Beer. Don’t you love it? I do.
In the last 40 years, the brewing and pub industry has failed to be a drinker’s best friend. Small brewers built near local monopolies and went national. Prices went up, landlords got poorer, and the beer fouler. A quarter of a century ago, the Beer Orders were launched to breathe new life into our pubs. But the orders led to the loathed zombie pubcos, which have eaten away at the viability and traditions of our locals.
Enter Greg Mulholland, the Lib Dems pub and beer champion – also dubbed the Casked Crusader by the Sun. He took to the floor of the House of Commons on Monday night to continue the his crusade against the pubcos.
Not taking the right action now would be a disaster not only for many pubco publicans and the communities that stand to lose their local pubs, but for the recovering UK economy.
Mulholland took us back to 1989, when the beer orders tore up the monopoly of the big brewers. I recall it well. How we raised glasses to those orders. We drank deep, quite unaware that pubs sold under the orders would be snapped up by a new invention – pubcos. We were quaffing through beer goggles. It took us a while to notice that most pubcos were vehicles through which accountants and shareholders would suck dry the human and physical assets of the industry.
The Casked Crusader told the Commons one way the “Great British Pubco Scam” works:
A common technique used to generate even more profit is the use of ‘churn’, which involves forcing the failure of tenants over time and replacing them periodically.
Four years ago, I cried when the tenants of my local were forced out by a pubco. They’d had a brilliant first year. They’d made the pub a hub for the local folk scene and helped breathe new life into the community. But on New Year’s Day, their rent doubled. That was the price the pubco levied on their success, and it was an impossible demand. The pubco accountants cared not. The pub has struggled ever since. It’s up for sale, facing closure.
As Mulholland told us, the free trade has seen a 14% rise in wholesale prices for a standard lager in the last six years. Pubcos have jacked up the price 29%. Yet the rent and beer price hikes have not helped the pubcos one bit. Many pubco share prices have collapsed. They have become zombie enterprises. But zombie-like, they remain bent on destruction because the only way they know of surviving is to suck the last gasp of life out of our once beautiful pubs.
Part of the solution, according to Mulholland and the business select committee, is to allow tenants pay an independently assessed market rent. Small brewers will be exempt. Fair enough, but pub tenants won’t get this until there is a statutory code of practice and an independent adjudicator for the industry. The pubcos and large brewers are, it goes without saying, lobbying hard against an effective code.
Unfortunately, by the time Greg Mulholland sat down on Monday, last orders had passed in the House and it was almost time for the Speaker to shout: “Aven’t you got any homes to go to?” We got no more than a snippet of a reply from Vince Cable before MPs were shown the door.
Shame. Last orders should have been called on pubco practices long ago. It is time to stop talking and to act.
* Andy Boddington is a Lib Dem councillor in Shropshire. He blogs at andybodders.co.uk.
Follow @LibDemVoice on Twitter
Like us on Facebook
Subscribe to our feed
Sign-up for our daily email digest
Brexit is 'stifling' exports and imports
Sinderins Community Hub at Logie sheltered lounge #dundeewestend
Jago Hazzard on the complicated history of Turnham Green
Suitably inspired, I return to Suffolk
Investment, investment, investment.
Definitely a Lib Dem conference!
Ed Davey tries to name all the Lib Dem MPs while on a roller coaster
Roland
Tom B
Karen Pratt
Caron Lindsay
Andrew Tampion
17 Comments
Good article, its such a shame what’s happening to pubs across the country. They are (or were) a massive source of employment for young people too. We now have a situation where people often drink alone at home simply because its cheaper to buy in bulk from the supermarket. Its a real shame, they used to be social hubs providing companionship and real sense of community.
Can’t we do something to level the playing field between pubs and the supermarkets? Take VAT off beer sold in pubs? Have a new off licensing system where companies pay increasingly more for the license based on the volume they sell? I guess a minimum price per unit could have helped if it was set appropriately.
Yup, good article with salient points. I worked in the pub industry for a long time and it’s a crying shame what’s happening to these community hubs.
Taking VAT off beer? The pubcos would simply up their fees to absorb the slack. A proper regulator to establish a realistic and fair business model is more like it. I’ve seen this done often to our local in the 18 years I’ve lived here. These are just big companies sucking profits out of an industry they don’t care about. Oh, and some of the breweries are just as bad. My local for example.
Pubcos are dying while craft beer pubs are springing up across the country. Maybe the market has already found a solution.
>Can’t we do something to level the playing field between pubs and the supermarkets?
I’m not aware of a supermarket that lets me consume alcohol on the premises?
Also I don’t see the coffee chains complaining about supermarkets under cutting them.
Personally, I would think what would help is for HMRC to determine that landlords/tenants of PubCo pubs are actually employees and hence hit the PubCo’s with the costs of backdated employment benefits…
What about using freedom as the solution. Allow any adult to sell drinks to any other other adult, for consumption in any place, with only the same weights, measures and hygiene rules that apply to people running shops etc -in other words abolish licensing. The tenants could simply move elsewhere if the rent is too high with their existing landlords. It’s not like town centres don’t have empty properties.
Quaffing through beer goggles? I’ve heard of “Drink to me only with thine eyes”, but it wasn’t intended literally.
The #GreatBritishPubcoScam was exposed in all it’s factual horror by Greg Mulholland fantastically on Monday. Half the Pubs in the UK operate under onerous contracts with limited product profile and Beer prices twice those of the wholesale market which is seeing the collapse and closure of 26 per week. Pubs are community hubs and local economy key drivers that are being forced from the market by the corporate greed of highly indebted companies that have passed bad practice to the rest of the field. Please take a moment to read the recent FSB report on the socio-economic benefits of Market Rent Only (the cure for this)…it shows just what good can come from supporting Publicans and this legislation. http://pubaliciouspubs.wordpress.com/2013/10/16/pubco-reform-more-jobs-cheaper-beer-whats-not-to-love/#more-253
Yes vat and supermarkets have an effect but if you solved these problems the pubcos would adjust their rent assessments to ensure they took full advantage. What we need is legislation to ensure tied tenants are no worse off than free of tie. And the only way to do this is to offer a free of tie option, in law, for every tied lease. Publicans are quite capable of competing with supermarkets if allowed to reap the benefits, currently pubcos take all the profit, leaving nothing to reinvest and if the publican goes bust, pubcos either sell the lease again or sell the freehold, not often as a pub.
on the VAT reduction when the Chancellor reduced the duty on beer by 1p the Pubcos reduced the price of a pint to their tenants by 0.7p because 0.7p plus vat is 1p – simples.
on a broader topic Duty on Beer is charged at the brewery at around 54p per pint. this is passed up the “value chain” through the pubcos and they make about 45% gross profit on a pint that they pay about 67p for –
So the brewer gets about 13p per pint and the pubco makes 45p gross profit selling 13 pence cost of beer and 54 pence of duty to their tied tenants.
They do not even touch the beer and get the breweries to pay for delivery and cellar services out of their 13p.
It would not be believed in a novel.
This is a story that has run and run. Through various reports the problem persists and in the current market it is getting worse. Pubcos have offloaded 33% of their pubs to service debts and that cannot continue. The only option is to bring in legislation to give operators a choice. Currently rents are set on RMT (reasonable maintainable trade). These are set by the pubcos to the level of their choosing and so it is in many cases not achievable putting innocent peoples savings and futures at risk. As an example on a 15k rent plus extras (boiler maintenance, cellar maintenance, delapadations fund, insurances ect) equates to 59k. Add to this wet rent (mark up over free sale value to tied publicans) equating to 40k and the problem is transparent. These zombie companies must perish like the dinosaurs for the pubs to flourish and become the hubs of the community they deserve to be.
@Chris,
So what is stopping someone in the UK setting up a pub that buys its beer direct from the brewery? That is standard practice in Slovakia (where the two largest brewers are Heineken and SAB Miller) and the retail price is usually less than one euro for the end customer dropping down to as low as 50 cents (whereas most other products are priced similarly to the UK).
The Smoking ban is the main reason in the Demise of Pubs which has alienated up to 90% of it,s customers ,people now drink at home not just because it is cheaper but because they can Smoke in comfort as well instead of being forced outside in the cold and rain .
I used to love going to the Pub, but not anymore !
First, I’m delighted Andy has written this latest update on the Fair Deal for your Local campaign…. saves me a job!
Second, Chris W – the pub closure stats do not show a link to the end of the smoking ban (which did some good: both the publican of my local and I gave up as a direct result). What they *do* show is an amazingly close parallel between closures and the number of ‘disposals’ by the zombie pubcos: both just over 20 a week, consistently, over a decade. The pubcos like to spin a yarn about this, but the truth is that to meet their sky-high debt payments they are flogging off vast amounts of their estate: most of them, sadly, fall into the hands of supermarkets or others who don’t want them to open as pubs thanks to planning loopholes (which CAMRA and others are campaigning to close).
Richard S : in short, nothing is stopping them, but the big pubcos use their position to stop the vast majority of lessees doing this. In the tiny number of free of tie pubco pubs I know of, rents have been more than doubled to make up for the racket you highlight (the pubco mark-up on a barrel is roughly 30-60%: Greg’s speech highlighted that whereas free trade wholesale prices have gone up by around 10% in the last few years, tied pubco prices have shot up by around 45%.) Not only this, but the independent ALMR Benchmarking Study has shown that pubco rents are increasing faster than free of tie. So it really is a racket, whichever way you cut it!
@Gareth Epps – what I mean is why not start a pub without a pubco? I don’t know much about this industry but if it is true that what they provide has no value, then what is stopping people cutting out the middleman and doing it on their own? Is there some kind of government regulation keeping the pubcos in place?
Another example of how pubco abuse stifles consumer choice from this week’s local press: Enterprise Inns barring a Cider Pub of the Year from selling, er, cider: see http://www.islingtongazette.co.uk/news/newington_green_pub_owner_banned_from_selling_punters_favourite_1_2894236
Richard S – yes, there is no barrier, but relatively few pubs go onto the market freehold, and many that do, do so at inflated prices. Greg touched on that in his speech. Get in touch and I can point you to current opportunities in Reading!
@Gareth
So why not take another freehold building and turn it into a pub (such as an empty high-street shop)? Or would it not be possible to get a licence for it? Or is the service the pubco provides a ready-made pub for people with money from elsewhere who don’t want to set one up themselves? Clearly their behaviour seems to suggest they have some kind of monopolistic business model, but I don’t understand where their monopoly is coming from.