looks good on paper and, to be fair, does seem to work for a lot of publicans. The pubco makes its money via a combination of property rent and the purchasing tie. In theory, someone with not much capital to invest and not much experience in the trade can go into a pub on a low rent, but the company makes the money back by selling stock to the pub at inflated prices, above the market rate the publican could buy the same stuff for elsewhere. But the publican still makes money, because the pubco is a business partner offering help and advice, takes care of the repairs and so on, and the combination of rent and tied stock prices works out OK over the year, optimised to work with things like projected cashflow.
That’s the theory. And it is important to repeat that this model seemingly works perfectly well for thousands of happy publicans. But it is also undeniable that this system has been abused by the pubcos, if not on a systematic basis, then certainly at a widespread enough level for it to be seen as a pattern rather than an aberration. I’ve spoken to many publicans who feel they were misled when signing their leases, given false information about how profitable the pub was before signing up to how much money they would pay over, being made liable for essential and costly repairs they weren’t told about, or punished for succeeding by being given eye-wateringly high increases when rent review time came around.
While many campaigners will vehemently disagree with me on this point, it’s my belief that the worst excesses of the pubco abuse are in the past: they have cleaned up their act, because they had to – they simply couldn’t carry on getting away with it. That’s not to say problems and disputes have gone away – far from it – but the pubcos are not taking the piss like they once did.
THE CRUCIAL VOTE
Anyway, there’s a Bill going through parliament that sets up a statutory code to regulate the dealings between pubcos and their tenants and lessees. Naturally, the pubcos oppose this, and have lobbied for it to be as light on them as possible. But the campaigners, facilitated by self-styled pub champion Greg Mulholland MP, requested an amendment to the bill that would make it mandatory for pubcos to offer a ‘market rent only’ (MRO) option, effectively allowing any tenant to rent a pub from them free of tie. Yesterday, MPS voted to include that amendment in the Bill, after many were swayed to vote against party lines by a campaign from pubco opponents. (Apart from its importance to the pub industry, the vote was significant for being the first government defeat in a whipped vote since the coalition came to power in 2010).
Of course the Bill still needs to be passed into law with the amendment intact, but the rush of reaction from both sides after yesterday’s vote makes it seem like everyone expects it to survive.
I don’t have a coherent point of view on this, and for a more knowledgeable insight on what this might actually mean for the future of the pub market you should read an insightful blog by a level-headed, balanced publican – but even he can’t say what will happen for sure. But I do have some disconnected observations…
1. This is a remarkable victory for the campaigners
Whether you agree with them or not, this is a grassroots campaign that has convinced politicians, upset the government and triumphed over some powerful lobbying groups. I’ve criticised the campaigners in the past for being too emotional, too aggressive, and alienating those who could be supportive. All that evaporates in the face of a coherent, well-organised campaign with just the right amount of emotive force.
2. If they really were being fair, I don’t understand why the pubcos are so upset
This is entirely due to my naivety about the mechanics of the deal, and I have no desire to be educated on it in more detail than I already know. Sometimes naivety can be a good thing. If pubcos make their money via sliding levers, moving rent up and tied stock prices down and vice versa to get to the deal that works best for both parties, then surely they will be no worse off? If someone wants a market rent only tenancy, I’m sure that market rent will be much higher than what they currently pay. If they don’t like it, they can stick with a tied deal. If the tied deal is as fair as the pubcos say it is, surely most pubco tenants will stick with it, and if they don’t, the pubco won’t make any less money from a market rent only deal? As Stonch points out, they already do offer market rent-only deals to some operators – at very high market rents. What does this vote change apart from offering that option to more people?
3. CAMRA’s response is a little disappointing
Within an hour of the vote, I received a press release from CAMRA claiming the credit for the vote. The statement begins “CAMRA is delighted that, after ten years of our campaigning, MPs have today voted to introduce a market rent only option for licensees tied to the large pub companies – a move that will secure the future of the Great British Pub” and ends “Thank you to the 8000 CAMRA members and campaigners who lobbied their local MP to help make this happen and to those MPs that voted to support pubs. CAMRA are now urging the Government to accept the outcome of the vote.” I’m not saying CAMRA didn’t help in this campaign – they played a significant role – but to imply this was their campaign, and theirs alone, doesn’t make them look good. As a CAMRA member, I can’t recall receiving any communication from the organisation urging me to support the campaign. (I’m not saying they didn’t send me anything, just that if they did, it wasn’t noticeable.) In the week running up to yesterday’s vote the activity from grassroots groups such as Fair Deal For Your Local was unmissable across social media. @camraofficial, by comparison, issued one tweet on November 12 urging its members to lobby their MPs to support the amendment. Of course CAMRA played a key role, but it was one of many groups, and I find it disingenuous that they were so quick to claim all the credit.
4. The BBPA’s response is even more disappointing
The BBPA describes itself as “the leading body representing Britain’s brewers and pub companies”. Most of the time, this means it is the official voice speaking on behalf of the whole beer and pub industry, and when it does so, it does an increasingly effective job. Unlike many pubco campaigners I don’t see the BBPA as The Enemy. I have worked with them in the past and hope to do so again. I even count several people who work there as friends. But yesterday’s press release in response to the vote was unbecoming of them.
Simmons also says, “This change effectively breaks the ‘beer tie’, which has served Britain’s unique pub industry well for nearly 400 years.” As someone who has written a history of beer and pubs in Britain, this came as a great surprise to me. If the beer tie has been around for nearly 400 years, that means its been around for longer than the big breweries that invented it: large scale commercial brewing only really became the dominant model of British beer in the mid-eighteenth century, after the industrial revolution. While tied pubs may have existed in the seventeenth or eighteenth centuries, they didn’t become the norm until the late nineteenth century, when beer consumption peaked and brewers floated on the stock exchange to buy up the pubs that sold their beer. The tied house system was only the norm for a century or so, and even then, ‘serving the pub industry well’ surely has to be questioned as a statement. It’s always been problematic, always been fought against, never perfect.
UPDATE
I just found the London Economics report on which the scary pub closure figures are based. I’ve only got time for a quick scan as I really do have other work to be getting on with. But it seems to me that the reason they are forecasting MRO would lead to pub closures is that Britain is currently oversupplied with pubs – essentially, it’s saying pubcos are currently managing to keep pubs open that would otherwise close in a freer market, pubs where under the current system neither pubco nor publican are making enough money. It doesn’t seem to be saying at all that a given MRO pub would be worse off than it is now because it goes MRO.
They may be right or wrong about this – pubco campaigners believe they are definitely wrong. I believe there is some truth to the idea that struggling and poor pubs will fold if they’re subject to free market pressures. But I can also point to countless examples of failing or underperforming pubs that have been shed by Enterprise or Punch and are now thriving under new ownership and a different business model.
The most crucial point though is that the London Economics study models the number of pubco pubs that will close. It does not project closures on a total pub market basis. It’s undeniable that MRO will accelerate the rate of disposal of under-performing pubs from the pubco estates. But what the pubcos and BBPA fail to point out is that London Economics “estimate a third of these would re-open under alternative management.” So that makes the 1400 pubs and 7000 jobs claim dishonest on two counts: as well as this being only the highest figure within a wide range, these are not net closures in the pub market as is currently being implied; rather, they are modelled net loss closures to the pubco estates – not to the economy as a whole. If we take into account London Economics figures for reopenings under alternative management, the report is saying that, net, between 462 and 924 pubs will close, not 1400, with between 2442 and 4620 job losses, not 7000.
The London Economics report speculates that MOR may lead to
the end of a large scale tied pub system – not that it definitely will. And even if it does, it suggests that “This, however, may not be as disastrous as it initially sounds.” (All quotes from Executive Summary of the report, page vii).
The ‘government’s own research’ that is being wheeled out in today’s papers to signal the death knell for the British pub isn’t quite saying what the BBPA and pubcos would like you to think it is saying.
Again, if I’m getting the wrong end of the stick here I welcome clarification and correction from anyone more familiar with the issue than I am.
My concern is that the Pubcos will try to contractually oblige landlords to stock specific products as result of deals with the mass producers. Pubcos may not be able to make percentages off tied sales but they could still take fees from producers for listings. I don't know if this has been dealt with in the small print.
"The pubcos and their lobbyists can't have it both ways: if the tie works for the majority of publicans, and is as fair as we have always been told it is, then the majority of publicans will stick with it. If this does really spell the end of the tie, then that means the pubcos and their supporters have been lying to us all along, and it really was institutionally unfair on publicans."
Well this kind of sums it up does it not? Unless I am being daft or naive, it must be that surely?
I expect changes in the tie, to move at a fairly slow pace and in relatively small numbers.
"The tied deal ….to be fair, does seem to work for a lot of publicans….the pubco is a business partner offering help and advice, takes care of the repairs and so on….That's the theory. And it is important to repeat that this model works perfectly well for thousands of happy publicans."
Pete. works well? err…80% of tied publicans earn under £15k and some 57% earn under £10k. These are the majority I cant say they're happy with the rewards at all so maybe there is another measure of happiness or working well thats being commented on here? As to repairs well most are FRI (full repairing and insuring) so not sure what is meant by taking care of repairs etc.
Re the other comments made it's all good – cheers for the support you'll be pleased to know Kirsty V was one happy lady when i bumped into her yesterday.
Hey ho back to the day job. Chris – Pubs Advisory Service
Regarding point 3, I think the CAMRA statement could have been better by stating "after ten years of our (and other's) campaigning" . 'Our' could still mean all partners in the campaign though. Most tweets on the subject have come via the fair deal twitter account. This at the bottom of the fair deal webpage would suggest a fair amount of input- Copyright © 2014 CAMRA.
Putting all the facts into a single blog is a very useful reference point.
That said a better deal for publicans is promised. Let's hope so!
Re: Tandleman's comment:
"I expect changes in the tie, to move at a fairly slow pace and in relatively small numbers."
I tend to agree and that's why I think this is a good thing as I said on my blog (thanks for the link Pete, appreciated).
If things moved too quickly we'd be back to the sort of unintended malign consequences that led to the creation of the pubcos after the Beer Orders 20-odd years ago.
What Parliament seems to have done in practical terms – whether those who voted for the amendment knew it or not – is give a tool to publicans that might save them from sharp practice (a) in the event of a rent review and (b) in the event the freehold of their pub is sold.
By the way my ex-flatmate from uni Aidan who is an MP had promised me he'd vote for it (he doesn't mind rebelling against the whip for reasons we'll leave aside). He came in the Finborough tonight for our Birrificio Italiano event and I asked him whether he had. He'd wanted to but his car had broken down on the way! So the majority "for" could have been one more but for that!
If a third of the pubco disposals reopen as pubs, then obviously two-thirds don't.
MOR probably will improve the lot of some individual lessees, but overall I think you are right to say it will slightly accelerate the overall rate of closures, by making owning a leased pub estate that bit less financially attractive.
The idea that it will give a major shot in the arm to the pub trade as a whole is quite misplaced IMV.
Good article Pete.
London Economics report itself is flawed but your'e right it's been taken out of context to scaremonger by the Big Brewers and Pubco Association whose job it is to lie about pub armageddon.
Today the government conceded defeat and confirmed the Bill will go to the Lords unopposed. So it WILL become law next year no more debating.
And a reassurance, MRO will work because it is the work of publicans and politicians who have been concentrating in this area for a decade. It is pragmatic and fit for purpose, in the end, this is why it got through. Some people have put thousands of hours in and it shows.
The one thing I MUST take you up on is that the pubco's have cleaned up their act. They most certainly have not.
I meet or talk to tied publicans every week who are being abused EXACTLY the same way as they always have been – new or long standing this is happening all the time…
If you want to meet them it can be arranged.
Best wishes for a brighter future for pubs. Look out for some spiteful backlash from Punch and Enterprise. They will not go down gracefully.
"80% of tied publicans earn under £15k"
One thing I have never seen explained in connection with this figure: does it take into account the fact that, effectively, their living accommodation is free (since the rent they pay on the pub is a business expense) and that much of the food they eat will be "free", or at least considerably cheaper than "civilians" will be able to buy it for, as well?
CAMRA's campaign presumably refers to all the lobbying over the years re the beer tie and the supercomplaint into pub cos which I think was in 2009
The earnings of the landlord and his family are generally such as to entitle them to claim tax credits to a significant extent, meaning that the tax payer is also subsidising this arrangement to Pubco's benefit. The landlords I have spoken to also seem blissfully unaware that their "free accommodation" and food should quite probably be treated as a taxable benefit, so not free as you allude to, the tenants sub £15k position is likley even worse than the survey might suggest as it's unlikley to include taxable benefit calculations, this situation is nothing a modern forward thinking trade should be proud of promoting given the majority are earning little – to nothing.