Pubcos must stop this beer-price escalator

Whether their motivation has come from a genuine desire to balance the risk and reward with their lessees or a sense of self-preservation in the face of political pressure and the threat of punitive statutory regulation is another matter. But who cares about the intent if the result is positive and sustained?

It’s a buyers’ market as far as potential pub tenants are concerned. If you have the skills, vision and dedication to take on a pub (and an attractive pot of incomings helps), and if you don’t have your heart set on a particular property, the pub companies will fight among themselves for your business.

In the current climate, you will be able to negotiate yourself a pretty attractive rental deal, with a number of significant protections afforded to you by comprehensive sixth-generation codes of practice, backed up by a self-regulatory system designed to safeguard your interests.

And that may — any day now — be enshrined in Government legislation.

Business prospects​

So far so good. But there is one area in which pubco lessees still regularly appear to suffer in the relationship with their landlords that remains unregulated and potentially unfair — that of beer pricing. We know that the principle of the tie allows for lower dry rent, and thus lower fixed costs, compensated by higher wet rent, and thus higher variable costs. And this can be an attractive proposition for someone entering the trade and uncertain of their business prospects.

But the annual pricing ratchet on which many licensees find themselves seem always to be a significant multiple of any increases in input costs imposed upon the pubcos by the brewers. Over a three-year tenancy, this might not be hugely significant, but for those on longer-term leases, the effects are compounded, and can lead to eye-watering differentials between pubco and wholesaler prices.

For licensees in competitive battles with local freehouses and managed pubs, this inevitably squeezes the GP of a pint to the point where beer sales are no longer attractive. Little wonder some savvy operators would rather sell wines, spirits, coffee and soft drinks.

Chipped away​

I asked [trade consultant] Phil Dixon to explore beer-price inequity and he does so in his usual inimitable style, proposing a number of solutions. To these I might add the suggestion of an annual price increase cap for the duration of a lease relative to open-market price inflation.

Some licensees enjoy capped RPI-based dry rent increases. Why not a similar control for wet rent increases?

Incessant beer-price hikes are erosive to pub businesses. If I was a tied tenant, I’d be sick to see the trade I’d built up over a number of years slowly chipped away by relentless beer-price escalation.

The pubcos fought passionately against the beer-duty escalator — and won their concession. It’s not fair for them to impose the same sort of mechanism on their lessees.