Fit to be tied?

If the tie goes, the cake will simply have to be cut in a different way, says Clive Williams

Dave Law's comments (Your Say, MA, 7 August 2008) on my article (That'll be the day, MA, 24 July 2008) miss the point I was making.

When referring to reviewing rent, I did not imply that a comprehensive rent review would take place. I said that the net income the pubco/brewer would lose as a result of the tie going would need to be put on rent. This is not the same as reviewing the total business opportunity of the pub for rent purposes.

I said: "Pubcos and brewers will need to replace the income lost from tied volumes, and this, quite obviously, will have to go on rent."

I went on to say that the gross rental increase required (ie, less the overheads saved on the business development managers and any other staff who would lose their jobs if the tie went) would likely be in the region of £36k. Incidentally, if the total business opportunity of the pub was taken into account in recalculating the rent, and if higher GPs are achieved as a result of buying at non-tied prices (as Mr Law implies), this would result in a higher rent via the divisible balance method he describes.

This might not be an equal split between both parties. And, if the tie goes, lease/tenancy agreements would need to be renegotiated from scratch — licensees can't just take out the elements they don't like.

Mr Law supposes the vast array of suppliers, faced with the biggest-selling opportunity the industry has seen since Adam was a boy, will try to conduct their business via the phone or internet. This will not happen, as they want to visit more than 50,000 potential customers to sell-in their wares if the tie goes.

I am also a former freetrade director at a national brewer, so I know from first-hand experience that many freetrade suppliers lick their lips when faced with such a golden selling opportunity. Effectively, the BDMs who lose their jobs as a result of any tie loss are likely to be directly employed by the brand-owners to sell their products, as BDMs (despite what we sometimes read) know their licensees — and their pubs — well.

Regarding Mr Laws asking if I would "succeed in convincing a lessee that the tie is not a sharp and shoddy practice", the answer is that I wouldn't expect a prospective lessee/tenant to sign an agreement if they were not happy with the lease conditions, with the business plan making it clear whether the lessee was going to achieve an adequate financial reward for their endeavours.

The bottom line is that I stand by what I said, in that licensees are not certain to be better off if the tie goes. There are no free lunches.

Effectively, if the tie goes, it means that the cake will need to be cut in a different way. If this happens, it is not always the group that might appear to win — ie, tied licensees — that actually wins. History proves this — look what happened with the 1989 Beer Orders. In retrospect, the Government should have left things as they were and not meddled.

This, of course, would have meant that Punch and Enterprise, for example, would probably not have been formed. Now that makes an interesting story!

I am now retired and could while my time away on a beach somewhere, but I write my articles in MA because I love this business, having been involved in virtually all sectors of the on-trade all of my life. Also, I should point out that I have no financial involvement in any pubco or brewer, and do not receive a fee for my MA articles, so I have no vested interest in arguing that the tie should go or remain. I am simply trying to give a balanced view, based on my experience in the industry.

This piece was written before Brian Jacobs wrote on behalf of the Fair Pint campaign (The economics of the fair pint, MA, 14 August 2008) in response to the same Clive Williams article of 24 July 2008 mentioned above.