Supplementary written evidence submitted
by Punch Taverns plc |
During the recent oral evidence session, investigating
the tied pub sector, an example was raised by Ian Murray MP of
a court case involving a Punch Taverns' licensee in which the
legal enforceability of our Code of Practice was referred to.
As requested by Mr Murray during the hearing, here
follows an outline of the details of that case and Punch's position
on the issue.
Mr Murray made reference to Punch Taverns being quoted
as saying its Code of Practice was "only a consumer-friendly
document with no contractual effect". The case quoted by
Mr Murray refers to a previous licensee of the Eastcote Arms,
Towcester and dates back to August 2009, prior to Punch's BIIBAS
accredited Code of Practice being introduced.
The reference is in fact to the Punch Charter, which
preceded the Code of Practice and was a consumer focused document
which set out what licensees could expect of Punch Taverns on
a business wide level, but did not override individual lease terms.
This was replaced by the Code of Practice in July 2010 and as
we clearly stated at the Committee meeting and within the foreword
to the code itself, licensees can rely on their date-stamped version
of this code in a court of law. We also clarified within the foreword
that any licensees who signed their contract prior to the code's
existence could not rely on it as part of any legal process.
What we have endeavoured to create with our Code
of Practice is a robust document which sets out the basis for
transparent relationships with our licensees and clearly sets
out the way we do business.
I hope this clearly explains Punch's position but
I would be happy to answer any further questions that the Committee
Following the oral evidence session held with representatives
of the IPC, you invited the Pub Companies to submit any further
views and evidence to the Committee in response to comments made.
I would like to make a number of comments on behalf of Punch.
Kate Nicholls of the ALMR sought to argue that the
new codes would have represented progress had there been evidence
of compliance. She then quoted statistics from the CGA survey
to suggest compliance was poor. The statistics she quoted were
selective and not representative of the record at Punch. We can
confirm that all new entrants to Punch, since the code went live,
have received a full shadow P&L in compliance with our code.
Karl Harrison argued that the only sanction for non
compliance with the code was the threat of removal from the BBPA.
This is wholly incorrect. The key sanction for non compliance
is loss of accreditation with the BII. I can categorically assure
the committee that loss of accreditation with the BII would have
serious commercial consequences for our business and any other
seeking to let pubs in the highly competitive lettings market.
The BII is central to our quality assurance and training programmes
and loss of status here would result in significantly fewer pubs
being successfully let by Punch.
Simon Clarke argued that conversion to free of tie
would increase profits in his pub and his fixed rent would rise
as a consequence. Whilst we are not in a position to comment on
the specifics of his pub leased from Enterprise, the principle
he describes is correct. However, he omitted to point out that
as an independent free of tie operator he would not have access
to the same level of discount on supply of beer as a large pub
operator. The consequence is that this part of the profit from
the pub, currently enjoyed by the pub company, would revert to
the brewer. This is why Punch is not able to offer free of tie
as an option but is willing to offer lessees the same level of
discount that they could obtain free of tie but with a requirement
that they buy from Punch on tie to protect our buying terms arising
from scale. Taking this option, as Simon confirms, results in
profits going up in the pub and therefore fixed rents rising for
Mike Benner attempted to argue that the new codes
are not working because licensees' earnings are too low. This
argument confuses cause and effect. A lessee will not be earning
less than he would expect because of any failing in the code but
because his pub is not performing to his business plan. What the
new code sets out to achieve is that no new entrant can take on
a pub without being made fully aware of the assumptions involved
in our valuation of the pub as assessed by a RICS qualified surveyor.
Indeed at Punch we go further than this by advertising
every pub for let headlining the expected earnings for a reasonably
efficient operator as determined by RICS valuation. We also insist
that every applicant takes separate independent professional advice
to verify his business plan assumptions. We currently have approximately
120 pubs advertised to let with expected lessee earnings ranging
from £20k to £60k dependent on pub size and complexity.
We also make it clear in our code how a lessee can
ask for help from us if he is not earning to expectation. During
this recession we have supported many of our lessees with rent
and discount concessions costing some £2 million per month.
However, we do not support every application for help because
in some instances the pub is not being operated to the standards
expected of a reasonably efficient operator.
Given the above I can be confident that, where a
tenant is earning less than he would expect, it is because the
pub is not performing to business plan and not because he was
not aware of what to expect and the risks involved.
Simon Clarke claimed that minimum purchase obligations
are being demanded by some pub companies. I would like to assure
the Committee that no such minimum purchase obligations exist
in Punch Taverns.
Kate Nicholls described the information available
from the ALMR benchmarking survey. Punch supports reference to
the ALMR survey and provides a link to the benchmarking in its
new code. Whilst it is valuable, the survey is not without its
limitations and the Committee should guard against reliance on
headline statistics often quoted to argue the case for higher
costs in operating pubs.
First and most important is that the majority of
data on which the survey is based is provided by ALMR members
who, by definition, are multiple pub operators. Multiple pub operators
include management costs in their businesses which are excluded
from RICS guidance in valuing pubs, where it is appropriate to
do so, and is therefore usually based on an individual lessee
occupier who does not employ management but instead operates the
To illustrate the impact of this point the latest
version of the ALMR survey shows mean operating costs for a wet
led community pub as circa 43% of turnover including 7% for the
cost of a manager. A RICS surveyor using this as his comparable
would exclude the cost of a manager and therefore assume operating
costs of 36% for this type of pub.
Most tenanted pub companies, Punch included, do not
operate open book arrangements with their tenants and are therefore
unable to provide data on the running costs of their pubs. Nevertheless,
RICS guidance is clear in that estimates of pub running costs
will vary by pub type and size. A high barrelage wet led pub will
typically have much lower running costs than a pub with low turnover
or a complicated pub with high food sales. Punch has the advantage
of being to verify it's assumptions through ownership of 800 managed
pubs of our own and indeed has contributed and is actively helping
RICS with a rental benchmarking scheme.
The tied pub model is complex and I hope the comments
above help clarify understanding on some of the key areas under
investigation. I am of course very happy to provide further information
18 July 2011