Inside Track by Mark Stretton
This morning I should probably be writing the inside story on the latest shenanigans in Westminster concerning leased pub companies and the beer tie. While undoubtedly this is a monumental issue for everyone concerned, especially given events last week, the current unrelenting focus on licensees and their landlords is dragging the spotlight away from a much more fundamental issue to do with pubs: their survival. Sooner or later, organisations like the BBPA are going to have to focus not on the tie, but the pub. Greater clarity about what is happening out there needs to be communicated around the Westminster village, because at the moment the message just isn’t getting through. The government’s current tax grab, which last week heralded further increases in duty plus the restoration of VAT to 17.5%, fails to recognise the role of pubs in this country. Government policy means that pubs are dying in unnecessary numbers and Gordon, Alastair and Co don’t seem to realise why this needs to change. This issue is not to be confused with the fact that the UK is over-pubbed: it is and pubs need to close. What is happening, even with the recession, is way beyond an evolutionary process that should see the country’s pub population naturally decline. The current ramping of excise duty is allowing supermarkets to grab a disproportionate share of the market. Beer is a huge component of sales in pubs. A pub will typically derive anything from about 20% of its revenue from beer and up to 50%, and in many cases much more, especially in community pubs. For some its pretty close to 100% of the take. This product has been going up in price by about 4% every year, largely thanks to swinging tax movements. So clearly unless a pub operator can move retail prices forward by 4% each year, or cut costs, they are going to make less money this year than last. At the same time, beer is a tiny part of the supermarket sales mix, typically representing about 6%. Duty therefore can be absorbed, prices kept low, and the pricing gap stretched. As we all know keeping alcohol prices on the floor is a classic way for the nation’s grocers to build traffic. Why should the government care? Surely this is market forces doing their work? Well, perhaps, and the supermarkets will argue that this is a free market and the only thing that matters is competition, and great prices for consumers. But volume is leaving the pub sector at an alarming rate and this vast pricing differential appears to be starting to dramatically impact the way we consume alcohol. In its haste to plug funding gaps, the government has forgotten the role the pub plays in organising, and to an extent controlling, the (largely safe) consumption of alcohol. But pub going and pub usage is being breed out of Britain. The government should act to stop the drift from the on-trade to the off-trade. This sentiment is not sector biased, it based on common sense. If pubs continue to close at 2,000 a year, the UK potentially faces some real social issues. Like M&B’s Adam Fowle said recently: “The net result is that the number of pubs will decline in the mass market areas of Britain. The question is: what is going to fill that social vacuum? Unless something changes in the duty and tax regime, in a few years’ time we are going to be surprised at how many communities don’t have a pub.” Last week in the pre-Budget report, bingo got 2% reprieve on duty yet pubs got nothing. Why? Perhaps the concession won’t cost Alastair Darling as much. Perhaps the bingo and casino sector are much better at lobbying than the pub industry. Either way, the leased pub contingent need to stop doing their best impression of an industry in meltdown and move on. Everyone with skin in the pub game needs to get behind a unified, far-reaching, consumer-encompassing campaign to stop the government – this one or the next – from taxing the pub to death. The only way everyone (like pubcos and lessees) will make money from this industry is if the pub thrives. This is not about the division of the cake, it is about the cake. Leased resistance And what of those leased pubco shenanigans? As my colleague on the Morning Advertiser Paul Charity wrote in the wake of last week’s evidence session, it was truly the stuff of PR nightmares. I’m still not convinced some elements of the pub company fraternity “get it”. Some have changed commensurately; some seem stuck in the past. They need to understand that every single piece of communication that leaves the company on headed notepaper must bare public scrutiny. Certain companies have to stop telling fairytales. And direct debiting instant fines for perceived licensee misdemeanours – without proper procedures or due process – is sheer lunacy. Peter Luff and his colleagues are clearly minded to recommend legislation of some form. It is now up to the industry to demonstrate why that is not what is required. He will publish a report after the new year. It is time for everyone to head to the middle ground and move forward. A few people, like the BBPA’s Alistair Darby and the ALMR’s Nick Bish have huge roles to play. And those not capable of compromise must be cast aside.