Mark Daniels: What's in it for the existing tenant?
I've often been berated for being cautious in my thoughts on the beer tie. Looking at the tie from a purely "big-business" commercial aspect, it does make a lot of financial sense.
Franchised businesses have succeeded for many years, tied in some contractual way to whoever owns the trademark and the brand. Tied pubs aren't that different.
Of course, as small business owners, it's easy for publicans to get swept up in the emotion of seeing their businesses struggle and, undoubtedly, the punitive financials clauses in the beer tie is a major factor behind why many pubs are struggling today.
Exorbitant prices for stock, high rent costs, restrictions on gaming machines and other contractual obligations make it very difficult to compete in an open market.
So it's with trepid caution that we will watch to see what the outcome of Greene King's recent announcement regarding their pubco model brings.
Certainly, the brewery has to be applauded for being the first major player to recognise that the beer tie, in David Elliott's own words, needs to evolve. But despite the Pub Partners Managing Director's protestations to the contrary, it's obvious that this change has been triggered by the current state of the market.
Difficulties in getting new tenants to take on pubs has brought about a change in the pubco's tenanted business model that sees prospective new tenants being offered three- and five-year fixed rent options, free-of-tie opportunities on wines, spirits and minerals and, for some, the opportunity to buy the freehold after two to three years trading.
Other changes include increasing the number of Business Development Managers to look after the existing estate, reducing the average number of pubs each BDM is responsible for from 60 to 44. This change will allow the BDMs to provide more focus and support to both existing and new pub tenants.
The company is also planning to increase the number of pubs that will have access to cut-price offers on brands such as Ruddles and McEwans. At present, 170 pubs on the estate have access to these products, but from January this could be increased to 300.
It all sounds positive and, for people looking at buying in to the trade at the moment, Greene King appear to be putting a package together that is far more attractive than their competitors.
If the new model proves successful, other pubcos and breweries will have little choice but to follow suit.
Perhaps the only flaw in Greene King's announcement is that it appears to offer little benefit to existing tenants.
In the past three and a half years Greene King have changed my BDM more frequently than Jennifer Aniston has changed boyfriends, and the prospect of being able to spend more time with a Business Development Manager - welcome as it will be - is no consolation for watching new entries to the business getting a better financial deal on their ties than existing tenants.
Existing tenants have spent many hours and a lot of money developing their businesses and it is surely galling to think that - if it were to all go wrong now, after all that hard work and expense - somebody else is going to be able to take over and benefit from tie-free options and the chance to buy the pub in a few years. All the existing tenants will be asking for is a little relief and the chance to benefit from the same deal that new tenants are getting.
When studying Greene King Pub Partner's revised model, competitive pubcos would do well to remember the message sent out by Mark Benton's character in the Nationwide adverts, and think a little about the needs of their existing licensees too...
