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IF Ted Tuppen and Giles Thorley ran a pub, would anyone come? Even if people did, could either man make a profit? The chief executives of Enterprise Inns and Punch Taverns - Britain's two biggest pub companies - are fairly scathing about the abilities of landlords who fail, so these seem to me like fair questions.
Furthermore, if they did decide to properly enter the trade - to be landlords, rather than overlords - would they sign up to one of their own "tied" deals, where they buy a lease and agree to pay rent and take beer at inflated prices from the pub company?
Excellent businessmen that they are, I think we can assume they would not.
If either harbours a dream to run a gentle country boozer in retirement, it's a safe bet it wouldn't be under the contracts they themselves offer.
For one thing, last week's report by the Business Enterprise Committee into the tied model under which half of the UK's pubs operate found most landlords earn less than £15,000 a year.
Thorley was paid £11.3 million in 2007. So 15 grand is about what he expects to make by lunchtime every single day.
Maybe that's a snotty comparison.
Overseeing Punch's 7000 pubs is a bigger job than running just one, but the forces the average landlord is presently up against - economic and regulatory - would defeat most people.
Tuppen in particular has been open about saying - both to the Press and to Parliamentary committees - that the main reason why six pubs close every day is because the individual publicans just can't cut it.
That they must buy expensive beer from him is not relevant. The economy is bad, he agrees, but if your pub just failed, taking your life savings with it, look in the mirror and take responsibility, says Tuppen.
That seems harsh. It also suggests that Enterprise and Punch must know that certain landlords almost certainly aren't going to make it, even as the ink is still drying on the paperwork.
As the BEC put it: "The lessees may share the risks with their pubco, but they do not appear to share the benefits".
One (successful) London publican emails me more bluntly: "The plan is essentially to find inexperienced licensees, tie them into onerous agreements, take their savings off them, ramp up the rent and - if they go bust - get them out before the rent deposit is used up, and wheel in another mug. Hence the high level of churn.
"The recession and adverse publicity about the tied model has shortened the queue of mugs, of course."
Last week the BEC said the tied model should be referred to the Competition Commission. There are certainly elements of a cartel about the big tied players - they share information and auditors, they share a common justification for their business models and they fund the same trade bodies.
The Government may be reluctant to abolish the tie all together - the history of intervention in the pub trade suggests that new rules have unintended consequences which just make a bad situation worse.
But it could order that it is overhauled. Certainly, if you were devising a perfect structure for our pub industry, you wouldn't replicate what we have now.
Punch and Enterprise meanwhile are talking up the benefits of the tie - the advice, support and subsidies they offer in times of need. If the tie is removed, say the pubcos, then rents will go up dramatically.
Of course, if the tie is such a great deal, landlords who were given a choice whether to ditch it or not would want to keep it.
Thorley and Tuppen could put this one to a vote in order to make their case, but somehow I'm guessing they won't.
Alternatively, they could take over that struggling pub, run it for a year and produce accounts showing how well they'd done.
That would put an end to the critics' complaints.
A Kent publican's warning
Musician and property entrepreneur David Cowell chucked it in to run an Enterprise pub, The Swan at Sutton Valence in Maidstone. He quit after losing £100,000 in a year, and now lives in council accommodation.
“I gave up a five-bedroom house in Epsom to finance the leasehold agreement,” he says. “I brought all my music friends down and held regular events. We ran a good restaurant.
“I took over a pub which had turned over just £80 in its last week and took the business to £3700 per week in six months. Then we started to go backwards. The rents are ridiculous, the beer overpriced, but they will sell you a lease without blinking as long as you come up with the cash.
“I am degree-educated, drank less as a landlord than I did before and put in 80 hours-plus each week. The pub is large and in a prosperous area. It would have worked had the company given us any kind of financial buffer. I want to warn off almost-retired guys like me who could lose their life savings.”
Even Ringo can't drum up support for Aviva campaign
Aviva is on a mission to wind me up and it's going very well. It is slashing bonus rates on savings schemes and halving the amount it is distributing to policyholders from its orphan estate, and its shares have cratered.
Meanwhile, it is spending tens of millions on an irritating advertising campaign that features, among other celebs, Ringo Starr (not the best drummer in the world, not even the best drummer in The Beatles, as John Lennon remarked).
The point of the ads is to tell us the Norwich Union brand, which means something, is being ditched in favour of the corporate name Aviva, which means nothing. We've all seen these ads at least 30 times.
Aviva sending me two letters at my expense to explain how all this will help it "stay competitive and give our customers what they want" can only have one purpose. They really want me to take my business to the Prudential.
Why was Goldman Sachs so pleased to part with $60m?
The do-tell-me-more story of the week was this: Goldman Sachs is paying $60 million to settle a probe into whether its subprime mortgage securitisation business encouraged unfair loans.
The speed with which the bank settled - even before it was charged with anything by the Massachusetts attorney general - suggests there is much more to be told.
Goldman didn't admit to wrongdoing, but the $60 million is a better indication of its guilt than the usual weasel words that slink out when such deals are done.
When the financial crisis started, it started with fraud. Nasty salesmen on high commissions sold 25-year mortgages to 87-year old ladies with Alzheimer's - loans they knew wouldn't be repaid.
Greedy investment banks parcelled up the loans and sold them on to pension funds. If they knew that what they were selling was rubbish, they are crooks. If they didn't, they are incompetent. A full account of the ins and outs of all this is needed.
The next US state attorney general to pursue Goldman or the other big banks should stick out for more answers and more money.
Goldman says it is "pleased" to have settled the matter. Suspicious.
Reader views (4)
Well done for highlighting the real reasoon behind pub closures.
It's about time the general public got to realise that they are paying about a £ too much a pint for beer in pubs. There was a time when pub beer was twice the price of supermarket beer, now it is nearer four times. Its not that the supermarkets have gotten that much cheaper, so much as pubs have gotten more expensive and this is only since the pubcos came about in the early 1990s.
Whilst supermarkets pass their massive purchasing power on to the customer, pubcos do not and the poor old tied licensees are forced into being unable to compete. For all the misinformation that is put out about pub closures - the smoking ban, economic downturn and Government taxes - it is this abuse of what was once a logical arrangement (the TIE) between the brewery and the publican, along with massive rent hikes (at a time when commercial rents are coming down), that are driving pubs to the wall in such large numbers. All to service billions in debt, built up by what have became the biggest, greediest buy-to-let landlords in the country.
"Securitisation" (pawning of the family silver)has lined the pockets of the pubco bosses and if all the rapacious pubcos were to be put our of their misery tomorrow only a couple of thousand people would lose their jobs, but hundreds of thousands of hospitality staff in tied pubs would keep theirs and licensees and their families would
be able to keep their homes.
Mike Bell, London.
- Mike Bell, London, 20/05/2009 07:24
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Congratulations Simon, for the most concise article on the crippling beer tie cartel to date.
I seem to remember the pubcos stating that they had nothing to fear from the BESC or any other inquiry into their business model. For too long they have appeared to have the ear of the trade press, so it is very satisfying to see that they don't control you guys.
- Dave Law, London, 20/05/2009 00:12
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Who in their right mind would want to be a publican? You work long anti-social hours, work under such onerous terms that you are little more than a slave earning less than 15,000 per year tied to your pub. Even if you do make a success of the business the pub co will say turnover is up time to increase the rent. Which fool would want that?
The pubco & brewers are being incredidbly short sighted. By charging such high prices that no one can make a reasonable living and cannot hope to compete with beer from the supermarkets pubs and therefore the brewers revenue stream is decreasing by the day. At the rate pubco are forcing pubs to shut by insistng on such onerous terms that soon the village pub for so long the heart of the community will just be a distant memory.
- Rupert, London, 19/05/2009 16:35
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Simon - your comments here are getting to the truth of the 'pubco' issue.
The beer tie may once have been a relatively benign mechanism over 2 years ago but the property companies and financiers than control half of the pubs in the UK have exploited tenants ruthlessly. The cartel has been maintained through expensive lobbying to avoid scrutiny and create a fear of change.
Its great that journalists such as yourself are starting to paint the real picture and that will help publicans in the long run. The recent select committee report will help pull down the veil of secrecy and perhaps lead to a much needed, honest investigation. The aggression seen from pubco and brewer execs since publication of the report is an indication of what many licensees face daily and why many stay silent.
The price of beer to tied tenants has risen by as much as 60% in the last few years and even in this recession the pubcos are seeking rent increases at review. Enterprise claims it is supporting tenants with £1.6m per month but this amounts to just £200/pub. This year already they have increased prices by 6% of more when inflation is in negative territory.
Greedy exploitation of the beer tie and the rent review system - much of it written by pubco employees and agents - is causing unnecessary pub failures in pubco estates. Factual exposure in the media of these excesses will help save jobs and vacuous comments from rich execs blaming tenants will also hopefully draw attention
- Karl Harrison, London, 19/05/2009 14:48
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