Pubco model could be “in jeopardy” Offering a genuine free-of-tie option would put the pubco business model in “serious jeopardy”, admitted Punch managing director Roger Whiteside. Speaking at a All-Party Parliamentary Save the Pub Group meeting in Westminster yesterday called by Liberal Democrat MP Greg Mulholland, Whiteside claimed that going further than the current free-of-tie deals would endanger the pubco's business model. “This would fundamentally undermine the nature in which we are able to galvinise our scale advantage in buying from brewers. It would put the business model into serious jeopardy if that were to happen overnight.” Enterprise Inns chief operating officer Simon Townsend agreed, defending the tied model. He claimed licensees within the Enterprise estate are choosing the lower rent and higher beer price option in the “vast majority of cases”. He added: “The rent levels we have been able to secure through open market rent review lettings have declined significantly over the last two or three years and that is a reflection of the market. If an open market rent review were available to us as a whim, whenever we liked it, I can assure you that in the rising market until a few years ago, if we had instigated open market rent reviews on every pub that would have been wholly unfair, wholly unreasonable and not contained within the contract.” Whiteside agreed that while there have been too many pubs closing the beer-tie has helped protect many pub businesses, as it shares some of the business risk between the small business owner and its landlord. He said: “I promise you the tied model has protected them to a greater degree than an unresponsive landlord who simply has a fixed rent to pay.” FLVA supports statutory code move One of the key signatories — and the only tenant body — to the industry voluntary code of practice framework has said the system is not working and must be replaced by a statutory code. The Federation of Licensed Victuallers Associations (FLVA) was seen as giving significant credence to the voluntary code, which is the pubcos basis for reform, when it signed up in the wake of the failed industry mediation process. The other tenant associations — Fair Pint, Guild of Master Victuallers and Association of Licensed Multiple Retailers — refused to sign the code and instead formed the Independent Pubs Confederation. FLVA president Nigel Williams told the meeting the FLVA had signed up to the code of practice in the knowledge that it was a “starting point” and that it had made a difference in the areas of training for new tenants and in a new range of lease options. But he said it had done little to improve the profitability of existing tenants and the FLVA had seen some “horror stories” over the past year. It had helped secure additional benefits or rent or beer discounts worth £1m for tenants over a total of 50 cases. “Yes, the code of practice is a start but I don’t see anywhere where the code of practice has gone further than they need to go. At best they have gone just far enough,” he said. “The problem with the code of practice is they have really tied up the recruitment process and that has slowed down so the number of new deals is probably much lower than expected. “So we still have a huge raft of lessees and tenants struggling under the new regime and in the face of new tenants coming into the market with much enhanced deals.” Williams said the free-of-tie options, where pubcos offer free of tie pricing in return for increased rent, was just a way “to protect the landlord’s rent roll against falling barrelage” and any tenant taking a current free-of-tie option would have to “significantly” out-perform the Fair Maintainable Trade year-on-year. Williams questioned whether the code of practice messages, spoken about by Punch managing director Roger Whiteside and Enterprise Inns chief operating officer Simon Townsend, where “getting through to the troops on the front line”. “The codes are close to the minimum in a lot of areas but I don’t think it addresses free of tie at all,” he told the meeting. When asked if a statutory code was now required, he said: “Yes, a statutory code is probably the only way to get a long-term solution. Until we get some very strict code of practice enshrined within the lease I think we will be batting on a very sticky wicket for some time.” The FLVA is still unlikely to join the IPC, because it has reservations about calling for a complete abolition of the beer tie. Independent ombudsman calls from IPC delegates Now is the time for a statutory code of practice governed by a independent ombudsman — that was the clear message from Independent Pubs Confederation delegates to MPs on the Save the Pub Group. The Association of Licensed Multiple Retailers, Campaign for Real Ale (CAMRA), Fair Pint, Federation of Small Businesses (FSB) and the Guild of Master Victuallers (GMV) said the codes of practice had failed to deliver on fundamental recommendations made by the Business, Skills and Innovation Committee. “We don’t think it (codes of practice) dealt with the substantial issues raised by the select committee,” said CAMRA chief executive Mike Benner. “We need to see a legal framework for a guest beer policy, open market rent review and free of tie option to help bring competition and fairness back into the market place.” Marie-Claude Hemming, of the FSB, said it wanted a statutory code written by a “truly independent body” to be governed by the new competition authority. Fair Pint’s Simon Clarke added: “The codes address low priority points. It doesn’t deal with tenant profitability and abuse of the dominant position that the tie provides.” Bill Sharp, of the GMV and IPC chairman, said the industry continued to be “blighted by the greed and unfairness” of the pubcos. “The codes are merely a way for the pubcos to continue to profiteer at the tenant’s expense. Tenants signing the codes of practice legitimises the agreements.” ALMR: Lack of action from pubcos “perplexing” ALMR chief executive Nick Bish said the lack of action from pubcos on free-of-tie had been “perplexing” and caused “confusion and disappointment”. “Offers have been new and sophisticated and some have made progressive changes on pricing policy but they are emanating from the same business model,” he said. “There is little evidence of free of tie options being offered.” Benner also said the codes had failed to deal with the “fundamental principle” that “tied tenants must not be worse off then free of tie tenants” and questioned whether the countervailing benefits of landlord support were actually being received and valued by tenants. Fair Pint’s Clarke, a chartered surveyor and Enterprise tenant at the Eagle Ale House in Balham, said: “In the main the free of tie pricing is simply a clear emotive use of the words ‘free of tie’. “It is a temporary discount scheme in return for more rent. Marston's have one bolted on to their ultra-advance agreement but it comes with a tie release fee. Not one brewer or pubco in the market has offered a free of tie option and open market rent review.” He called on the pubcos to show more compromise, citing that Fair Pint had compromised on its goal of the abolition of the tie in favour of the recommendation of a genuine free of tie option for all. He added: “We absolutely need to have a statutory code and it must deal with the fundamental issues. The code is a step in right direction but we have had codes for past 20 years. “The key ingredients must be a free of tie option with an open market rent review. It will not cure all the ills but would cure an awful lot as it would empower the tenant.” But he said that it was unlikely the pubcos would ever give up the tie because “the tie is a massive money spinner”. BII role questioned Sharp questioned the role of the BII as the policeman of the codes and voiced concern over the fact it could not levy a penalty against breaches. “The BII is a training and standards body and not fit for the purpose of that (policing the codes) — (although) well meaning.” Marie-Claude Hemming, of the FSB, said it wanted a statutory code written by a “truly independent body” to be governed by the new competition authority. British Beer and Pub Association (BBPA) chief executive Brigid Simmonds defended the role of the BII. “I think BII has been testing us and has been honest in taking-on issues raised by licensees. I think the costs of having an ombudsman would be huge and totally out-of-proportion.” Townsend added: “Our experience is that BII help has gone beyond the guidelines. It doesn’t feel like the code of practice doesn’t have teeth because we expect to be held to account. “There is a great deal of scrutiny not just from the Save the Pub Group but from the select committee, the trade media, the campaign groups who will be looking for areas where we fail and looking for areas where we are perceived to be acting unreasonably. That is a level of scrutiny that I believe drives standards of behaviour in a very positive direction.” BII chief executive Neil Robertson added: “I think where the BII has done well is where they have sought and secured a resolution to the problems. Regulators don't get resolutions to individual situations - they allow (failures of) compliance to add up and then there is a penalty.” BBPA and pubcos defend code of practice BBPA and pubco leaders defended the industry code of practice claiming that progress has been made since its introduction. Simmonds said she believed that progress had been made with the code but that it should “evolve”. “I have to say it is early days for this code. I certainly think there is a lot more progress that we can make but a lot of progress has been made,” she said. “I think a lot of our members would say that it takes a lot longer to take on licensees as they have to go through this pre-emptive training and they have to take lots of different advice before they can take it on. Where we have got a mixture of existing and new tenants, that is going to take some time.” She claimed the pubco and tenant relationship has become more balanced since the introduction of the codes. Although, Simmonds admitted there were areas around the tie, which could not be in the framework because of competition issues. “All we can do as an association is to encourage our members to do more,” she said. She said that forcing pubcos through the Code of Practice to offer a complete free of tie offer could push family brewers out of business. Both Enterprise Inns and Punch claimed they believed the codes were working although admitted that there was more work to do. Townsend said: “I would accept there have been reputational issues over the years and you would not be surprised to know that many of those reputational issues would arise from a dispute between the two parties. I do believe unfortunately there may be situations that cause individual businesses to fail and we may not be able to resolve this. But I do believe the clarity and transparency within code of practice and the activities we do outside of the code are working to improve our relationships with individual tenants and lessees.” Whiteside added: “I put the code of practice at the heart of a programme to change the culture of the business. There is no question that our reputation has shifted in the last few years. " BII defends policing of the code BII chief Robertson has defended the organisations policing of the code. He was asked by chairman Liberal Democrat MP Greg Mullholland if there was a “fundamental problem” with the role the BII is trying to play and whether there was a conflict of interest as many of its corporate members are pubcos. Robertson said: “The role the BII plays as a professional body of the industry is closely associated with the corporate members as well as individual members. We are not independent we are part of the industry. Our job is to stand up for what is right, good practice and excellence. It is within our mission to ask questions of our members to say when something is wrong, be they corporate or individual members. And what we have done is to extend that to non-members. "The primary worry for me in all of this is not the tie, not open market rent reviews and not surveyors. It is the gullible people coming into the industry who have been in the past taken advantage of. We have got to do more to protect those coming into the industry. Our regulatory role is part of our wider mission.” He said that both the pubcos and critics had worked hard to ensure the new system has worked. But claimed he believed there had been more competition for tenants between pubcos. He added: “I have been despondent in that we have a situation where we may have had seven out of ten tenants not fully understanding the business model. I suspect we are now at four or five out of ten who do not fully understand the business model. That is just the complication of the industry and we will keep working hard to improve that.”