Pubcos: looking beyond the OFT

It feels a bit like the fever that has gripped the pub sector for six months or more broke in the last fortnight. The relief was evident in the markets last Thursday when the shares of the major leased pub companies (pubcos) enjoyed a substantial upward surge in the wake of the Office of Fair Trading’s decision to take no further action on Camra’s super-complaint. The calmer mood that prevails began when the British Beer & Pub Association, acting on behalf of leased and tenanted operators, won the backing of the BII and the FLVA for its new industry-wide Code of Practice. The code has been criticised by out-riders for leaving too much wriggle room. And the chorus of disapproval will certainly rise up again if the pubcos fail to act with the transparency they have promised in future relations with their tenants. But even Peter Luff MP, who chaired the highly critical BEC report that put the pubcos firmly on the back foot in May, seems impressed with the extent of pubcos’ movement on many of the key issues. One other thing has changed forever. Pubco critics have become infinitely more media-canny, mobile and persuasive. They were helped in winning supporters by the obvious negligence of the tenanted sector in failing to implement the recommendations of the 2004 TISC Report and an out-right failure to deal with a variety of issues that their lessees complained about over and over – like over-expensive pubco-organised pub insurance and pubcos’ over-earning on machines. First and foremost among the articulate, persuasive pubco bashers was Fair Pint’s Karl Harrison – he has devoted vast amounts of time to campaigning this year as well as providing the organisation with financial clout. My inbox has received e-mails from Harrison in a fashion that suggests he gets by on less sleep than Margaret Thatcher. There is talk out there that it was Harrison who was instrumental in persuading the Association of Licensed Multiple Retailers (ALMR) that they should withhold support from the BBPA’s new oode. He, no doubt, found ready allies in a number of ALMR senior members who feel they have been treated unsympathetically by a couple of the larger tenanted operators and are suspicious of promises; one of them emailed me last Thursday to point out that Enterprise Inns is on the third iteration of its code since February 2008. Time will tell whether the ALMR’s decision to join a new trade body, the Independent Pub Confederation, is a strategic error, a tacit admission that it lacks sufficient clout as a stand-alone body. It’s all eyes now, though, on Lord Mandelson. It’s hard to imagine much of an appetite within Government to get involved in re-casting 32,000 contractual arrangements. The other wrinkle is the Royal Institute of Chartered Surveyors (RICS) promise to review the rent-setting process within the tenanted pub sector. There is a strong perception that the tenanted pubcos have managed to get their thumbs on the rent-setting scales. The RICS report provided a ringing endorsement of the ALMR’s bench-marking scheme, suggesting that efforts be made to generate much more of this sort of information to enable a proper assessment of costs and trading trends (the ALMR annual bench-marking survey, now in its third year, was based on information provided by 29 companies). It’s surely possible to create a more robust informational universe to ensure all parties feel that the system is attuned to the real world, and feels the full gravitational pull of the marketplace. One multiple lessee emailed last week to say: “I know of no rental bid on a review where someone has come and said “Well, Fair Maintainable Trade (FMT) has clearly fallen 24%”. Yet that fall is our experience in wet-led sites. I think that in an average low-ish price 220 barrel pub, that means £22,000 to 25,000 of profit.” A realistic view was certainly in evidence in the much-discussed recent Brooker case involving Enterprise Inns, where the judicial view was that a tenant’s bid on rent would be 35% of the divisible balance given market conditions. As ever, nothing, but nothing, wields the super-fast power of the marketplace. Its realities have driven fundamental change in the way pubcos have done business with their tenants in these recessionary times (a survey of 24 multiple lessees to be carried in the Morning Advertiser this coming Thursday will provide chapter and verse on this.) The tenanted sector still boasts plenty of soaring successes and the challenge now is to reduce the number of clattering failures. Setting the right rent for each and every pub by dint of a better-calibrated process stands to help in this regard. With beer volumes in long-term decline in so many tenanted pubs, it will also, while we’re talking realities, transfer a deal of the pain to those whose book values for pubs reflect headier days. Paul Charity is editor of the Morning Advertiser, the leading pub industry trade magazine. Visit www.morningadvertiser.co.uk