Price rises this year are a kind of test of character for the major (and minor) tenanted pub companies.
The economy is seeing the most fragile of recoveries — and consumers remain watchful with their spending.
Last year saw a sharp polarisation in the performance of managed and tenanted pubs. Managed pubs pressed every value button they could to attract and keep customers in 2009 — and are keeping the price levers pressed down in 2010.
There's no doubt that tenanted pubs were the losers in market-share terms. Marston's tenanted division boss Alistair Darby told the December meeting of the Business Innovation & Skills Committee that the 400 tenants he'd met on his travels had the same issue: not the beer tie per se, but the price that they pay for beer.
The message from tenants was that they were increasingly unhappy about their freedom to compete with managed pubs.
Controversy rages about the real gap between the price of the average pint in a managed versus tenanted pub. Mitchells & Butlers claims it's considerable, others, citing CGA Strategy survey information, claim it is negligible.
What's beyond doubt is that tenanted pubs have been taking lower and lower margins to stay within touching distance of their managed cousins. And at some stage the danger is that tenanted pubs start to compare as badly with the managed sector as the on-trade does with the off-trade in absolute price terms.
In past years, the large tenanted pub companies have had to do very little to see earnings growth year after year — RPI rent increases and their pocketed wholesale beer margins guaranteed an upward curve.
Bad Faith League
The result of this may even have been injurious because it meant that there was little in the way of thinking about what might be good for the customers of their pubs.
Now the number of pubs needing help within the major estates sounds an unmissable warning. There is only so much capacity within the tenanted sector to keep on soaking up cost pressures coming directly from the pub company itself.
Any tenanted pubco boss who chooses to press the same old levers — wholesale rises passed on in full more or less — is taking the cynical route to growth in the current climate. It's tantamount to crossing your fingers and soldiering on with the same business model that's been creaking so badly.
Enterprise Inns (Enterprise Inns: beer prices up 3.5%) has already won itself a place in the Bad Faith League 2010 by sliding through average wholesale price increases of 3.5%. (At least last year Enterprise froze tenants' prices on major products for a few months.)
This year it is happy to blithely ignore the economy and the sharp drop in its licensee earnings in 2009. The only way forward for tenanted pub companies is through proper retail innovation to grow the profit pie — anything else is storing up trouble.