Below are a selection of articles written by our Pub preservation Officer Paul Ainsworth regarding the importance of Pub protection and detailing the operations and models of Pub Companies.

PUB COMPANIES – WHO THEY ARE AND WHAT THEY DO

CAMRA reckons that many drinkers would find it helpful to have more information about the companies that control many of our pubs. This is the first in a series of articles that will provide the facts on pub company practices and operations, explaining in particular how their business models work and what this means for both licensees and, ultimately, us as customers. The aim is to let the facts speak for themselves so that you can make up your own mindsabout the positive or negative effects of these practices on our pubs and the folk who run them.

1. A POTTED HISTORY OF THE PUBCO

Fifty years ago, when CAMRA was formed, the pub landscape looked very different. For a start, there were many more of them – some 75000 against around 47500 now. The majority of pubs (52000 or so) were owned by breweries. The 89 small and regional breweries had 13800 of them and the rest were in the hands of the ‘Big Six’ – Bass Charrington, Allied, Whitbread, Scottish & Newcastle, Watney/Grand Metropolitan and Courage/Imperial.

Most of the other 23000 pubs were free houses (in name anyway – many tied their beer supplies to a big brewer in return for loans and discounts). Companies that just owned pubs were few and far between – the likes of Sir John Fitzgerald in the north-east and Heavitree in the south west (though they tied themselves to Bass).

Just about every pub-owning brewery rigorously imposed a supply tie on its own products. As late as the mid-1980s, I remember a Greene King Director recoiling in horror at my suggestion that they allow a few guest beers in their pubs. As a result, new breweries found outlets hard to come by and we customers were hardly spoilt for choice, as a glance at a Good Beer Guide of that era will reveal.

Then, in 1989, along came the Beer Orders. The story of this epochal legislation (for better or worse) is superbly told in Laura Hadland’s recent Fifty Years of CAMRA book but, in essence, the government acknowledged the stranglehold on the industry exercised by the Big Six and, among other things, capped their pub ownership at 2000.

By now, because of closures and sell-offs, the Big Six owned fewer pubs between them but the Orders still meant around 11000 pubs coming onto the market. We, of course, dreamed of a new golden age of multi-handpumped free houses galore, but the reality was sadly different. Companies were quickly established, usually with close links to the Big Six, to hoover up these pubs in big batches then negotiate supply deals, invariably with the company who previously owned the place. Enterprise Inns, for instance, started off with the purchase of 368 pubs from Bass, and that’s where they bought the beer from.

In the years that followed, wheeling and dealing saw companies variously grow, collapse, merge, acquire, dispose – it was very difficult to keep up with who owned what. Some companies concentrated on managed pubs, some on tenancies, a few on a mixed model. Behemoths emerged – by 2004, Punch Taverns and Enterprise each owned more than 8000 pubs, though both had accumulated so much debt that they ran into trouble come the financial crash and subsequently retrenched. We’ll have a closer look at the current pub company scene in the next article.

A brief history of Punch Taverns illustrates the volatility surrounding pubcos from the 1990s onwards. Punch formed in 1997, purchasing a tranche of pubs from Bass. Two years later, they bought Inn Business (mostly former Whitbread pubs) and then the rump of the Allied estate. The managed pubs were spun off into a separate division called Spirit. In 2003, they acquired their 3100-strong rival Pubmaster plus a couple of smaller companies. Next, Scottish & Newcastle’s managed pubs were snapped up and added to Spirit. By 2011 the impact of the crash was being felt, calling for a ‘strategic review’. Spirit was demerged and, in 2015, sold to Greene King. Come 2016, a takeover bid totalling £403m (plus the taking on of a billion pounds of debt) was accepted; 1900 pubs went to Heineken with the remaining 1300 residing with Patron Capital, though the Punch brand has been retained.

What, then, of the breweries that still owned pubs? The Beer Orders were actually revoked in 2003 so brewers are no longer prevented from having over 2000 pubs. However, brewers have tended to move in different directions. In some cases (e.g. Greene King and Marstons) this extends only so far as having separate management structures for their brewing and pub operations. Others, though (Fullers, Youngs, Charles Wells), have sold their breweries to become just pub companies. Thwaites sold their main brands and downscaled to a mini-brewery.

In the meantime, the treatment of their tenants by many of the Pubcos had become a major issue and, after years of campaigning, the Government was persuaded, in 2014, to announce a statutory Pubs Code aimed at regulating their practices and ensuring fair treatment for tenants. We’ll return to the Code in a future article. In this context, though, it needs mentioning that the currently accepted definition of a pub company embraces breweries that own pubs.

Final comments. Pub companies are here to stay and some of them (mostly smaller ones) are very good, treating their licensees well and clearly regarding their pubs as more than just property assets. It would, though, be difficult to argue that the ways in which some companies operate raise many issues around their custodianship of what aren’t just piles of bricks-and-mortar but, in most cases, precious and valued community assets. We’ll examine those issues in due course.

Paul Ainsworth

PUB COMPANIES - WHO THEY ARE AND WHAT THEY DO

2. THE CURRENT PUB COMPANY SCENE

A pub company is simply a company that owns pubs and there are literally hundreds of them, many with only a handful or even just one pub. We’ll concentrate here, though, on the bigger companies who, between them, own over half the country’s pubs.

Stonegate

Founded in 2010 with the purchase of 333 pubs from Mitchells & Butlers, Stonegate grew quite slowly over the next ten years, making a series of acquisitions including brands like Slug & Lettuce, Walkabout and Be At One, until its pub numbers totalled 765. All the pubs were managed houses. A seismic change came in 2020 when Ei Group was bought for £1.27bn, making Stonegate the largest pub company in the UK with 1,270 managed pubs and, as a result of the Ei purchase, 3,200 leased and tenanted businesses.

Ei itself had been founded, as Enterprise Inns, in 1991, initially with 333 pubs from Bass. The company built up its estate, gaining 2,200 pubs in batches by buying them from other companies or taking them over. In 2002, 1,864 pubs were bought from Whitbread and in 2004, 4,054 from Unique. By this time, it owned nearly 10,000 pubs and was in the FTSE 100 list of top companies. However, it was loaded with debt and the 2008 financial crash required a good deal of retrenchment. Ei also started building up its managed estate, including pubs on retail agreements under the Craft Union brand (we’ll look at this operating model in the next article). By the time of the sale, it was down to fewer than 4,000 pubs.

Punch Taverns

The first article included a brief history of Punch to illustrate the volatility around pubco development. In summary, it grew quickly to around 8,000 pubs, suffered under the crash, sold a lot of pubs including its managed division and was taken over in 2016. 1,900 pubs went to Heineken and 1,300 to Patron Capital, who retain the Punch brand. At takeover time, all pubs were leased or tenanted but it’s also now pushing retail agreements (which it calls Management Partnerships). Some pubs were sold but in June 2021 it announced the purchase of Youngs’ tenanted division, bringing the current total to 1,282.

Admiral Taverns

Admiral was founded in 2003 by two families and grew quickly to 2,300 pubs by 2007. Many of these were ‘bottom end’ houses disposed of by other pub companies. The financial crash had the usual consequences for over-extended businesses and numbers were down to 1,700 by 2011 and continued to fall. By 2017 it was in the hands of Cerberus Capital Management who sold up to a joint venture by Magners cider-makers C&C Group and estate investor Proprium Capital Partners, by which time there were 845 pubs. The acquisition trail was hit in 2019 with 137 pubs coming from Marstons and 150 from Heineken. The big one arrived in July 2021 when Admiral bought 674 Hawthorn pubs from property firm New River taking the estate to over 1,500.

Admiral’s pubs are all tenanted or leased and tend to be wet-led community operations. It has a relatively good reputation in the trade though there’s certainly no aversion to flogging off pubs as ‘development opportunities’.

Star Pubs & Bars

In 1995, Scottish & Newcastle, one of the original ‘Big Six’ breweries, bought another of them, Courage, making the combined group Britain’s biggest brewer. By 2011, the pub arm, then known as S&N Pub Co, had 1,500 tenanted pubs and 600 in management. Come 2008, Scottish Courage was gobbled up by international brewer Heineken and the pub business rebranded as Star Pubs & Bars. Many pubs were sold but then, in 2017, as previously mentioned, 1,900 were snapped up from Punch. Again there were disposals and the estate currently stands at 2,500.

Star vigorously promote their retail agreement scheme, Just Add Talent. In 2020, it was fined £2m for breaches of the Pubs Code (which we’ll cover in a later article)

Greene King

In 1995, Greene King was a long-established family brewer with 900 pubs, nearly all in East Anglia and the South-East. It then embarked on a ferocious acquisition trail, swallowing up many breweries (the likes of Morlands, Belhaven, Morrells and Hardy & Hanson) and other pub companies. GK itself is now owned by a billionaire Hong Kong property developer. It has some 3,100 pubs, restaurants and hotels, of which 1,200 are tenanted or leased. Its strategy seems to be to move in the managed direction and the ‘Pub Ready’ retail agreements are pushed hard. GK was once renowned for not letting other people’s beers in its pubs but now have a more enlightened attitude.

Marston’s

The company was known as Wolverhampton & Dudley until 2007 when it rebranded as Marston’s, one of the many breweries it had taken over in recent years. At that time, 2,500 pubs were owned but the total is now down to 1,500. The tenanted estate, in particular, has been reduced through sales such as 200 to New River in 2013 and 137 to Admiral in 2019. Like other pub companies, they are pushing the retail agreement model which, according to their Chief Executive, is ‘a core driver of future growth. In late 2020, the company took on the running of 156 Brains pubs in Wales. Also that year, Marston’s merged its brewing operations with Carlsberg but this does not directly affect the pub business.

Mitchells and Butlers

Formed originally out of the old Bass estate, M&B have 1,650 pubs and restaurants. The multitudinous brands include Ember Inns, Toby Carveries, Nicholsons and All Bar One – as can be seen, the emphasis is on food. Pubs are mostly managed though around 50 are on a lease arrangement.

J D Wetherspoon

Since opening its first pub in 1979, ‘Spoons has expanded to 925 pubs and 50 hotels, all managed. Plans for 18 new pubs are in the pipeline but, at the time of writing, they had just announced their intention to dispose of 32 pubs.

Wellington

Owned by the billionaire Reuben Brothers, the company leases all its 850 pubs on a free of tie basis.

PUB COMPANIES – WHO THEY ARE AND WHAT THEY DO

3. PUB OPERATING MODELS

According to the British Beer & Pub Association, in 2019 there were 47,600 pubs in the UK. Of these, 22,750 were free houses, 15,650 were tenanted or leased and 9,200 were managed. With pub company owned pubs, the trend has been away from tenanted/leased pubs (down from 37% of outlets in 2016 to 31% in 2022) in favour of managed/franchised (19% in 2016, 23% in 2022).

Tenancies

As a tenant, you rent the pub premises from a pub company or brewery and acquire the right to occupy the pub for an agreed period – usually two to five years. You will generally be ‘tied’ for beer and other drinks i.e. you can only purchase the stock from the owning company – though some companies offer partial or free of tie deals (but invariably demanding a higher rent for the privilege). You are self-employed and responsible for all the staff. Responsibility for building repairs will usually be confined to internal, non-structural work.

A big attraction of the tenancy is the relatively low cost of entry, though you still need around £15k to properly operate a start up; a downside is that if you build the business up you may well get no reward from the pub company other than an increased rent. Indeed, the ‘reward’ might be a refusal to renew the tenancy because, for instance, the company wants to take the now-successful pub into direct management.

The Pubs Code of 2016 was designed to give tenants and lessees greater protection by requiring fair and lawful dealing by pub companies and ensuring that tied tenants were no worse off than if they were free of tie. We’ll have a close look at how the Code is working out in a future article.

Leases

Having a lease means you’re entitled to occupy the pub and run your business for a fixed term, often between 10 and 25 years. You’ll still usually be tied for beer and other products and will be responsible for repairs, maintenance, insurance and other running costs. Unlike with a tenancy, you have the option to sell the business, including a sum for goodwill.

Managed Houses

In this model, the pub is owned and operated by the pub company, who employ all the staff on the premises. The manager is likely to be eligible for performance-related bonuses in addition to their salary. Many managed pubs are branded e.g. Hungry Horse, Ember Inns, Slug & Lettuce.

The obvious advantage to the company is their complete control over every aspect of the operation. On the other hand, they incur all the costs and accept all the risks, instead of sharing those with a tenant or lessee.

Companies whose pubs are all or nearly all managed include Wetherspoons, Mitchells and Butlers, Sam Smiths and Loungers. Many other companies have a mix of models.

Retail Agreements

This is the new kid on the block and goes by a variety of names – Manchises (Management Franchises) being an increasingly common term. The model was pioneered by Marstons but most of the bigger companies have now adopted it, each with their own brand name e.g Stonegate have Craft Union, Star Pubs & Bars have Just Add Talent and Greene King, Pub Ready. Unlike in conventional managed pubs, the licensee is supposedly self-employed. In most cases, their remuneration comes from a percentage (usually 18-20%) of the pub’s net turnover. From this, as licensee, you pay yourself and all your staff plus incidentals like employer’s liability insurance and Council Tax.

So, what freedom do you have to run your own business? In truth, not a lot. The pub company sets the opening hours and the prices, decides what products you sell, prescribes the menu for any food offer and provides all the equipment. You can also be chucked out at pretty short notice (immediately in the case of Just Add Talent). If there’s a stock deficit then you’re charged for it and these can be mysteriously large. The advantages for the licensee are the low ingoing costs (Pub Ready require £5000), you get a roof over your head and have a prospect of making money. To do the last, though, you’d probably need to be taking over £10k a week. Urban, sports-oriented pubs seem to do best under this sort of regime. There are, though, many disgruntled ex-licensees who found the scheme a quick way to lose their dosh – try googling Sam Peeps Diary Marstons for a flavour.

The current number of these Agreements is unknown but they have certainly been growing rapidly. Many tenants have been effectively thrown out of their pubs so that the company can convert the pub to what, for them, are more lucrative arrangements.

You can see why the companies love this model. It frees them from the responsibility of employing staff whilst retaining full control over what the pub actually does. However, there’s suddenly a cloud on their horizon. Early in 2021, the Supreme Court ruled that Uber drivers were definitely not self-employed. The parallels with Retail Agreement licensees are striking and Her Majesty’s Revenues and Customs are known to be taking a keen interest. Given the amount of control that the companies exert, can they really argue that these licensees are self-employed? Watch this space.

Paul Ainsworth

PUB COMPANIES – HOW THEY MAKE MONEY

Introduction

It goes without saying that pub companies are first and foremost businesses whose main objective is to make money. There is no reason, though, why companies cannot both be profitable and own pubs that offer customers great pub experiences, either directly or via their tenants/lessees. Also, pubs are not just businesses; they are an integral part of our social network so community responsibilities are attached to their ownership (and hence the protections afforded to pubs by the planning system). Some companies have been accused of putting short-term profit ahead of long-term commitment to their pub estates – and we’ll return to this in a later article.

Managed Pubs

We saw in the previous article that pub companies are increasing the number of pubs they manage, either directly or through retail agreements. The advantage for them is control over every aspect of the pub operation – stock, pricing, staffing, opening hours, décor and so on. The bigger companies can use their buying power to command significant discounts from suppliers, including brewers. They can standardise elements of the customer offer, like menus, which also bring economies of scale. Efficient practices can be identified and then applied across every outlet.

The danger, of course, is that pubs become identikit and certainly some branded operations are pretty much the same wherever in the country you find them with choice and character being sacrificed to conformity. Other companies, though, take great care to ensure the individuality of their pubs, notably by the way they are designed and fitted out – so a balance can be achieved. It must also be said that many customers value consistency and like to know in advance what they can expect to get.

Tenanted/Leased Pubs

Companies derive income from their tenants/lessees in two main ways – ‘dry’ rent and ‘wet’ rent.

The dry rent is what you pay to occupy the building. Typically, there will be an initial deposit then a monthly rent, agreed for a three to five year term. Pub companies claim that their rent levels will generally be lower than the market rent for an equivalent property and so represent a relatively low-cost entry to a business that also provides a roof over your head. In fact, surveys by the Association of Licensed Multiple Retailers show that rent as a proportion of turnover (the key figure) is on average higher for tied pubs than free-of-tie leased pubs. The rent will be reviewed at the end of the term; we’ll come back to the issues that can arise in a future article.

The wet rent is what you pay the company for beer and other supplies. As a tenant, you’ll normally be ‘tied’ to the company and obliged to buy the products they offer at the prices they ask. With beer, for instance, that price will usually be 50%-100% higher than the free trade price. The company, because of its bulk buying powers, will pay less than that price anyway so the profit for them from this income source is considerable – a minimum of £210 per barrel.. Some companies offer free-of-tie tenancies and tenants can also try to use the Pubs Code (more later) to obtain freedom from the tie – but in both cases, the quid pro quo will often be a significant increase in the dry rent.

There are other ways in which companies can extract money from tenants/lessees but, again, we’ll get onto these later.

Pub Disposals

Pubs often occupy attractive, well-located buildings. In many cases, particularly in villages, they are worth hugely more as houses than as pubs. Others are on large plots of land which make them attractive to developers. A little while ago, over a hundred pubs a year were being lost in conversions to convenience stores, mainly in suburban areas. The temptation for pub companies, therefore, has been to capitalise on their assets and flog off pubs to make a quick profit.

Fortunately, and thanks to campaigning by CAMRA and others, it’s now more difficult to do this, in England at least (the planning laws are less helpful in the rest of the UK). Before 2017, planning permission wasn’t needed to demolish a pub or convert it to a restaurant, a shop or most kinds of office. A change in the law means that consent is now required for any change of use or demolition. Pub losses have fallen greatly since then despite all the recent difficulties for the trade. Where a pub is clearly valued by the local community, CAMRA will always support objections to unwanted planning applications. On the other hand, it must be acknowledged that some pubs find themselves in the wrong place at the wrong time, because the previous clientele is no longer there or because of demographic changes in the area, and change of use in these circumstances would be reasonable and even welcome.

The Pandemic and Beyond

The pandemic did, of course, hit both pub companies and their tenants/lessees hard. Stonegate, for instance, reported a loss of £746m for the year ending 27/9/20.

Some pub companies were criticised for their attitude to rent reductions or payment holidays for their tenants. Others, like Admiral Taverns, behaved better, cancelling rents for three months during the crisis.

Come the summer of 2021, things were looking up for the trade generally and demand for pubs, both in the free trade and tenanted arenas, was reported to be healthy. However, a year later, the outlook is much gloomier. The cost of living crisis is affecting pub businesses very badly through a combination of rising costs, especially for energy, and reduced customer disposable income. Many pubs have also faced great problems in recruiting staff. The impact on pub companies, as businesses, remains to be seen but there are certainly difficult times ahead.

Paul Ainsworth