Tag: PubCos

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Some reflections on PubCo reform

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.

Chief Executive Brigid Simmons is quoted as saying the vote will “hugely damage investment, jobs, and result in 1,400 more pubs closing, with 7,000 job losses – as the Government’s own research shows.” But this is not quite true. The government research to which Simmons refers actually says the move could result in between 700 and 1,400 pubs closing, with between 3,700 and 7,000 job losses. Now I’m not saying that’s a good thing, and I have no idea whether this research is right or not – we’ll have to wait and see. But by only quoting the uppermost figure as if it were the only figure, and not the top limit in a very wide range, at best the organisation responsible for promoting beer and pubs is being overly gloomy and pessimistic about their future. At worst, the BBPA is being deliberately misleading and alarming on an issue that hasn’t gone their way. This is the kind of nonsense I expect from Alcohol Concern, not the beer and pub industry’s official mouthpiece.

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.

Finally, again, is this really the end of the tie as Simmons claims? Does the freedom to opt out of a tied relationship with a pubco mean the end of the tied relationship as a model? Surely this is only the case if that tied relationship is so intrinsically flawed that all, or even the majority, of publicans will exercise their new right to opt out of it? 
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 the chance to opt out of the tie really does 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.
I have no idea what the right answer is. But the pubco stance on this issue simply doesn’t add up. Or am I missing something obvious?
I really do hope yesterday’s vote will lead to a fairer, more equitable deal for publicans, and will not result in the closures and job losses being gloomily forecast by those who have lost. Because this conflict brings out the worst in our industry, and because I would be really happy not to ever feel obliged to write about it again.

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.

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Pubs do not “further the social wellbeing or social interests of the local community” – says who?

It’s bad form to post two blogs in the same day, especially if they’re about the same topic, especially if you normally struggle to blog once a week, like I do. But a tidbit has just fallen into my lap that I can’t wait to share.

One of the practices for which PubCos are taking a significant amount of stick for is selling pubs off to become shops or flats. Fair enough – perhaps – if the pub has failed and closed and there’s no real call for it any more. But when the people running the pub really want to stay there and continue running it as a pub, and when there is a dedicated bunch of regulars happily spending money there, turfing them out against their will looks a bit mean, to say the least.

The Sir John Barleycorn is thought to be the oldest pub in Hitchin, having served the community for about 150 years. It’s the perfect model of a community boozer, with darts on Monday, a pub quiz on Tuesday, and crib or dominoes on Thursday. It hosts various local sports teams and a steady diet of live bands from the area. It’s currently owned by Punch Taverns.

Following the closure and conversion of other nearby pubs, a group of concerned regulars got together this autumn and applied to have the pub listed as an Asset of Community Value (ACV). This makes it much harder to change the use of the premises, helping preserve it as a pub for a five year period. ACV status was introduced by the 2011 Localism Act, and was brought into effect on 21st September 2012. Since then, around twenty pubs have successfully achieved ACV status.

When the Sir John Barleycorn applied for ACV status, there was an objection. This objection claimed that there was no need for the pub to be protected because there were plenty of other pubs nearby. And anyway, many of the valuable community activities listed in the application – the bands, quizzes and sports teams and so on – didn’t necessarily have to happen in a pub – they could happen in other community venues, such as, er… well, anyway, they didn’t need to happen in pubs. Even though that’s where they normally do.

But out of three objections, point two was perhaps the most vociferous:

“2. The various activities mentioned by the nominee in the application are ancillary to the use of the premises as a public house. They do not therefore comply with the purposes set out in Section 88 (1) of the Localism Act 2011. With regard to Section 88 (2), the current use of the premises as a public house i.e. a place where alcohol is consumed and sold, does not itself further the social wellbeing or social interests of the local community and therefore is not land of community value.” 
[my emphasis]

It’s sad but not entirely surprising to see such an objection. We do after all live in an age of neo-prohibitionism, where various groups are only too happy to see the decline of the pub, and where alternative means of buying alcohol for home consumption are proliferating.

So who was it who objected to the attempt to preserve a fine old pub in its traditional use? Who believes so strongly that pubs do not further the social wellbeing or social interests of the community? Alcohol Concern? A local church group or nearby school? A big supermarket chain?

Nope.

These are the words of Punch Taverns, the owners of the Sir John Barleycorn. A company that owns over 4,300 pubs believes those pubs are not good for local communities.

On its website, Punch Taverns says:

“At its core the Community Pub should always provide a relaxed and friendly atmosphere for customers living in the neighbourhood. To excel, Community Pubs need to be at the hub of their neighbourhood, a focal point for locals. Supporting the many and varied interest groups of the community; darts, pool, fund raising, local schools, business networking, whatever they may be, is key.”

And yet here they are, vociferously protesting against one of their own pubs which is doing exactly that, actively opposing attempts to keep one of their oldest pubs trading as a pub.

Happily, the local council disagreed with the UK’s second-largest pub landlord, and decided that pubs such as the Sir John Barleycorn do in fact perform an important social function in the community. They awarded the pub its community asset status.

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Enterprise Inns: empowering publicans with cutting edge market information

A brief footnote to the sad story of one of my favourite locals, the Alma on Newington Green.

The Alma is now being offered up as a new tenancy, with applications closing this week. I was impressed by the level of detail on the website for prospective tenants – every aspect a curious publican might want to know about is covered. There’s even a guide to local competition – clearly a key factor in how the business might perform. So it’s great to see the website giving a run-down on what else is in the area so interested parties can accurately assess the opportunity:

Screen grab from Enterprise’s website about the Alma tenancy

There’s just one problem with this. No, actually, there are quite a few:

  • In 2011, the Nobody Inn was renamed the Clarendon. In 2012 it has a massive refit, substantially changing its offering, and was renamed the Dissenting Academy.
  • Bastille Brasserie closed down at least three years ago and is being converted to flats.
  • There’s no such pub as the Crafty Fox in the area. They might mean the Snooty Fox. But you can’t be too hard on them for getting the name of the pub wrong; it’s not as if they own it or anything. Oh, hang on – yes they do.
  • There’s no mention of the Hops & Glory (formerly the George Orwell) or the Leconfield (formerly the Oak Bar) – two craft beer pubs that offer significant competition to the Alma, each less than five minutes walk away. But you can’t be too hard on them for not knowing these pubs exist; it’s not as if they own them or anything. Oh, hang on – yes they do own the Leconfield. 
It’s great to see Enterprise’s local area manager having such a great grasp on the area he is paid to look after.

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Tackling the thorny topic of the PubCo tie: it just got personal

Yesterday beer writers en masse were accused of ignoring ‘the elephant in the room’ – the issue of the PubCo tie.

There are three reasons I haven’t really written about this topic very much before now:

  • I’ve been really, really busy, playing catch-up on my recent books since my laptop was nicked two years ago. 
  • The anti-PubCo campaigners can be a bit spiky. When you’ve lost your job, your life savings and often your home, in circumstances that you feel are grossly unjust, you have every right to be angry. But it can be a bit like trying to deal with a lion with a wounded paw.
  • It’s really bloody complicated. The issues very quickly gets into conversations about legal technicalities and contracts, which makes it hard to understand in the first place, and harder still to then break down into short, focused, interesting articles. 
I’ve now caught up on my work. The PubCo campaigners and I have reached a point where we can chat amicably over a beer. And they’ve patiently helped increase my understanding of the technicalities. So I’m now ready to jump in.
The impetus for doing so though, is that the whole issue just got personal. 
Sometimes, businesses fail. Sometimes, publicans aren’t cut out for the job. Sometimes, people don’t understand what they’re getting into. Being a publican is a tough job that requires a very broad set of skills, and I know that I would be a disaster if I ever attempted to run my own pub.
That’s why the boss of Enterprise Inns, recently dismissed the campaign against the current PubCo model as the work of “failed or failing publicans looking for someone to blame.” 
Taken purely literally, these words are correct. But the clear implication of phrasing it in this way is that publicans should in fact accept the blame themselves. The consistent rhetoric from the PubCos is that most tenants and lessees make a decent living, that they help those who are struggling, and that if these publicans fail? Well, it’s not our fault – they knew what they were getting into. 
I’ll be examining the ways in which this argument falls down in the face of reality a lot more closely, both here and elsewhere, over the coming weeks. And I will be asking the PubCos for their response to the points I raise. I don’t want to rant about this issue – I want to present the truth about it.
But first, I want to focus on one pub close to me whose situation doesn’t make any sense at all if Enterprise Inns is speaking the truth.
The Alma on Newington Green, North London, is by any reckoning a popular and successful pub. Well-heeled Islington residents consider it a gastropub – the food is excellent, way beyond typical pub fare, locally sourced and seasonal, the ever-changing menu determined by what’s fresh and good. The home made sausage rolls on the bar for those who don’t want a full meal are awesome. 
The beer is well-kept, and there’s a passion for cider – North London CAMRA recently named the Alma its Cider Pub of the Year, which the pub added to a list of other awards it has won. When I was in there on Tuesday night there was a choice of six draft ciders. The place was busy for a Tuesday night, but then it’s always ticking over, and it’s difficult to get a seat on the weekend.
The Alma is an old Victorian building, full of nooks and crannies, with everything from big, bright tables by the windows for spreading the papers out during Sunday lunch, to shady sofas for intimate late night chats. The decor is stylishly shabby and doesn’t try too hard.
The licensee, Kirsty Valentine, is a force of nature. She’s an instinctive publican who realises that a great pub is about creating a great atmosphere. She’s become a solid fixture in the community, and a major player in the local business association.
Newington Green is now gentrifying rapidly. This wasn’t always the case. The Alma used to be a dive, like most other pubs in the area. When I first arrived in Stoke Newington most people wouldn’t dream of drinking there – you’d get the bus down to Islington instead, where the pubs were crap chain concepts, but at least they cleaned their lines more than once a year and you didn’t run the risk of getting glassed. When Kirsty arrived, the Alma was the first pub that raised the standard. It helped turn Newington Green into a destination, starting ripples that spread. One by one, the other pubs near the Alma have been done up too. Newington Green is now a great place for a pub crawl, with the Snooty Fox, the Dissenting Academy and the Edinburgh Cellars all offering great beer and great food. This is great news for the drinker, less good for Kirsty, who now faces increased competition. Her response? Last year she organised the Newington Green ‘Aleympic’ pub crawl, which saw pubs in the area working together to create a fun activity, benefiting all the pubs that took part, making the cake bigger rather than fighting over shares of it. 
What I’m saying is, to any rational observer, the Alma looks about as different from the idea of a ‘failed or failing pub’ as you can possibly imagine.
So how could it possibly be failing? How could Kirsty be facing losing the pub – and how could there be a possibility that the pub itself might not survive?
I have copies of a pile of correspondence between Kirsty and Enterprise Inns that’s about three inches high. She’s spent most of her time over the last three or four years fighting her PubCo – which claims it only wants to help – on all fronts. 
The basic problem, as she sees it, is that the PubCo model effectively means paying rent twice – wet rent and dry rent. Dry rent is the straightforward rental she pays to the PubCo. Rents are reviewed regularly. They can go down as well as up, but if the profitability of the pub increases, the PubCo will do all they can to take most of it, essentially disincentivising the publican from improving the business the way Kirsty has. 
On top of this, she pays a ‘wet rent’ by being compelled to buy all her beer through Enterprise, or face stiff penalties for buying ‘out of tie’. This limits the range of beers available to her. But more than that, she’s paying up to double the price of a cask or keg compared to if she were able to buy it from the brewer direct. This means she has to charge higher prices for a less interesting range of beers than her competitors.

Basically then, it’s much harder for a pub to make a profit under this scheme than one that is free of tie. And if you do manage to make a profit despite this, the PubCo will try to take it from you. 

This is the double bind of the PubCo tie that many licensees are complaining about. Enterprise’s defence is twofold: firstly, they will offer help to anyone who is struggling. And second, the publican knew what they were getting into when they signed the deal, and Enterprise can’t be held to account if new publicans had unrealistic ideas. I’m sure that in some cases this is true. But the number of cases where ‘failed and failing licensees’ tell how they have been misled, lied to and ripped off by their PubCos means that if they are not being honest, there are an awful lot of them coming up with remarkably consistent and detailed lies. 
Kirsty’s battle with Enterprise is happening on so many fronts, it’s impossible to go into detail here and still expect you to read to the end. But in summary, the result of her fight is that Enterprise now want her out of the business she has built up, and will shortly be taking legal action in an attempt to make that happen.
Should Enterprise be victorious, apart from a brilliant publican facing financial ruin and losing her home, there are two possible consequences: one is that Enterprise stick in another tenant. The other is that they close the pub down, and sell it for redevelopment, with a change of use stipulation – a fairly common practice. It takes all of ten minutes to walk to the nearest Sainsburys from Newington Green. I’m sure Sainsburys or Tesco would love to turn this beautiful old boozer into yet another supermarket. 
The next battle Kirsty wants to fight is to ensure that, whatever happens to her personally, the Alma remains a pub – given that it’s popular and the local community like it that way. To this end, yesterday she launched the ‘Battle for the Alma’ campaign. She is applying to Islington Council to have the pub declared an Asset of Community Value (ACV) under the recent Localism Act. This would prevent Enterprise from initiating a change of use from the property being a pub. This was the first step in a campaign that ultimately saved the Ivy House pub in South London from being redeveloped into flats when the local community were perfectly happy with it as a local pub – which is now doing great business.
If you know the Alma, if you have ever been there and enjoyed it and wish to see it saved, visit the Battle for the Alma website and sign the change.org petition, giving Islington Council the stories and reasons why the Alma deserves to be saved (beyond the simple common sense reason that it is a thriving, successful, popular pub that by any sane reckoning should not even be under threat.) It will make a real difference.
I’ll be writing about the lies, bullying and neglect Kirsty has suffered in due course – and asking Enterprise to respond. But this first step is important and urgent – we have until next week. If you know and love the place, please give this campaign your support.

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