Article 744 – The hidden mini “Pub Cos”

Posted: 31st January 2014 by santobugtio in Pub Paper, Writing

The pub companies have been the dartboard picture of choice for those who think that there is something fundamentally wrong with how the pub trade in the UK is operated.  At the customer, landlord, regulatory and governmental level they are generally held to blame for the significant drop off in pubs numbers which now operate in this country.  This of course is a valid argument and there is a great deal of truth to this belief.  Whilst they may not wear the highwaymans mask 24/7, they do rather have a habit of wearing it in public often with no real attempt to deny, in the face of recent documentary evidence, higher than free trade cost of beer to the tenant, rents which are not fair to those paying much of the time and the restrictive ties placed on the incumbent.

However there is a less visible set of companies who operate multiple pubs, at a much smaller scale, often countable on two hands, but can be in the 100’s in cases such as Admiral Taverns.  These companies lease the pubs from companies such a Punch or Enterprise Inns and then put in their own managers, generally on a percentage salary basis.  This is when your salary is set at, say, 10% of the pubs profit each week after costs.  Your beer is supplied by this “third party pub management company”, although this can be fourth or fifth party via a succession of smaller management companies all of which take their profit from the operation.   The beer, under the contract of the original lease from the Pub Company should come from them, so ultimately all beer for the pubs operated by the company should be supplied centrally from Punch or Enterprise Inns distribution channels as per the legal conditions applied to that property.

But how do many of these pubs get into hands of the third party companies.  When a pub is struggling, it eventually gets into a position when it is not commercially viable to operate any more, generally this will happen after number of tenants have tried and failed to make a success of the business.   When this happens it is often cheaper to offer one of these third parties the lease for a “peppercorn rent” as it ensures the property is occupied ensuring that the chance of damage both through lack of maintenance and intentional is minimised.  It also ensures that the pub company has a chance of getting some wet rent (or beer income) from the business by selling beer at a high price compared to the no pub co prices.  Of course if the land is worth more than the business, a uninhabitable building could be the more desirable option.

Like all sectors of business there are good and bad examples of these third party companies, the good ones supporting the pubs with reasonable prices being charged for beer and a liveable wage being realistically attainable.  However this model of business also allows for the middle man to be extremely unscrupulous in their dealings.  Examples of the third parties copying the less moral tactics of the big pub companies include quoting exaggerated turnover figures in relation to the profit margin which their salary is based upon.  Other tricks include helping out the new tenant with the residential deposit when they do not have enough start up capital, then applying a far higher rate of interest than originally promised further reducing the real wage they earn from an already reduced take from a lower profit than promised.    When things get really bad for the tenant they can offer a fixed salary, but with the proviso they pay all their staff, day to day and consumables costs.  These are all examples given to me from a 20 year veteran in the trade.

However  what many of these percentage managers, especially those new to the business, don’t realise until it is too late that they are ultimately responsible for everything that goes on under that roof whether it be legal, contractual (at any point in the chain of the lease), regulatory or otherwise.   So for example if one of the more unscrupulous third party companies decide to charge the manager pub co prices but get beer from a cheaper source, but fail to inform the manager of this change in supplier.  When the Enterprise Inns auditors pay a visit, there is a big gap between the beer ordered on behalf of the premises by the management company from Enterprise and the total amount of beer sold by them.   If they cannot explain this, as they inevitably can’t due to pertinent information being kept from them, they have to pay the fine.

Fair, definitely not, but the bandits in this third party lease sector don’t wear masks like the big boys.

 

 

  1. pauline osborne says:

    i was very interested on your article on admiral taverns.i to have been made into a sufferer of a sly underhanded and cheated way by admiral taverns.basically duped into a lease,which rent and additional service charges are applied.at the time this happened what i was sighing i was led on it was the completion of the code of conduct/bii.as it transpired the weekly rent & charges went up by £200.00 per wk to £466.076.the pub we run is in a rural area surrounded by farms and fields.local trade is on a good week 3 elevens of lager 1 eleven of bitter at a higher price than pubs 6/7 miles away.the price we pay for the beer is £166.75 for 1 eleven of lager,and £134.63 for 1 eleven of bitter.we sell at £3.20/ £2.80 respectivly. the pen pushers cannot cannot work out why we are struggling to get by.in my view a five year old could work it out.