Time to unpick tied beer prices
There is no doubt that in the areas of rents and disputes self-regulation is clearly working. Rents are coming down and being set more fairly and transparently than at any time since the Beer Orders.
Despite some campaigners’ attempts to discredit the Pubs Independent Conciliation & Arbitration Service, its reputation is enhanced, and it was praised by its latest complainant as “fantastic”, “professional” and “very supportive”.
However, the issue of the tie will not go away. For many years the arguments were about choice, but today the concern is all about one factor — the price of tied products.
Devastating effect
I have long tried to argue that if as a pub company you are receiving £300 a barrel (36 gallons) discount for premium lager, then you should be passing on a reasonable proportion of this amount. I am also not convinced that when a freetrader incurs a 2% to 3% increase in beer prices from a brewery that this also necessarily applies to companies with purchasing power the likes of which we have never previously seen in our history.
When I advised the National Union of Students Services on purchasing for its 200-plus bars more than a decade ago, breweries would tender with fixed prices (except duty) for three years. I am, therefore, a little sceptical about how much more our pubcos pay on an annual basis for their beer supplies. Admiral Taverns, to its credit, has not passed on price increases for three years.
Why do microbreweries tell me they have not put their prices up, but pubcos seemingly always raise the cost of their beers to their tied estate?
Six years ago an experienced freetrade licensee could obtain a £110 to £120 a barrel discount on his beer volumes. Now anyone can undercut pubco prices by £200 on lager. That difference today is having a devastating effect on the margins of long-serving tied publicans.
I have to concede that some innovative new agreements, such as the Punch Foundation Tenancy, do ensure reasonable profit margins for the publicans of tomorrow, but what about the ones from yesterday?
Sustainable
Take the example I used when presenting to the Business, Innovation & Skills Committee of Nigel and Vanessa Williams at the Ranmoor in Sheffield, South Yorkshire. They are excellent operators, and although their prices are on the high side for their range of superbly kept draught beers (from £3 for Farmers Blonde Bitter to £3.80 for Staropramen) they make just 33.7% to 39% GP.
British Beer & Pub Association benchmarking figures indicate average pub overheads of 34%, so how you pay the rent and make a profit on these margins is a conundrum that I can’t solve. The pubco might argue that its now lower rents reflect these lower margins.
However, each annual beer price rise sees margins further eroded (already in Nigel’s case by one more percentage point since I gave evidence last June). And, of course, energy and staff costs are all on the rise.
We seem to have a model where the best licensees charging the most for their beers often make the least amount of profit. If and when they begin to go under, their only comfort is that their brewery/pubco might, at its discretion, wade in and throw them a lifeline to prevent them from drowning.
That’s the reality of the model, but it’s not really defensible.
So what needs to be done? An immediate proactive margin check by business development managers to ensure sustainable businesses? All lessees to be offered industry-agreed minimum discounts at their next rent review with a right to open market benchmarking?
Is this an area in which the pubcos can compromise and meet the Fair Pint campaigners half way?
Twenty years ago the most disliked pubco, Inntrepreneur, changed its image and reputation overnight by increasing discounts and de facto profit margins for its retailers. It’s time for history to repeat itself.
Phil Dixon is a pub trade consultant.
Now read PMA editor Rob Willock's view - "Pubcos must stop the beer-price escalator"
