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Pubcos back in spotlight over tied business model

17 June 2011
Pubcos back in spotlight over tied business model

The big pub companies are once again facing a fight to fend off government intervention over the tied business model.

With the formal re-opening of the Business, Innovation and Skills (BIS) Committee inquiry into pubco power earlier this month, the spotlight is back on this highly contentious issue. And the vultures are circling.

Even the committee's chairman, Adrian Bailey MP, sounded forthright about the job ahead, saying: "Our predecessor committee made clear that this was the last chance for the pub companies to ‘get their house in order'. Our inquiry intends to find out if they have."

However, having been through the process three times before, the pubcos are prepared. Evidence of this came at a meeting on 7 June of the All-Party Parliamentary Save the Pub group, chaired by Lib Dem Greg Mulholland - a notorious pubco cynic. Surprisingly, both Enterprise and Punch accepted invitations - perhaps seeing it as a useful warm-up before facing the full BIS committee.

Both companies took a battering from the committee's previous incarnation. And during the Save the Pub meeting, Simon Townsend, Enterprise's chief operating officer, and Roger Whiteside, managing director of Punch's leased division, accepted there had been room for improvement. Townsend said the business model had been "evolving" and there were things "we could do better". "We recognised there were some very positive recommendations from the BIS committee and have sought to apply these," he said.

Whiteside was more direct. "I felt there was a need for improvement," he said.

The pubcos will have their work cut out persuading the committee they have reformed in a number of key areas. These are: offering a genuine free-of-tie option; offering a guest beer option; tenant profitability; and proving non-statutory codes of practice can work.

The issue of free-of-tie options is very much a sticking point. Earlier at the meeting, Nick Bish, the Association of Multiple Retailers chief executive, said there was "very little evidence of complete free-of-tie options being offered". Townsend admitted they did not offer a "completely" free-of-tie option.

And while Whiteside pointed to a number of free-of-tie options available to its tenants, it had "stopped short in one respect" and introduced "free-of-tie" pricing. "If we were to offer them a completely free-of-tie option … it would jeopardise the business model," he said.

Tenant profitability is also likely to be a highly contentious issue, judging by the meeting. Townsend appeared amazed that this accusation could be levelled at Enterprise. "It doesn't feel like the issue of tenant profitability has not been addressed," he said, pointing to about 600 licensees it had negotiated variations on contracts with.

On the guest beer option, Whiteside confidently pointed out that Punch had gone "one step further" by offering a buy-one-get-one-free-of-tie offer on guest ales. Enterprise's code of practice also says licensees can opt for a "guest ale concession".

It was clear, however, the pubcos will not get an easy ride when the committee starts its inquiry- and their critics are convinced they have not gone far enough. Mike Benner, Camra's chief executive, said: "We need to see a legal framework that leads to a guest beer policy and free-of-tie option, that will help bring competition and fairness back into the marketplace."

As with all things involving Parliament, a quick response from the committee either way is unlikely. But both sides will be aware this could the last occasion for some time where these issues will get a substantial political platform. It is likely to be Business Secretary Vince Cable who gets final say on whether to legislate. But whether he will still be in the cabinet by the time a decision might be required is anyone's guess.

CODES OF PRACTICE

The pubcos have been busy drawing up codes of practice, to give licensees a better understanding of what to expect when entering into a contract. Not everyone, however, is convinced by the effectiveness of the codes.

Nigel Williams, president of tenant group the Federation of Licensed Victuallers Associations, said there was still a need for a statutory code. "There are some horror stories that we come across," he said. "Without a statutory code of practice we will be batting on a very sticky wicket for some time."

British Institute of Innkeeping (BII) chief executive Neil Robertson also admitted part of the problem was "the gullible people coming into the industry, who in the past have been taken advantage of."

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