Gone is the time you could just throw open pub doors and do well

May 20 2009 by Alastair Gilmour, The Journal

The pub industry seems to lurch from one crisis to another. Alastair Gilmour looks at the latest controversy.

Pubcos such as Enterprise Inns and Punch Taverns fell under the spotlight in the BES report after claims that firms use their strong position to impose heavy rental burdens while failing to pass on the full benefit of discounts on beer to tenants – a serious imbalance of power that can amount to “downright bullying” (says the BES report) between them and their tenants.

Enterprise Inns, which controls 7,616 pubs (and has debts of £3.8bn) estimates underperforming tenants are costing it £1.4m a month in financial assistance.

Chief executive Ted Tuppen said: “If people are genuinely struggling and will work with us we are providing an awful lot of help.”

Punch Taverns said it was disappointed by the report’s findings and said there were good grounds for the Government to reject the committee’s recommendation for a market investigation by the Competition Commission.

It said competition authorities had looked at the market on several occasions and concluded it was not anti-competitive, saying: “We strongly believe that the tied pub model provides a fair and equitable approach to sharing risk between ourselves and our licensees, represents a low cost opportunity for entrepreneurs, and has a rightful place in the market.”

Mike Benner, chief executive of the Campaign for Real Ale (Camra), said he was “not yet convinced” of the need for a full competition inquiry.

He said: “A two-to three-year investigation would create huge disruption and uncertainty for the UK’s pub owners, licensees and consumers. A lengthy investigation may also serve to delay urgent action to deliver fairness to struggling pub licensees and their customers.

“Camra supports the principle of the beer tie, provided that the higher prices licensees are required to pay for their beer supplies are balanced by a lower rent, credible business support and the option of stocking a guest beer.”

Meanwhile, the GMB union is writing to 9,000 tenants of Enterprise Inns and Punch Taverns to urge them to join the union and increase their bargaining power against the pubcos.

General secretary Paul Kenny said: “GMB will organise collective legal challenges to the pub companies, lobby Government and represent individual members in dispute with their pub companies. The time for talking shops is over. Now is the time for collective action by tenants of the pubcos.”

Sadly, this all sounds rather knee-jerk and 1970s at a time when considered business transactions should be the order. If MPs are so worried perhaps they should insist on the likes of Business Link offering pub management courses to would-be tenants.

The MPs also want a ban on pub companies selling public house premises with covenants that prevent them being used as pubs in the future.

Ted Tuppen also told the committee that there are too many pubs in some areas and Enterprise used restrictive covenants “because, genuinely, we think these are pubs that have lived their life”.

He admitted that 70% of Enterprise pubs have such covenants in place. However, the committee says: “We believe it is for the market to decide whether a pub is unviable... We therefore recommend the government makes the use of restrictive covenants to prevent the continued use of premises as a pub illegal.”

Earlier this year, Scottish & Newcastle Pub Enterprises (S&NPE) revealed it was selling off underperforming outlets without their licences in a bid to protect its other operations. Among the pubs involved are two in Jesmond in Newcastle – the Punch Bowl and the Cradlewell. The Cradlewell is up for sale with a covenant meaning it cannot be run as a pub.

The company’s thinking is that by eliminating the competition, the Punch Bowl will trade better than it has done up to now, and hence protect S&NPE’s revenues. Tony Brookes, of The Head of Steam pub company, which owns Newcastle pubs The Head of Steam, Tilleys and The Cluny, was concerned by the attitude of S&NPE.

He said: “This is really dangerous. These pubs are being sold with a covenant saying they are not to be allowed to be used as a pub again. The Punch Bowl and the Cradlewell used to be really successful and they should be thriving businesses. The Cradlewell has done fairly badly in the last few years, but we tried to buy it, or take a lease on it, and they wouldn’t do it.

“Some pubs will always get sold and turned into houses, but this is different. People like us are actively wanting to buy them to continue running them as community pubs.”

Going to the pub will remain the number one leisure activity and surely market forces will persuade pubcos that perhaps the tie system can be relaxed in many cases to allow lessees a degree of freedom. As Neil Amos puts it so succinctly, gone are the days when you could just throw open the doors.