Monday, 9 November 2009

Ale tied up...

The Publican reports CAMRA is mulling whether to mount a legal challenge against the OFT's decision not to refer the casketeers' super complaint fingering the tie up to the Competition Commission. Furthermore, in a logical step, it looks likely the St Albans-based pressure group [full disclosure - I am a member] will lobby the European Commission's steely competition hawk Neelie Kroes.

For those readers unaware, when a brewery or pubco attracts licensees to run its pubs, the latter sign deals through which they agree to pay rent and secure booze through their landlord. CAMRA, among many others, believes this practice makes it difficult for licensees to make a living and considers it to be anti-competitive, restricting the access of smaller breweries into the marketplace (as pubcos buy in bulk for their estates). This said, it fits ill with CAMRA's brief to attack breweries, so it takes the view they ought to be allowed an estate of pubs to get their wares to market while pubcos not in the business of brewing are considered fair game.

There are problems with the tie as it stands. The widespread complaint of unfairly high rents needs greater exploration and a solution could benefit all concerned - scroll down to the bottom of this Morning Advertiser article for a concise rundown from KPMG's Mike Coughtrey; here's a sample:

[...] in some cases the combined rent made up of the standard dry rent, the landlord's margin on the tied beer and machine profits, is not always being set at sustainable levels, making it increasingly difficult for the tenant to trade profitably and sustainably.

However, Coughtrey also points out that the tie offers 'a low cost entry point' into the pub trade with considerably fewer risks than buying freehold. This is unarguably true, but presumes all go into the agreement with their eyes open. I am not sure that this is the case - and by that I mean more research is required, not that I have a fixed view. There is much anecdotal evidence of questionable practices employed to entice wannabe landlords and Jeff Pickthall's recent experience with an Enterprise Inns operative certainly makes for interesting reading.

For all this, I would advise CAMRA to limit itself to lobbying for reform to the tie without the threatening, and thus far unproductive, willy-waving.

As pubco-tied landlord and blogger Jeff Bell has argued, the unshackled free house dream would leave individual pubs with no intermediary between them and mega breweries, who would offer all-in, cheap deals. The tie would in effect remain, but for the consumer variety would diminish. Given the number of competent licensees is not likely to increase, it is probable our pubs would become more ale-unfriendly, akin to the Irish pub scene, where bonhomie is as plentiful as here but beer choice is generally woeful.

'But pubco beer choice is woeful,' you cry. A couple of years ago, I'd have agreed. But those pubcos, previously slobbering over the option of converting their businesses into real estate investment trusts as property prices skyrocketed have taken a sudden interest in their core revenue streams. Readers who like beers from micros such as Mordue, Moorhouse's, Woodforde's and Meantime will have noticed them appearing in greater numbers in solidly-run pubco pubs.

Recent economic turmoil pushed ajar a door that the nudge-nudge of proper market research-led lobbying and representations by savvy licensees is throwing wide open. The consumer has far better choice than two years ago, despite the number of outlets having fallen dramatically. As Pete Brown argues from the cold statistics in his recent Cask Report, ale-friendly taverns are closing at a far slower rate than mega-swill dens - and pubcos are taking note.

This is not an 'in praise of pubcos' eulogy; I believe there is merit in a proper investigation of both how pubcos recruit lessees and whether a more transparent rent setting regime can be implemented. I am convinced licensees ought to be given greater freedom to supply beer to a pump from local micros (say, those within 30 miles, with a small percentage of takings going to the pubco). The latter move might well offset rent concerns.

But CAMRA is wasting its time if it thinks its posturing will secure advances for the beer consumer; legal challenges are desperately unlikely to succeed and will further alienate the organisation from big players in the industry who are actually moving in their direction.


Jeffrey said...

What people fail to realise is that pubs that are leased are from Punch and Enterprise are still independently operated. Beer choice is good enough for all but the geekiest of beer geek. The price of beer the landlord is a handicap, but ultimately overall margin across the board - beer, spirits, wines, spirits and food - is what matters, and if that's OK there's no problem. Freehouses leased from commercial landlords (such as the Wenlock Arms) still have to pay rent, and that can still go up when there's a review.

impymalting said...

This does clear up my confusion quite a bit, and also explains the types of pubs I've encountered here in the UK-- either they have one or two decent ales on or it's all macro swill. Then, there are others like the Market Porter or the Magpie and Crown who manage to stock an ever-changing range of several choices-- how do they manage that?

It's amazing to me that it comes down to licensing!