Greene King's letter to tenants in full

The full text of Greene King managing director David Elliott's letter to tenants.

Dear Tenant/Lessee

Many of you will have seen the headlines in the Publican last week concerning a group of licensees in the Oxford and Wantage area who are suggesting that they are being treated unfairly. Whilst we have not had any formal communication with this group, the main basis of their claims seem to be twofold;

a.That we are breaking competition law and that we have a dominant position in the market place, and

b.That the price we charge for Fosters to our managed houses is cheaper than the price we charge our tenants and lessees and therefore unfair.

I would like to confirm that we totally reject these allegations. I have to say that I am very disappointed that licensees have not spoken to us directly or contacted their Tenant Development Group representative. I would also point out that the person spearheading the campaign, Meeko Oates, is no longer a Greene King licensee.

With regard to the competition issue, the tie has been reviewed extensively over the last few years by the European Courts, The Competition Commission and most recently in December by the House of Commons Select Committee. In every case the tie has been found to be fair and reasonable. In addition, we received clearance from the Office of Fair Trading last year when we purchased 430 Laurel Neighbourhood pubs and they requested that we sell only 13 pubs across the country to avoid any suggestion of a dominant position either nationally or locally.

Within the Abingdon, Wantage and Didcot districts Greene King owns 77 pubs out of a total of 350 licenced premises or 22% of the total market. In the recent Commons Select Committee report the OFT used a benchmark of 40% as the threshold for a dominant market share. And even then only if there was evidence of collusion against tenants and price fixing by the pubco and there is no such evidence in this case. Clearly we fall well below this threshold and cannot, therefore, be accused of market dominance.

Secondly, the point raised regarding the comparison of the lower cost price of beer between our managed houses and the price charged to our tenants and lessees is incorrect. As you know, unlike our tenancies and leases Greene King own and operate our managed pubs ourselves. All of the associated overheads and costs are borne by Greene King including manager wages, staff costs, marketing and promotional costs, repairs and all maintenance, training, rates, utility bills and cost of the food and beverages including beer.

Because we are supplying ourselves we charge a notional price for beer, which is purely for internal accounting purposes. These figures are meaningless for any other comparisons outside the managed house division. The point is that Greene King no more sells beer to its managed pubs than a Tesco distribution centre sells milk and bread to a Tesco Superstore.

Pub Partners' strategy is to provide the best tenants a low-cost entry into the pub industry and to ensure that both Greene King and its tenants can make a reasonable profit. The balance that we strike to achieve this is to charge a fair and reasonable rent and a fair price for beer. As a result, our average rental income is 11% of pub turnover - well below the industry average.

In terms of beer pricing, Pub Partners operate the same [brewers' standard] wholesale trade price list with all our tenants and lessees and the same trade price list is used for Freehouse operators who purchase their beer from Greene King. Whilst Freehouse operators might receive a level of discount the Commons Select Committee pointed out that this discount is balanced by the rent subsidy gained by tenants compared to rents charged in the open market.

In addition, our tenants and lessees receive other quantifiable Special Commercial or Financial Advantages. For example, Pub Partners have set aside £2 million towards supporting our licensees in the implementation of the new licensing regulations. We also expect to spend £12 million on the continued investment in our pubs over the next 12 months. A Freehouse operator would not receive any of these financial benefits.

We are proud of our record as being seen as one of the most supportive pub companies. We are always looking to improve our support package, however, and if you would like to discuss your personal situation with me directly please feel free to contact me. I assure you any issues you have will be fully explored.

Finally, I would like to confirm that I have sent a copy of this letter to both The Publican and The Morning Advertiser and have asked them to print this as our response to the original accusations. If I have any other information I will, of course, keep you updated.

Yours sincerely

David Elliott FBIIManaging director