Wednesday, 19 November 2014

The day after the night before

I expect there have been a lot of sore heads in the pub industry today. Campaigners, who have spent years trying to challenge the power of the major pub companies (pubcos), might have woken with headaches after celebrating defeating the government over pub rents and the beer tie; pints were eagerly consumed first in Whitehall before the party continued at a south London pub.
Meanwhile, in the board rooms of pubcos, executives are likely to have been rubbing their foreheads in anguish, watching as their share prices plummeted; at one point Enterprise Inns' shares dropped 17 per cent and Punch Tavern's slumped 11 per cent. It must be worrying times for both companies, especially as each is laden with more than £2billion of debt.
The reaction to the vote, which will mean pub tenants tied to pubcos will be able to demand a market rent option (MRO) and buy alcohol from providers other than their pubcos, who often charge a far higher rate (up to 70%) than the open market, has been predictably split.
The campaigners are joyous; the pubcos and their supporters, on the other hand, are despairing. They have spent much of the day predicting apocalyptic levels of pub closures and a vast numbers of redundancies. It is certainly true to say that these are uncertain times and it is hard to be sure of what will ultimately happen.
For the campaigners, yesterday’s vote is an enormous success. These are not professional political lobbyists or campaigners but publicans, or former publicans, trying to challenge a system they see as grossly unfair. Along the way they have been supported by organisations such as Camra, who believe the vote ‘will help keep pubs open and ensure the cost of a pint to consumers remains affordable’ and the Federation of Small Businesses who claimed today the result would be a ‘boost to local economies while giving consumers greater choice’. Greg Mulholland MP, who has spearheaded the campaign in parliament, was understandably in an effervescent mood after the vote and received plaudits from his colleagues – such as Tim Farron – for his not insignificant efforts.
The British Beer and Pub Association, on the other hand, has been predicting doom in the industry as a consequence of the vote. There is barely a news programme on which its chief executive, Brigid Simmonds, hasn’t appeared today. In each appearance she has repeated the claim that the government’s own research shows ‘1,400 more pubs closing, with 7,000 job losses’. The piece of research she is referring to is this by London Economics, commissioned by the Department of Business, and she is certainly quoting it selectively. It actually predicts the closure of between 700 and 1,400 pubs, with the consequent jobs losses of between 3,700 and 7,000. Ms Simmonds has only referred to the top figure.
The London Economics study only consulted pubcos to make its predictions, each providing a sample of between '300-400 anonymised pubs'. It is fair to say that pubcos have a vested interest in this debate and there appears to have been little effort to gauge the opinion from any other side in the exchange.
The report also finds one more reason why pubs might close that hasn't been much mentioned by the BBPA; that several of the stakeholders it interviewed believe the UK is 'still operating excess pub supply of approximately 6,000 pubs'. Definitely a gloomy prospect, but not one that can pinned on Tuesday's vote.
And finally, Ms Simmonds fails to take into account that pubcos have already declared their intentions to dispose of huge numbers of pubs. For example, in their 2013 annual report, Punch Taverns, owners of more than 4,000 pubs, say they want to focus on their core business of 2,990 pubs. Their plans for the non-core division - compromising of 1,106 pubs - is to dispose of them 'over the next four years'.
Enterprise Inns, meanwhile, wanted to dispose of £70million worth of pubs by the end of September this year. It may well turn out that both firms use yesterday's vote as cover for their already declared intentions. Of course, 'disposing' of pubs doesn't necessarily mean they are going to close; but supermarket chains must be rubbing their hands with glee at the prospect.
Contrastingly, according to a survey published in 2013 by the Federation of Small Businesses, 88 per cent of tied pubs said they would be better off if they operated under a ‘fair rent’; 74 per cent said they would spend more promoting their business; 74 per cent said they would hire more staff and 65 per cent said they would cut the price of beer.
Another frequently repeated claim from Ms Simmonds is that the beer tie has been a success in this country for almost 400 years. This doesn't stand up to much scrutiny. Fifty-seven per cent of tied publicans struggle on less than £10,000 a year. Of Enterprise Inns pubs - they have more than 5,000 - they had 579 'business failures' in one year according to their 2013 Annual Report; down on previous years but nothing to boast about. These are not symptoms of a system working well.
And I have lost count of the numbers of tenant publicans who have contacted me personally to tell me about their suffering; struggling under unimaginable amounts of debt caused, seemingly, by the unreasonable demands of pubcos, themselves trying to shift their own debt mountain. Many of these tenants - all, without exception, hugely hard-working people desperate to run good pubs - have now lost their pubs, their homes, their livelihoods, their health. Pubcos have consistently failed to respond adequately to their concerns; it is their lack of action that has led to this turn of events. 
They won't give up of course. The lobbying campaign by the pubcos and the BBPA against these changes has been huge and they have well placed - and immensely senior - allies to almost the top of the Conservative Party. They will hope the government finds a way to drop this amendment. But,  if these changes lead to the demise of the pubco, they need only look in the mirror to find the founders of their own downfall.

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