Shares in leading tenanted pub companies plunged today in the wake of an announcement by a Houses of Parliament committee that it will be investigating pub rents.
The Trade and Industry Select Committee, whose members advise on government policy, said yesterday it was launching an inquiry inter the relationship between pub companies and their tenants after complaints by a small business lobby that tenants were being treated unfairly.
The committee said: "Two decades after the 'Beer Orders' were introduced to limit the power of big breweries, fears have been expressed among the public house community that the UK licensed trade is now being dominated by pub companies."
Enterprise Inns and Punch Taverns, which between them own 27% of the UK's 61,000 pubs, both saw their shares hit, with Enterprise down 33p, or 5.6%, to 560.5p at 2.30pm as 12.5m shares changed hands, and Punch falling 50p at one point before recovering to 39p down, a fall of 7.3%, at 491p.
The parliamentary committee said it would look at a range of issues, including the "beer tie", the exclusive purchasing obligations enforced by pub companies on their tenants, and also the basis on which pub companies set rents for tenants.
However, Enterprise said in a statement today that although it will participate "fully and objectively" with the committee, it was "surprised" at the announcement of an inquiry into pubcos.
Enterprise said the relationship between pubcos and their tenants, including the beer tie, had been "regularly and comprehensively" reviewed in both UK and European courts, and by the UK competition authorities, most recently in October 2002. "In every instance, the relationship has been consistently found to be fair and reasonable," the company said.
Enterprise said the average rent charged to its tenants represents just 4.6% of the average value of pubs in its estate. While in return licensees were required to buy beer from Enterprise "at prices higher than might be available to some licensees in the free market", the company said, even taking this into account, the average rent charged was still just 7.3% of the average pub value, "very much in line with normal commercial rental yields."
One industry analyst quoted by Reuters said the inquiry looked little different from a series of previous investigations, all of which have led to nothing. He said: "If the relationship was so bad between pub tenants and landlords, why have the owners of the best tenanted and leased estates got queues as long as your arm of people wanting to take pubs on?"
Another analyst said the Office of Fair Trading had recently approved Punch's takeover of Pubmaster, as well as Enterprise Inns' acquisition of Unique's pubs, suggesting it did not have a problem with the industry's current structure.
Giles Thorley, chief executive of Punch, said his company would be makingt representation to the inquiry, but indicated that, like Enterprise, he felt his company had no case to answer, saying: "The continued success of any tenanted or leased pub company is a consequence of a long-term, supportive business partnership with its retailers, a relationship which Punch has successfully adopted and progressed.
"The tenanted model enables businesses and partnerships in their widest sense to flourish in a fair environment. The industry has come a long way in developing those relationships and in building a much higher quality business for all parties."
A spokesman for the Trade and Industry Committee said it expected to write up its report before the summer recess of Parliament in the third week of July.
