Get out the pitchforks and the blazing torches: I’m about to talk again on the subject of pub companies and their tied tenants.
The trouble with trying to have a rational debate about the tied pub system, where pub tenants have to buy their beer from a list provided by the company that owns their pub, is that a fair number of pubco tenants have lost a great deal of money trying to run their pub, and, understandably, they’re angry – very angry. Naturally, they’ve looked around for someone to blame for their losses, and the obvious culprit, as far as they are concerned, is the pub company. Clearly, they say, if the pub company had not been charging them so much rent for the pub, and so much extra for their beer than that beer costs on the open market, then they would have been able to make a success of their business.
If anyone tries to suggest that maybe the pubco isn’t totally responsible for their failure as pub-running entrepreneurs, that person will be subjected to howls – screams – of outrage and fury. The pubco, its failed tenants will insist, is a scam, a conspiracy designed to rip off people who only want to make a reasonable living and who are prevented from doing so by the despicable activities of the company that owns their pub and conned them into signing a lease on it. You, however, for daring to suggest anything otherwise, are (and this is only a selection of the names I’ve been called in the past couple of weeks) a writer of “inaccurate, delusional gumph”, “peddling, paid or not, pubco propaganda”, a “lazy sofa-lounging beer blogger” (I like that one – I might have it printed on a T-shirt), “a zombie”, “a lazy journo who can’t grasp the subject”, someone who “very obviously [doesn’t] know what you’re talking about, either that or you are a liar”, “arrogant, patronising, blinkered and myopic”, and “a denier, a make believer, a fantasist”.
However, it’s clearly nonsense to suggest that the pubco model is responsible for every operator of a tied tenanted pub who goes belly-up, when you consider the following simple fact: one third of all small businesses – regardless of the sector that they are in – fail in the first two years. You would expect, therefore, even given the cushions that tenants of pub companies have around them (the cheap start-up costs inherent in someone else leasing you the premises in which a going business is already running, free training on how to run a small business, free advice on tap from the pubco BDM, or business development manager, assigned to them to help out, help with promotions, discounts on everything from insurance to Sky TV, and so on) that a considerable number are going to crash quickly, simply because that’s what small businesses do.
Even if they get through the first year and are beginning to succeed, counter-intuitively, perhaps, it is when very small businesses start to expand that they are most in danger. According to the credit monitoring company Experian, when a business grows to six to 10 employees, the flexibility it benefited from as a micro-business starts to disappear. Fixed overheads become greater and cash flow starts to cause more serious issues if not carefully monitored. From cases I have studied, it is cash flow that seems to do for most, if not all pub tenants whose businesses collapse: not having the ready money to pay the VAT man, the rent, the bill for the beer, the power companies and so on. Indeed, cash flow problems probably cause most small business failures: I had a mate who ran a micro-brewery in Hertfordshire, and his business went under because, although on paper it was profitable, his cash flow was wrecked by pubs not paying him for the beer he had delivered, and the taxman wouldn’t wait for his own slice.
Despite the fact that one in three new businesses of all sorts fails within 12 months even though it doesn’t have a pubco as its landlord, the idea that the tied pubco model is responsible for all the woes of the tied pubco tenant, and, if you believe some, all the woes of the pub sector, seems to be driving public policy. In parliament, the Business, Innovation and Skills Committee, which has been extensively lobbied by the anti-pubco forces – made up, according to Ted Tuppen, boss of Enterprise Inns, one of the most hated men in the pub industry, of “a high proportion of failed or failing publicans looking for someone to blame”, but I suppose he would say that – is determined to push the government into reforms that would ensure “no tied house tenant is worse off than a free-of-tie tenant”. But there’s evidence that even if that were achievable, it wouldn’t make any difference. The survey of pub tenants by CGA for Camra earlier this year, regularly pulled out to show how poorly tied house tenants do in terms of income and viability compared with free-of-tie tenants, had one question, the answer to which is never quoted by those who hate the tied house model. Asked: “Is your business struggling financially?”, 53 per cent of tied house tenants said “yes” – and so did 52% of free-of-tie tenants. At the Wellington Pub Company, which owns almost 800 free-of-tie tenanted pubs, nearly 40% of its tenants – 300 or so pubs – were in arrears with their rental payments by more than 180 days. It’s not the tied house model causing them problems.
The problem is that if the government listens to those pubco tied-house tenants with a strong interest in blaming the pub companies for their problems, and brings in the reforms the anti-pubco campaigners want, there is a good possibility that instead of saving the pub industry, the reforms will hasten the closure of many hundreds – perhaps many thousands – of pubs already teetering on the edge of viability. That was the conclusion of a report commissioned by the Department for Business Innovation and Skills from the financial consultancy London Economics on the likely impact of the proposed reform of the tied trade. That report, which came out last week, has been extensively slagged by the anti-pubco activists, who declared it “full of inaccuracies and guesswork”. Their attack on the report, it seems to me, is because its verdict, distilled down, is that closures in the pub trade, and the problems of tenants, are pretty much due to this country still having several thousand pubs more than there is commercial room for. Since that, if true, wrecks the claim by failed pub tenants that it was the pub company, and only the pub company, that was responsible for the collapse of their business, naturally, they howl with rage, again.
Here’s what I said about the London Economics report over at the day job:
The words nobody wants to hear about the on-trade
In 1908, Herbert Asquith, the then Prime Minister, made a powerful and eloquent speech at a public meeting on the controversial Licensing Bill that his Liberal Party government was trying to steer through a hostile Parliament. After the speech, according to the Manchester Guardian in 1952, a lady on the speakers’ platform asked Asquith if she could have his notes as a memento. He handed her an ordinary envelope with a few words scribbled on the back of it. The only ones legible were: “Too many pubs”.
Move on 105 years, and one big message given to the Department for Business Innovation and Skills this week in the 44 pages of the report it commissioned from the financial consultancy London Economics on the likely impact of the proposed reform of the tied trade looks as if it could be summed up in the same three words as were on the back of Asquith’s envelope: “Too many pubs”.
The authors of the report appear to take a grim pleasure in declaring that, even after the decimation the pub industry has suffered in the past decade, “there is clearly surplus pub capacity, in quite a volatile market … with so many pubs on the margin of viability.” The report failed to give its own estimate of how many surplus pubs there are in the country, but happily quoted others’: “A number of stakeholders interviewed noted that the UK is probably still operating excess pub supply of approximately 6,000 pubs, suggesting a sustainable number of pubs of approximately 45,000.”
That 6,000 pubs – 12% of the current stock, one in eight pubs, an entire large pubco’s-worth – need to close to bring the sector down to sustainability is not a message anyone wishes to hear: not licensees trying to make a living, not pub customers who love their locals, not the communities already fighting to keep threatened pubs open, not brewers and other suppliers anxious to have as many outlets as possible for their products to be sold in, not pubcos keen to continue with the maximum possible advantages of scale, not anybody who loves the British pub for what it is, a unique institution and an important and vital part of British life.
Delivering that message, however, meant the report’s authors were able to make the main thrust of their report – that whatever choice was made among the various types of reform suggested, “although there is very great uncertainty about the precise value,” it was “our conclusion that the reforms proposed in the consultation will close up to 1,600 pubs” – seem almost a relief. After all, with 1,600 pubs out of the way, plenty of customers would move to the pub down the road, with the result, the report suggests, that “on average, pubs which remain will see footfalls 7.2% higher than present. This would be sufficient to turn a poorly performing pub into a more attractive prospect.” Would the many pubco tenants clamouring for the reforms to be brought in be happy if the result was 1,600 fewer pubs, but more custom for the ones that survive the cull?
The proposed reforms are meant to ensure that no tied-house publican is worse off, in the percentage of profit he takes from his pub, than a free-of-tie tenant. There are two big problems here: the first is calculating “no worse off”. As Bernard Brindley, chairman of the British Institute of Innkeeping, said in his evidence to the Business, Innovation and Skills Committee on pubcos and the tie in June: “The difficulty I have is how you get to the point of proving or analysing the figures as to where a tied tenant should be no worse off than a free-of-tie tenant. I have spoken to several chartered surveyors who have told me that it cannot be done, because you cannot compare apples with oranges.” The second is that messing about with the tied house system could cause an implosion: as the London Economics report says: “There is a real possibility that each of the proposed policy reforms, except possibly the code without permitting guest beer, instead of delivering the policy objective of ensuring tied tenants are treated fairly, ie, ‘no worse off’ than free of tie tenants, may lead to the end of a large-scale tied pub system.” In other words, the big tenanted and leased pubcos might feel the attraction of their business model had been wrecked by the reforms, and simply pack up, in an Everything Must Go distress sale. Some might feel that no more pubcos would be a Good Thing. But here’s Bernard Brindley again: “There are a lot of free-of-tie tenants who would rather be in a tied-tenant situation. The equation works both ways.”
To quote the wise Phil Dixon, from his own evidence in June to the BIS committee: “The problem we have in our industry is, everything is about estimate.” The London Economics report runs a host of reform scenarios through the computer, and comes up with a wide range of estimated results, though all result in the closure of pubs: bringing in a statutory code on pubco-tenant relationships without the “guest beer” option many want could see between 1,500 and 4,800 pubs close in the short term, the report suggests, which for an estimate is pretty wide. Other options, including having a “guest beer”, and banning the beer tie completely, because those options make many already barely viable pubs unviable for pubcos trying to cover their own associated costs, could see between 4,600 and 6,400 pubs close. (Though the report suggests around a third of those would open again, run by operators without the pubcos’ financial burdens.)
With respected economists saying the inevitable result of proposed legislation is the closure of huge numbers of pubs, it should not be a surprise that the government has decided, as the Irish say, to put its decision on bringing in a statutory code to cover the pubco-tenant relationship on the long finger. Political memories are usually short, but this government remembers that the whole current mess is a result of the dreadful shambles its predecessor made 24 years ago of the Beer Orders, brought in to try to “solve” the problem of the dominance of five big pub-owning brewery companies. The unintended consequences of that piece of interference in the market were the collapse of the bulk of the British brewing industry into the hands of overseas competitors and the rise of those big pubcos who are now themselves the target of proposed market interference. As the London Economics report says, “irrespective of what changes may be proposed or considered … almost any policy reform may have noticeable and unpredictable effects.” The government knows that, and it wants as long a think about what it should do next as possible. Preferably, some might suspect, until 2015 and the next general election.
The other big point from the idea that there are, basically, 6,000 unviable pubs in Britain working on the edge of survival is that the problems faced by so many tenants may not be all down to the much-demonised pubcos, but too many knives chasing too small a cake. With a scenario like that, it is inevitable a number of people are going to get hurt. If that statistic is true, any proposed reform of the system is unlikely to lead to thousands of tied-pub tenants suddenly freed from the pubco shackles and laughing and smiling over glasses of champagne as the gold and silver pours through the pub front door. Instead, we face – at current rates of closure – six more years of pubs shutting, tenants in distress, communities angry at the loss of important and much-loved local assets, and buckets of vitriol being thrown about as people argue over whose fault it all is. I wonder what Herbert Asquith would think.
I don’t know what will happen if the proposed reforms of the pubco/tenant relationship go through – mind, neither does anyone else – but I fear the worst. I DO know what will happen after this blog appears: more spittle-flecked fury directed at me from the anti-pubco activists, with my intelligence, my motives, my honesty and possibly my parentage all questioned. In 40 years as a journalist, I have met many angry activist groups, from parents fearful that their children had been exposed long-term to health-damaging levels of atmospheric lead to people who bought their council houses with local authority mortgages, only to find the interest rates they were paying soar to levels that threatened their ability to stay in their homes, to democrats in Hong Kong determined to ensure the iron foot of Beijing did not crush all dissent in the city. Not one of those campaigning groups alienated the people whom they needed to be cultivating the way the anti-pubco lobby alienates its potential allies. Guys, if even Pete Brown, who is 150% on your side, says: “The anti-pubco campaigners can be a bit spiky,” you have an image problem.
If you want to gain support for your campaign, you cultivate journalists, in an attempt to use them to get publicity for your cause. You don’t publicly call the editor of the Morning Advertiser, the pub industry’s leading journal, an idiot, thus pushing firmly away someone who ought to be one of your biggest allies. You don’t declare that only someone who has run a pub can possibly comment on how the tenant/pubco relationship operates, because you sound like someone who ran a pub but can’t tell when they’re mouthing self-serving nonsense. You don’t make massive relativity fails like comparing Ted Tuppen to Pol Pot, because it’s not clever, it’s a stupid, unthinking and dismissive insult to suggest pubco tenants are as badly off as two million murdered Cambodians. You don’t tell a journalist/blogger who gets more than 20,000 visitors a month that he is a lazy fantasist, because if you do he’ll be more inclined to think you can’t have a case if you need to resort to insults, and you’ll be missing the chance to reach all his readers with your arguments.. Furthermore, you don’t dismiss his request for evidence to back your case by saying that it’s all out there on the web and he has to go and find it himself: if you’re serious about your campaign, you ought to have a dossier of case histories of pubco atrocities to supply to him and other journalistic enquirers. If the police arrested you for murder, would you insist you were innocent, but tell the police they had to find the evidence for your innocence themselves?
Meanwhile, are the pubcos innocent? Or are pubco tenants victims of The Great Pubco Conspiracy, a scam to rank with timeshare holiday schemes and “boiler-room” share frauds? Peter Martin of the Peach Report, who has been commenting on the general hospitality scene for many years, and whose views I respect greatly, told the Financial Times earlier this year that “There is something wrong with the relationship between some pubcos and their tenants.” There is clearly something wrong with the relationship between some pubcos and some of their tenants, and ex-tenants. Otherwise there would not be so many angry, angry tenants and ex-tenants about. And I’d think it likely that some BDMs have not been as good at their jobs as they should have been, with the result that some tenants have suffered injustices and losses that have not been their fault.
But I’m positive, from cases I’ve studied, that there are plenty of failed tenants who simply couldn’t do a good enough job. Running a successful pub is extremely difficult, especially today, because you cannot just be good at the front-of-house stuff, the bits the public sees: creating that ineffable “atmosphere” that distinguishes a great pub from an also-ran loser is not enough. You have to be able to run the pub as a business, get your cashflow and accounts right, ensure the money is there to pay the bills, be rigorously organised behind the scenes, as well as brilliant on stage. That is a rare combination, I suggest. I’m certain I don’t have it myself, and I feel pretty confident that if pubs fail it’s a combination of there not being enough custom to go round all the pubs we have, and there not being enough great publican talent to go round all the pubs we have, either. If the pubco conspiracy theorists eventually produce a whistleblower to back up their conspiracy claims, I’ll take it back.
Finally, I let everybody have their say after my previous blog on this subject, but I really don’t see why I should again provide people with a forum to insult me, so for this blog post, anyone calling me anything other than the wisest commentator on the pub scene in Britain, or anyone with form in offering me other than praise, will be barred. It’s my pub, and I’ll do what I like in it.