Pubcos fail to act decisively on reforms

And so it proved, with the select committee recommending a statutory code of practice backed up by a full suite of sanctions, which could take the form of naming and shaming to financial fines.

The language of the report displays the frustration of the select committee that was so evident at the last one-sided hearing where, in particular, Enterprise Inns chief executive Ted Tuppen was treated like the accused in a criminal trial.

The committee report uses strong language, describing change as “glacial” and pubcos as having “wasted” their final chance.

The British Beer & Pub Association (BBPA) comes in for stinging criticism for being “impotent” in its sanctions and “half-hearted” in its implementation of codes of practice, failing to even meet its own reform timetable. Its case was not helped, you’d have to say, by several glaring slips by chief executive Brigid Simmonds who, for example, claimed the Association of Licensed Multiple Retailers’ benchmarking survey is in its third year, when in fact it’s year five.

The pubcos will be severely disappointed, but not surprised, by the outcome. Many on that side of the fence will feel the committee was completely unprofessional in its dealings with them and will consider the report one-sided.

But the lingering doubt remains as to whether some pubcos, and indeed some smaller family brewers, ever took the recommendations of the original Peter Luff report in 2009 seriously enough in the first place.

The success of lobbying​

The success of the Fair Pint campaigners was not only based on the strength of their emotive argument, but also dogged lobbying.

The pubcos could learn a lesson as some clearly did not spend enough time actively seeking out MPs and taking them to their pubs to explain to them just what other pressures licensees face these days, aside from the tie, and how much pubcos can support their tenants.

One pubco boss did his colleagues no favours with the infamous “morons” comment that has never been forgotten.
Instead, some chose to concentrate, rightly or wrongly, on guiding their business through the choppy waters of recession and left the lobbying to the BBPA.

But it is much easier for the BBPA to be dismissed as a faceless trade organisation as it cannot bring the story of support in action to life half as well as a pubco can.

There may now be consequences for the BBPA itself. The organisation is a broad church and the large brewing members will feel aggrieved that the valid argument on beer duty has been completely sidelined by the beer tie issue. They pay a membership fee and will have seen much of the BBPA’s time taken up dealing with the beer-tie debate at the expense of the tax argument.

They may also now feel that the BBPA’s overall credibility has been tainted in political circles by this damning report.

The BBPA came about as a result of the Beer Orders and could now be ripe for a further change, and it would come as no surprise if brewers, pubcos and even family brewers decided to go their own way.

But the BBPA can’t carry the can for the failure alone. It can only do so much and some members clearly dragged their feet when it came to introducing codes of practice.

Statutory regulation in the pub industry has not got a good track record. It inevitably comes hand in hand with unintended consequences, with no better example than the Beer Orders of 1989. But what could be the possible unintended consequences of a statutory code?

If there are financial sanctions for complaints, there could be a surge in their number. While there will be legitimate complaints, could we also see the rise of the no-win no-fee ambulance-chasing culture in the pub industry? If so, you have to accept the BBPA’s point that it will increase costs.

The BBPA also claims that a statutory code could close more pubs. The logic goes that more marginal pubs would be sold off rather than supported — estate churn steps up, in other words. It’s doubtful, though, that a statutory code will have anywhere near as profound an effect on the sustainability of large estates as the market itself.

Moving the goalposts​

And what of the actual Parliamentary process now? Committee chairman Adrian Bailey MP thinks a statutory code could be enacted within a year. Others think the Government may not have the appetite to press on at anywhere near this speed. The Government timetable looks pretty full at the moment too.

Some pubcos, such as Enterprise Inns, will feel they have nothing to fear from a statutory code because they already comply. City analysts certainly felt last week that the committee’s findings and recommendations would have no “incremental” effect on the share prices of the quoted companies. In other words, the market has already decided there’s not a lot of equity value in Punch and Enterprise.

One big area of contention remains the extent to which the committee has moved the goalposts in claiming all existing lessees should be offered a free-of-tie lease with an open-market rent review.

That’s what Bailey claims the committee calls for in its 2010 report. It’s not. It called for lessees to be offered a “free-of-tie option with a full rent review”. The pubcos have responded by offering a free-of-tie option with discounts available in the freetrade market — up to £170 a barrel. If the free-of-tie option with an open-market rent review is imposed it will, quite simply, cause the tenanted pubcos to implode — it would be impossible to rentalise the full level of the discounts they earn.

The select committee has been swayed again by the emotional argument. Committee member Brian Binley was the best example of this, quoting heart-breaking letters from lessees of the pubcos.

The wisdom of Solomon is required with some of these clattering failures. Short of spending a couple of weeks with each lessee, looking hard at their business, it’s very hard to attribute blame.

Is it poor retailing standards, the payment of an excessive premium, escalating costs, unsympathetic treatment by the pubco (or a combination of all of these and more) that’s caused a problem?

Put simply, the select committee has decided that the pubcos haven’t done enough to prove they’re not part of the problem.