“24,000 of Britain’s pubs are tied to pubcos. Even though tied landlords could buy cheaper beer – they are tied to the pubcos for their supply. It’s time to break the tie and call for a fair pint.”
How many pubs are tied?
Almost 24,000 British pubs are tied to pubcos; circa 37% of the total market for traditional pubs.
In particular, two large pubcos, Enterprise Inns and Punch Taverns, own in excess of 25% of all pubs in the UK.
What does it mean to be ‘tied’?
Many of Britain’s pubs are tied to large pub companies, known as ‘pubcos’. The pubco is not a brewer, but is essentially a middleman between the brewer and the pub. The conditions of a tied agreement include:
- Tied pub landlords must buy all their beer, and some other supplies from the pubco. This is known as a ‘wet rent’ arrangement;
- Tied pub landlords must pay rent to the pubco. This is a projected profit related rent but often with an upward only rent review, i.e. rent will increase when profit increases, but with no arrangement for reducing rent when profit is in decline. This may be increased annually with the Retail Price Index;
- A percentage of income from amusement with prizes machines (AWPs), such as fruit and quiz machines, goes to the pubco. In addition, pubcos’ tenants pay higher rents for AWP machines than tenants who are not tied.
Why is this a problem?
Around 52 pubs a week – circa 7 pubs a day - are closing.
As a result of the tied agreement between pubco and pub landlord, landlords are forced to buy all their beer from the pubco to which they are tied - even though they could buy it cheaper elsewhere.
Whilst the pubco is able to buy beer cheaply from the brewery, it can charge their pub landlords a price of their choosing. Consequently, the consumer is usually paying a significantly inflated price for a pint of beer, and tied pub landlords are being forced to sell beer at a loss.
As a result of upward only rent reviews, and beer that has to be bought at inflated prices from the pubco, enormous pressure is being placed on many tied landlords who struggle to make a living. Huge numbers of landlords are simply being forced out of the market.
Well-run British pubs are now closing in unprecedented numbers. It is clear that the tie between landlord and pubco is a significant and contributory factor to the demise of the local British pub.
As the Business and Enterprise Select Committee pointed put in their report on Pub Companies published in May 2009 tied lease agreements lead to an imbalance of bargaining power between pub companies and their tied tenants. It has resulted in an unfair and uncompetitive arrangement which has forced up the price of beer in pubs .
How did this happen?
The Beer Orders, passed in 1989, were intended to increase competition in brewing, wholesaling and retailing, by ensuring that no brewer could own more than 2,000 pubs. However, the consequence of this legislation was the creation of stand-alone pub companies, the pubcos, to whom brewers sold their pubs. The pubcos were exempt from the beer order legislation, because they did not brew the beer themselves.
Before the Beer Orders, the big brewers did at least exist to sell their product through pubs, concentrating on beer rather than the property market. As a result, rents went up and down with trade. pubcos on the other hand are, in essence, property companies, whose properties just happen to sell drinks, and who, as a consequence, have the property market as their main focus.
What needs to be done?
Our “Fair Pint” campaign is calling for:
- The tie to be removed from all leased pubs. Under the existing lease terms if the pub became free of the tie, this would enable landlords to compete in a fair market, where their rent would be regularly reviewed.
- The Business Innovation and Skills Select Committee to reiterate the conclusions of their report published in May 2009 which called for Government intervention into the pub sector to ensure that anti-competitive practices in the sector are investigated, steps to ensure that tied tenants have the option to go free of tie when rents are reviewed or leases renewed and action to ensure fairness in the system of rent valuations.
- The Department for Business Innovation and Skills (BIS) to investigate the problem presented by the supply tie, and to refer the tenanted pub sector to the Competition Commission
- MPs to support Greg Mulholland MP's Early Day Motion 284