Investigation into Star Pubs & Bars Limited: PCA today launches an investigation into the suspected use of unreasonable stocking terms by Star in proposed MRO tenancies. Evidence should be sent to ku.vog.rotacidujdaedocsbup@snoitagitsevni Published 10 July 2019
Two documents that should be very helpful in organising pub campaigning within your branch are Promoting The Pub and Protecting The Pub.
We plan to develop other resources that we hope will be useful to pubs officers to be more effective in organising pub campaigning. Especially we plan to work directly with individual branch pubs officers to provide help and support where ever it is needed.
One of the most important activities branches can get involved in is encouraging communities to register pubs at risk as Assets of Community Value (ACV). Chris Rouse wrote an excellent Asset of Community Value Branch Magazine Article on how to register a pubs as an ACV, which I recommend all branches use in their own branch magazine.
Another pub in danger:
From FERMENT magazine article:
We like our beer with a side shot of history. We enjoy stooping beneath wood-wormed beams, in thrall to tales of cellar ghosts or of blood spilled across scabbed wooden bar tops. At historic coaching inn Ye Olde Mitre in North London’s Barnet, rumour has it that highwayman Dick Turpin would call in for a flagon or two before his reign of terror was cut short at the end of a hangman’s rope.
Today, landlord Gary Murphy’s focus is on an altogether different kind of highway robbery, one he says is perpetrated by the pub company giants who own thousands of Britain’s boozers. And he’s gearing up for a David and Goliath battle which has at its heart a tradition as old as his pub itself.
Of the 39,000 or so pubs in the UK, about a third – 12,000 – are run as ‘tied’ tenancies by Britain’s six biggest pub companies: Star Pubs & Bars (part of Heineken), Punch Taverns (co-owned since 2017 by Heineken and a private equity real estate investor), Admiral, Ei Group, Greene King and Marstons.
Under this 400-year-old model, tenant landlords theoretically pay the pubco lower-than-market-rate rent (known as the ‘dry rent’). In return, they commit to buying beer and other supplies (‘wet rent’) from the pubco. The catch is, wet rent beer costs a sight more than the wholesale prices paid by free-of-tie, or ‘freehouse’ pubs. CAMRA found tied tenants paid as much as 77% more for mass-market yellow fizz like Fosters. Beer writer Roger Protz blogged recently about Ei paying £39 for a 9-gallon cask of ale, and charging its pub tenant £120.
Campaigners have complained for years that the system is exploitative, that the once-attractive rents have skyrocketed – alongside the cost of beer – and that some of the biggest pubcos of today have little in common with the pub-owning, family brewer operations of yesteryear. Punch and Ei, for example, have no brewing facilities, and are accused of being little more than property developers. Moreover, critics say ties are skewed against successful tenants with booming beer sales, as the pub company scoops up the lion’s share of profits. CAMRA has claimed that with tied tenants’ margins squeezed by both wet and dry rent prices, 80% of them earn less than £15k a year, with 57% on under £10k. At the other end of the chain, we see an opposite trend: At Marston’s, profits per venue are up 77% since 2009, according to its 2018 annual report.
CAMRA CEO Tom Stainer said: “A healthy pub sector that delivers for consumers is dependent on ensuring that pub tenants are able to secure a fair deal from their landlords. Too many great pubs have been lost because of sky high rents and inflated wholesale prices.”
In response to these complaints, new legislation – the Pubs Code – was introduced in July 2016.
This fresh code of practice, governing the relationship between businesses with 500 or more tied pubs in England and Wales and their tenants, has at its heart two core principles: fair and lawful dealing by pub-owning businesses in relation to their tied tenants, and that tied pub tenants should be no worse off than if they were free of tie.
In addition, it was meant to provide a transparent legal framework for tied tenants to negotiate their way out of tie, plus a Pubs Code Adjudicator (PCA) to arbitrate disputes.
Except, some tenants complain, it isn’t working.
Bedding-in time aside, critics say the Code is riddled with loopholes which pubcos exploit to pressurise tenants into remaining tied. Tenants asking to break their tie in favour of a ‘Market Rent Only’ (MRO) lease – enabling them to buy beer on the open market from a wide range of suppliers – find themselves entangled in lengthy negotiations and accruing crippling legal fees.
Labour MP Rachel Reeves, chair of the Business, Energy and Industrial Strategy (BEIS) Committee, has warned that big pub companies are “gaming the system and bullying tenants into accepting poor terms,” and spoke of “resistance from certain pub-owning businesses at every step” in relation to MRO requests.
One telling statistic set, buried in Ei Group’s 2018 annual report, speaks volumes: of the 310 MRO offers it issued since the Pubs Code’s incarnation, just 27 concluded in a mutually-agreed, free-of-tie deal. Almost a third, 91, remained unconcluded, and over half of those were referred to the PCA for arbitration. Greene King, meanwhile, says the Pubs Code’s impact ‘remains insignificant’. Out of nearly 1000 venues in England and Wales in its ‘Pub Partners’ operation, only four tenants have MRO agreements in place.
Gary Murphy, despite his best efforts, is not one of them.
He took on the Mitre a decade ago, leaving behind his civil service background in the process. In that time, he’s had three tied tenancy landlords, with Greene King taking over from Spirit Pub Company in 2015. He’s rightly proud that in these tough times, with 14 pubs closing every week, he’s not only managed to preserve the Mitre as a wet-led venue, but take beer sales from around 72,000 pints a year to over 200,000.
His eye for detail, downright tenacity, and willingness to plough through mounds of documentation, mean he managed to cap his own legal expenses for renegotiating his tenancy with Greene King to £20k. Yet even after all the outlay, he still ended up staying tied, albeit with some extra purchasing freedom.
“I spoke to another tied tenant the other day who’s already £60,000 in,” he says. “And he’s not finished yet.”
One issue with tied tenancies he identifies is the failure of pubcos to keep up with the kinds of rapidly changing trends we’re all familiar with in the craft beer sector, which leaves tenants – and their customers – wanting.
He was saddled with Greene King when it bought Spirit four years ago. Frustrated with its limited beer list, he managed to negotiate during a 2017 rent review a decent selection of free-of-tie products, which preserved his foothold in the evolving market and proved a key factor in the pub’s survival.
“In the year before the rent review,” he explains, “I had to pay them £13.5k for permission to buy some beers from somewhere else. At every twist and turn, they’ll screw you for money.”
"At every twist and turn, they’ll screw you for money" Gary estimates his previous tied deal was costing him the equivalent of three times the market rent. Even now, he says, he’s paying around double.
Says Gary: “Some aspects of the tie aren’t an issue. It really doesn’t matter where I get my Fosters from as long as the price is right, but I do want the freedom to go and choose craft beers as well.
“I tried to go down the MRO route, and Greene King did everything in its power to muddy the process. They wanted an entirely new lease, so with legal fees, deposit, three months’ rent, onerous maintenance terms and various other costs, it was going to cost me £130k to transfer to MRO.
“There’s no way the average tenant can find that kind of money. It’s ridiculous. Most just give up.”
Alun Williams, an Ei tenant running The Three Golden Cups near Bridgend in South Wales, has been waiting for a PCA decision on his MRO request since September 2017. He’s racked up £11k in legal bills countering Ei’s original demand of £70k in advance rent and deposits for an MRO lease.
And Jeanne Mason, who puts in 90 hours a week as tenant at the Red Lion in Litton, Derbyshire, has been grappling with Ei for two years. The terms of her MRO request were settled by the PCA in June last year, but she then had to pay for an independent assessor to fix the cost of rent. (She says Ei had asked for £67k per year - £20k more than the assessor’s appraisal.)
It didn’t end there.
Once an MRO request has been resolved, pubcos – interpreting Pubs Code legislation in a way Gary claims is unlawful – can trigger yet another arbitration to negotiate the value of backdated rent for the time spent arguing the terms of the MRO. If your head is spinning just reading that, imagine paying a lawyer thousands of pounds to unravel it for you. At the time of going to press, Jeanne’s backdated rent negotiation was still up in the air.
“These are quite shocking tactics,” says Gary. “And the PCA has done absolutely nothing about them. They were meant to provide a quick and easy arbitration system, and it’s not turned out that way at all.”
Delays of this kind are not uncommon. By its own admission, a fifth of all cases accepted by the PCA for arbitration have been waiting longer than six months, and a PCA spokesperson admitted ‘frustration’ that so many requests had been referred for adjudication, instead of being resolved between pubco and tenant. “In 2019 we want to see arbitration becoming the exception rather than the rule,” it said.
Refusing to comment directly on individual cases, the spokesperson added: “But we have also been encouraged by indications that a good number of tied pub tenants are making full use of their Code rights by using the process to request an MRO option to strengthen their hand when negotiating a new, improved tied deal.”
Ei said in a statement that the group works closely with publicans to ‘support their success’, regardless of tenancy model.
“The Pubs Code is designed to offer publicans greater choice and transparency and we have worked hard to ensure our publicans are aware of all the options available to them and have the information they need to request and consider an MRO proposal,” a spokesperson told us.
“Our free-of-tie estate has grown to over 400 pubs over the last three years, demonstrating our willingness to negotiate free-of-tie terms on a mutually agreed basis.”
Greene King was eager to point out the benefits of remaining in a tied tenancy, stating: “From the outset we have committed fully to embracing the Pubs Code, including working fairly and openly within the current legislation. As part of that, we have always been fully transparent on the option our licensees have to move to a free-of-tie agreement if they wish.
“However, remaining on a tied agreement is often more attractive and beneficial, with shared risk and access to capital investment, business consultancy, training and access to lots of other support. As such the number of MRO agreements taken up should not be used as the sole measure of success of the code.”
The BEIS is expected to announce a review of the Pubs Code and the effectiveness of the PCA imminently.
Unconvinced that this particular tiger is likely to gain a set of teeth any time soon, Gary Murphy is readying to take his complaint to the High Court, to demand legal clarification on elements of the Pubs Code which he says are being abused. In February, he received a written concession from the PCA that it has misinterpreted key aspects of the legislation, but the implications of this climb-down remain a source of disagreement.
His is a battle being fought not only for fellow publicans, but for breweries, too. The Society of Independent Brewers (SIBA) – which markets members’ beer to pubco estates through its ‘Beerflex’ ordering system – says only 13% of their output goes to tied or controlled pubs.
“The continued lack of access represents a fundamental market failure,” it says. “Local craft beer drives footfall into pubs, yet too many operators are still failing to provide enough access, and remain focused on high volume ‘big beer’ brands.”
John Cussons of Lincolnshire’s Ferry Ales is one of several brewers we spoke to expressing concern at the way ties restrict choice and stifle growth.
“There’s a great tied pub near us. They love our beer but, buying through Beerflex – with a huge mark-up slapped on by the pubco – we’re just not competitive for them.” he says. “We get about £65, the pub is paying over £100. It means they have our beer maybe once a month. If I could sell direct, they’d buy every week.”
Gary already has a £12k High Court war chest, funded by a crowdjustice campaign, but his battle could come at great personal loss. He faces paying out ten times that in costs if he loses. And ultimately, it is you, the drinker, who stands to gain from his victory, with more purchasing freedom translating to more choice at the pumps.
“Publicans have been trodden on for decades to make corporate businesses these massive profits,” he says. “I’m taking a huge risk. If I lose, I lose. I’ll have to deal with that if and when the time comes. But I can’t let them get away with it, it feels quite improper.”
Roger Protz article:
This is the story of Harry and the Dog & Duck in a small town in southern England. They’re not the true names: they have been changed because Harry is a leaseholder with the country’s biggest pub company, Enterprise Inns, now known as the Ei Group, and he’s keen to stay on when his current tenancy agreement ends.
But this is a true and factual account of the trials and tribulations of working for a national pubco.
Harry took over the pub in 2016. He’d worked there for several years with the previous and highly experienced tenant, Jack. Harry had two business partners and the three of them offered to buy the lease, free of tie, from Ei. They submitted a business plan to the pubco, which was turned down.
But Ei then contacted Harry and offered him a short-term solo tenancy. He agreed to go on his own and signed a basic tenancy agreement that Enterprise said would allow him a variety of beers from SIBA, the Society of Independent Brewers. Harry had to pay £20,000 for the rent up front plus fixtures and fittings.
“It was a baptism of fire,” Harry says. “When I looked at the prices from Ei and SIBA, I worked out that I would be paying £60,000 more a year than if I bought beer on the open market.
“My agreement meant I could buy wines, spirits and minerals free of tie but I was tied for beer and cider. The main Ei beer list had Dark Star Hophead. Jack had sold three 18 gallon casks a week of Hophead but Ei said I couldn’t have it as it was outside SIBA’s delivery area – SIBA has a 25-mile radius for beer orders.”
Courage Best is a popular beer among regulars. Harry found he would have to pay £30 a barrel more than Jack had paid – and Jack had sold 100 barrels a year.
The costs mounted as Harry discovered that Ei charged SIBA £39 for a nine-gallon cask but charged him £120. And he had endless problems ordering beer. He found a brewery in Windsor that produced popular beers but the brewery refused to deliver as it said Ei squeezed them so much on price that they couldn’t make money from the deal.
It was the same story with every brewery Harry contacted. They all said they couldn’t afford to deal with Ei or use the SIBA delivery system as a result of the low prices they were offered.
“I’ve lost a lot of custom since I couldn’t stock Dark Star Hophead. It’s especially hard at weekends, with groups of people going to other pubs,” Harry says.
“The Ei business model doesn’t fit a small country pub. I’m paying 60 per cent above the market rate for beer and Ei won’t allow me to sell the beer my customers want. I’m subsidising other pubs that specialise in food, not beer.
“People come to the Dog & Duck for beer but Ei aren’t interested in beer – they’re interested in property. I was given a favourable rent when I went in. I can make a decent living but I can’t grow the business and I can’t employ more staff.”
Harry’s rent is £45,000 year. He’s worried that when his tenancy agreement runs out in five years the rent could be doubled.
“They doubled the rent of another pub in the area and it became unviable as a result.”
Harry says he worked 80 hours a week for the first year and half when he took over the Dog & Duck.
“It’s fewer hours now and I enjoy what I do but I find it difficult coming to work, knowing the money the pubco gets. On top of the rent and other costs I have to contribute to the pub’s decoration fund.
“When Ei redecorated the outside, they had painters coming from Essex and Plymouth and doing six-hour round journeys every day. I could have had the work done by locals for a quarter of the price.”
Harry will soldier on. He loves the pub, the locals and the town but he wishes he could get the beers his customers would like and at a fair market price.
•A spokesman for SIBA says that while its Beerflex direct delivery scheme does have a 25-mile radius it is flexible and would be willing to see if it can help Harry source the beers he would like to get.
THIS excellent piece by Graeme Wilson at the Golden Ball York
What is ‘the Tie’?
The tie has existed since the industrial revolution. As brewers’ output increased they needed to increase the number of outlets selling their ales.
The tie was born. A brewer would buy a property and fit it out to just sell their own ales. They would repair and maintain the pub. Then a leaseholder, in return for a modest rent, would live in and run the pub, buying all of their stock from the brewer.
In 1989 the government, concerned that only 4 brewers owned most of the UK’s pubs and hence most of the UK’s beer supply, introduced legislation now referred to as ‘The Beer Orders’. This stopped brewers from owning more than 2000 pubs and was intended to increase competition in the sector.
The result of the Beer Orders was that pub ownership moved from brewers to property companies (Pub Operating Companies or Pubcos). There was no limit on the number of pubs that they could own and they quickly expanded, buying up the tied estates of the brewers. These companies had no vested interest in what beer was sold and they were able to continue the tie. But instead of their tenants buying direct from the brewer they instead had to buy through their Pubco. The Pubcos added their own markup to the wholesale price, increasing the costs to tenants. Rents increased too as the Pubcos sought to generate revenue to finance their expansion.
Now a large part of our national pub stock in the ownership of corporations who have no interest in what beer is sold nor for how much, nor even whether their ‘assets’ remain pubs or become shops, offices, housing or are even demolished.
Pubcos have systematically starved their estates of investment shifting all of the costs of running the business onto their tenants, including repair, maintenance and even buildings insurance. As a result many pubs have become ‘unviable’, particularly community pubs similar to the Golden Ball.
This isn’t because of the Smoking Ban, nor because of Beer Duty. It’s not because people are drinking less. It’s another example of big business abusing our community assets for their own profit.
BUSINESS RATES ARE CLOSING PUBS: