European Benefits?

I'm a bit of a Euro-sceptic really. I'm not keen on the idea of extra bureaucracy laden on everything we do. Having a political law making system that has tiers¹ all the way from parish councils through borough councils, parliament and then to the European parliament makes a confusing, costly and over cumbersome system, in my view. Thank goodness in England we don't have regional Governments as well. Besides, I like going to the continent for holidays because they do things differently out there, it seems that more and more these days everywhere we go is becoming more homogeneous with less regional variations to be found the world over.

I'm also a beer tie sceptic. If you read this blog regularly you will have already worked that out. My view for the best part of three decades has been that tied pubs are in many ways inferior and my view on that is unlikely to change. Of course, the beer tie has been an integral part of how the British pub industry has worked for over 100 years or more, so to change it might well accelerate the changes in the whole of the British pub scene. Personally, I'm not convinced that would be a bad thing. The days of the "community pub" may well be numbered, the back street boozer has had it's day, out of those that are left a greater proportion, based on industry statistics², are tied to some brewery or PubCo.

Recently CAMRA's Mike Benner claimed that European Law would prevent the abolition of the tie. Now, I remembered something in the back of my mind about there being an exemption in place that prevented the Treaty of Rome affecting our beer tie system. I'm no expert on how this all works, but it seems to me that perhaps the first step is simply to permit this piece of European legislation to work.

Although I don't like the tie, I would have to admit that a complete abolition would be a crazy idea. After all, where would I stand as a brewpub? We could argue all day, I'm sure, about what precisely we should do about it. There is European legislation which is designed to prevent undesirable monopolization of various markets without unduly affecting free market enterprise. Surely we just need to allow that to work? Perhaps this solution might pacify my two key scepticisms.

Meanwhile, my mischievous friend Jeff Pickthall has created a survey. He is interested in the correlation between political persuasion and Real Ale. Whilst I think there is an element of paranoia on Jeff's part I also think there is a validity to the question. There does seem to me to be a high number of CAMRA officials who are also union activists. Besides, just because you are paranoid, doesn't mean they are not out to get you and I know Jeff is not alone in his views. I think it does have some relevance to the beer tie.

Anyway, do the survey, I think it's a laugh. I like the political compass that is used. Political opinion is far more complicated than simple left and right. I don't think the political compass is complex enough to really describe peoples political views, but it's better than a simple one dimensional measure. For the survey to be meaningful Jeff will need input from as many people as possible. Also, it needs as broad a selection of people as possible. If you don't want to do it because of some belief you have then you might just be the missing bit of data. It does allow the use of pseudonyms, so he'll never know who you are if you don't want him to.

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¹.....or is that tears?

²Source: The Community Pub Report, October 2008, page8 which shows an increase in the proportion of tenanted/leased pubs over freehold.

Tie Economics

Yes, sorry, I'm going to comment on the tie again. For the free marketeers who support the tie, I am going to take your side for the purpose of this discussion. The agreement between a lessee and his building owner are a business agreement that is freely entered into. This is true; The details of the lease are there to see when a prospective lessee is considering entering into the agreement.

From early in my drinking career¹ many of the people I drank with had the same view of brewery owned pubs as myself. Perhaps they were OK to drink in but whenever talking to landlords on the subject the overriding view was that they paid too much for the beer and then if the pub started to do OK, due to the efforts of the publican, the brewery put the rent up negating any reward for the effort. This opinion is the basis of my objection to the tie.

If every publican who starts out understands the terms then they have little to complain about when taking on a tied house. I have no argument in this respect. My problem is that I'm not sure that every publican really understands the effect this might have on the profitability of their business before they start out. One of the motivations behind this blog is to tell it how it is from behind the bar. If that stops one person from making a poor life choice, then all my efforts here have been worthwhile.

Recently I have visited two very nice tied houses. One was buying outside the tie, without the pub companies knowledge. In conversation the licensee told me he was able to get away with it because the landlord had not put a meter on the line. The difference between the tied beer wholesale price and the untied price was £25 per firkin.

A day or so later I visited the other pub on a trip out. A regular in my pub had recommended this house to me and I was delighted to see a wide range of beers on sale when I got there. This could not be a tied house on the grounds that the choice was too great and too diverse for that. It turned out I was wrong. It was in fact owned by one of the biggest two offenders. So how did the victualler manage to achieve the vast range of wares?

"We pay for it" came the response. I can only assume this means corkage² charges. I didn't feel comfortable getting into a full scale discussion about the situation but there came a second comment along the lines that if they didn't keep the range of beers they might as well "shut up shop". It is certainly a good pub and the management are doing a good job despite their tie.

Now, whether it be corkage or the premium charged by the brewery or pub company, it seems to me, without gaining more empirical evidence, that the going rate on a firkin is around the £25 previously mentioned. That's £100 per brewery barrel³. Consider a mediocre pub of a barrellage⁴ of around 200 barrels⁵ a year. This equates to £20,000 per year extra that the publican is paying. That's a similar amount I pay for my mortgage, but I don't pay rent.

So, are we really sure that if a prospective publican can't afford to buy a free house he can afford to lease a tied house? I'd argue he can do neither⁶.

I am very interested in the economics of the free trade verses the tied trade. I believe that in general the tied trade is being ripped off, but then I've always believed that. If any reader has empirical data I can use I would be happy to receive this. In return, discretion would naturally be assured.

¹Definition of career: To hurtle uncontrollably. To move rapidly straight ahead, especially in an uncontrolled way.

²Corkage is a charge levied by a premises for consumption of a customers own drink. Not uncommon in a restaurant and for a bottle of wine for instance can easily be £5 and often more. The same can be applied to a lessee who wishes to sell beer legally outside the tie.

³A brewery barrel is a unit of measure, NOT the container that beer is delivered in. A barrel is 36 gallons or 288 pints. About 164 litres.

⁴Barrelage is a good measure of a pubs wet trade. It normally includes wines spirits and often soft drinks. Most tied houses are tied for the majority of this volume of sales.

⁵I would consider a 200 barrel a year wet led pub not to be viable. Match this with at least the same again of other revenue and things might look a bit better. Either that or double the barrelage, which for a tied house would double the cost of the tie to £40,000 per year. Are your eyes watering yet?

⁶I admit that in a town centre the volumes of trade can make for significantly different slant. Many large town centre properties enjoy a comfortable relationship between the business operator and the property owner.

Free Trade Brewing

The people in this picture are all brewers. They are all very enthusiastic about making beer. All they really want is for people to buy their beer at a pub somewhere. We all went to the Prince of Wales, which is a brew pub, for a brewers weekend. We have a pub to run too so we only got their late last night and found that most had already been doing a good job of beer appreciation. Things were starting to get silly.

But why do we think real ale will die out and we'll be drowned in a see of macro beer when their are crazy people like this who will make the stuff for the love of it? None of these people are rich and some have risked their all to make beer. Those that are not lucky enough to own a pub have various difficulties getting their product to market and a lack of free houses is part of this problem.

I don't know the names of all the people in the picture. I'll try and get them soon and update.

In the picture is Phil from Keswick, Denzel, Stuart from Foxfield, Barry from Tiger Tops and Tim from Foxfield, oh, and me. Most of the rest I've met before but still can't remember their names, mainly because I only see them when we're all quite merry.

This is only about 1/3 of the total number of brewers who attended during the weekend.

Restraint? Not for me...

It's busy here and that's nice. Business seems to be quite good and I'm not sure the current economic situation has affected us one jot. Majoring on quality micro-brewed beer and interesting quality food seems to be a business plan that has merits. Unfortunately, it does result in me having much less time to blog than I'd like. I must go into the kitchen soon and start to prep for the day. I'm grabbing a few minutes to try and get across some points that are bothering me.

Recently, the publication Business and Enterprise Committee Pub Companies Report generated quite a lot of discussion in the trade press about the situation. The BBPA with it's Axe the Beer Tax campaign finding itself at odds with the Fair Pint Campaign. For me, I found the words from the BBPA to be completely transparent. The Fair Pint Campaign is pointing out that actually the beer tax is not the biggest thing that is effecting the pub industry. I agree with them, and the BBPA arguing against that rather highlights their own guerrilla tactics, exactly the thing they are accusing the Fair Pint Campaign of doing.

To go further on the beer tax issue, on a pint of 4% beer less than £0.40p is beer duty. It might interest you to know that typically, a tied house pays around that amount extra to it's landlord per pint compared to a free house and often more. If you add the compounding cost issues such as VAT and employer national insurance contributions¹ the cost issues for beer for the tied house do indeed make beer duty less significant to the trade than Axe the Beer Tax would suggest.

I'm all for complaining about beer tax, but it is not the root cause of the pub industries problems. The major Pubco's must take a major part of the blame. I'm sorry to offend the supporters of the regional brewers, but these tie reliant industries must also be watched as I feel they are no better. The rhetoric from all of these larger companies, suggesting that real ale will die out without them, is beginning to irritate me. I supply only micro-brewed beer and am completely independent. I see no death of real ale any time soon. Regionals brew real ale because it is a way of getting CAMRA on their side, but in reality most of their revenue is from the tie on wines, spirits, RTDs and major lager brands, not their own brewed beer. Brewing real ale helps to ensure CAMRA supports the tie for this group of PubCo estates that happen to also brew a little bit of beer.

Yes, I know we need to think through any change to the tie system carefully, but ultimately I'm becoming convinced that we need to think about moving to a limit of much smaller than 500 tied houses per estate. If a brewery or product needs a monopolistic system to get the product to market then the product can't be that good. Ultimately, the tie prevents many microbreweries from getting their products to market even though many tied house licensees would love to stock their products. Supporting the tie in any form is restricting the development of microbreweries.

¹Employer national insurance contributions are greater than employee national insurance contributions. Hidden taxes are significant to the small business. Beer tax is relatively small in comparison.

This post is crap and vitriolic. I'd like to be more subtle and eloquent, but I haven't got time, sorry. I hope to return to the subject soon. I'm hoping to attack the concept that without the tie many licensees can't afford to get into the trade. I'm hoping to argue that without being able to afford a free house many would be better off not starting in the trade at all.

Robbed

Many years ago a young man, probably slightly before his 18th birthday, discovered a drink called Old Peculiar. It was probably 1982 and the pub was in a well known Lakeland Valley. This young man had on several other occasions disgraced himself drinking far too much fizzy Scotch Bitter to only be subsequently calling out on the great white telephone. OP was found to be quite therapeutic and provided many a jolly evening of convivial socialising in this classic Cumbrian pub and little ill effects suffered except for a thick head the next day.

Thinking it was bitter that was the problem and that dark beers were OK a Guinness drinking career ensued for many years. Unfortunately this young man did not understand the difference between real ale, bitter, old ale, stout or keg beer.

A little while later a small up and coming brewery in Cumbria found this pub to be useful as an outlet. Yates brewery, started by the late Peter Yates, found this pub to be ideal for promoting his beers. Yates beers have been sold there ever since. Possibly, without the likes of this type of establishment, the little brewery would never have got going. Drinking OP, and remembering about Yates, contributed significantly to the young man in this story and his fascination with beer.

The young man is a little bit older now and is of course me. I run a real ale pub and micro brewery and my introduction and understanding of the trade was helped significantly by my time drinking and working at the above mentioned pub.

In a recent local CAMRA branch meeting Yates and Robinsons were both commented upon. Yates is a Cumbrian microbrewery. Robinsons is not. Which do you think the branch likes. Yes, your right, Yates. It's a damn good beer and much better then Robinsons. But the sad ending to this story is that Robinsons have bought the aforementioned pub. The end of Yates in one of the first pubs to support the brewery. Now do my readers understand where I'm coming from when I object to the tie?

Please excuse the rubber bands in the picture. The Landlord is quite rightly demob happy. I wish him all the very best in whatever he does. He's a good guy and I don't blame him one bit. I hope the incoming lessee can make it work - I doubt it personally, he'll be paying too much for the beer.

Punch and Crunch

The decision by Punch recently to offer it's 7,560 pubs for sale to sitting lessees was, in my view, good news. A pub that worked as a leased pub under the helm of a sitting lessee would surely work owned as a freehold by the same person. The banks should see these pubs as safer businesses to lend to than new start ups.

It seems however, that despite the banks being urged to lend to small businesses they are reluctant to lend to pubs. Apparently, there is a blanket policy from many of the banks resulting in pubs not being extended credit when they need it. HSBC, which I have to admit is far from my favourite bank, have been quoted as saying they have “a very limited appetite” for the pub sector.

A further criticism that can be leveled against the banks are the magnitude of charges that are applied. Banking cash, getting change, card transactions and cheques all cost and the charges are increasing in a disproportionate way. All these experiences I can confirm are realistic constraints that we also feel here.

How many times has the reader visited the pub with a couple of £20 notes and gone home with over £10 worth of shrapnel? That costs the pub industry quite a lot to refill the float in the till. We're lucky, we found out that the milkman gets all the change and now we have an agreement.

It is no secret that I am keen to see the beer tie system reduced but it seems the good news from Punch is unlikely to yield any real change. The banks are also reluctant to lend to sitting licensees who wish to buy the freehold. Very clever Punch, wait until the banks won't lend and then offer the pubs for sale.

I've been looking for an excuse to use these pictures. We took them while on a trip to London. We had to change from the underground at Canary Wharf and walk to a DLR station. It just struck me at the time that this is where my bank charges have been going for the last 20 years.

Scaremongers

The recent report from SIBA indicates that there is growth of success for the many microbreweries in the country. This is such fantastic news for anyone in the freetrade or who are owners of a small local independent brewery. It is also good news for the discerning beer drinker as the opportunity for choice increases. The only limiting factor to this success is probably a limit to the number of freehouses that these breweries have as outlets. Hopefully the Fair Pint Campaign will help to do something about this.

The Independent Family Brewers of Britain are obviously worried. In the Morning Advertiser there is an article that rather over exaggerates the role of the family brewers in providing choice. Furthermore, there is a claim that cask ale would have died out had it not been for the family brewers. Interestingly, I cannot find the article online but only in the printed version of the trade publication.

In the article, Paul Wells who is the chairman of the IFBB is quoted as saying.

"Cask ale has only survived because of the tie. Consumers only have choice of beer and regional diversity thanks to it. It is only because of the tie we have been able to resist the lager tide that Edward Taylor created with Carling Black Label through the '50s and '60s onwards, and the subsequent rise of the property pubcos."

The article seems to me to be suggesting that if the tie were to be outlawed then we would see the end of real ale and choice. I'm sorry Paul, but from where I am the freehouse is where you find good real ale. The freehouse is where you often find interesting beers from small independent microbreweries.

The industry figures would suggest that as a proportion of the total number of pubs there is a continual increase of tied houses. If we believe that the tie should remain to keep the family brewers in business then I don't think that's a good enough reason. When there is an increasing demand for micro brewed beer and an increasing number of microbreweries starting up, maybe we should consider how valuable the tie really is.

If a brewery is good enough and the beer is good enough it should not need to monopolise an estate of pubs to survive.

FREE of TIE tenancy

I've been in the cellar all day moving a consumer unit, fuse box to the lay man. I've been putting in circuits for the new gents lights, hand dryer and replacing old red and black cables with brown and blue. Oh, and tidying up cabling so that Alan can put back the ceiling he has previously demolished.


This did involve a brief venture into the VOID - but only Ted would fully appreciate that.


I have noticed with all my refurbishment of bar and cellar equipment, the amount of gear bearing the words "Property of S&N". Well, considering the amount of damage S&N engineers have done to the fabric of the building in the 20 or so years they had run of dispense equipment, I'm going to damn well keep the lot.

Most of this work is fairly mind numbingly boring. It's why I gave up being an engineer in the first place. But you do get lots of chance to think about things. For instance subjects for blog posts. I've got a few going on in my little brain right now. After getting the electric powered back up I came through to the office to set to on tonight's post. Ann however had left a couple of post cards, sent from S&N, on my desk.

FREE OF TIE LEASE - A JOKE??

It seems not. I do hope they manage to lease them. If you're looking for a lease on a pub, now is your chance. Negotiate your own terms. So I'm almost sorry for the thoughts I had about S&N earlier in the day - It's just a good job I can't blog straight from my cortex, that's all.

Meanwhile, it seems there are comments on other bloggers blogs that I need to catch up on - also, I should go to bed as I've convinced myself I need to go to some beer festival in Manchester tomorrow. Ho hum, the life of a beer geek!

Beer tie again

I recently set up statcounter on this blog, it's a rather good web stats tool for monitoring hits on web sites. The best bit is it's completely free and transparent to anybody visiting your site. I have Jeff, of Stonch's blog, to thank for publicising this facility on his blog. I also have Jeff to thank for prompting me to write this as a result of this post. Golly, he's a good chap.

I've commented about the beer tie before on several occasions. I am not going to pretend I like it and I'd prefer it didn't exist. You can get my previous posts on the subject here. I find it interesting that statcounter reports a significant proportion of readers of my blog, find it by putting something in Google like "beer tie", or "tied houses" or something similar. I've tried testing similar phrases in Google and haven't found this blog quickly, so anybody who gets here cares a lot about the subject and is going to the somethingteenth page to find me.

A question that is clearly being asked is "Can a profit be made from a tied pub?" or variation thereof. My knee jerk reaction would be to say "no"; This can't however be the case. There are clearly going to be many places where profits for the licensee, lessee, are likely to be quite sufficient. My suggestion would be that where the pub freehold value runs into 7 digits and the turnover is a very health fraction of that, a profit may well be possible for somebody who takes on the lease. This is likely to be true of a good town centre pub.

I accused Jeff of being a supporter of the tie. He put me in my place and I'm sorry I misunderstood. But he does state "I don't support people who break their tie arrangements - it's a contract they freely entered into". This I have a problem with. Not because Jeff is wrong in pointing out that it's the contract, but that I'm not sure that a good proportion of people who enter into the contract fully understand all the implications. For instance, they will not get a choice when their beer is delivered. If they miss the beer delivery their business will be without a product to sell and they can't go anywhere else to get it.

Jeff makes a further, very good point. If it were to be outlawed by Government, it would no doubt be done in a clumsy unhelpful way. Indeed I'm not sure I know how to do it without throwing the whole of the industry into chaos. So this leaves me to think that the only real way of sorting the situation out is by market forces.

So here I do my bit. If you've got here because you are seriously thinking of taking on a tied pub, then don't, not unless you really, really think you can make it work. Running a pub is hard work; No, I mean really, really is hard work, harder work than you can ever imagine. What you just don't need is some Pub Co making it harder for you by narrowing down the options on your supply chain. 

Chain pubs aren't all bad

I'm back in the UK and feeling very little the effects of timezone travel. Getting back home was greeted with some bad news, I found out that a pub that was part of my formative drinking experience is about to fall into the hands of a big brewery. Not only that the brewery is one of the worst around for the quality of ale. I can't blame the outgoing owner though, he deserves to get the best price he can for his assets. The independent property market is not fairing well so anyone's best bet is to sell out to larger companies. I just hope nobody is stupid enough to take on the lease.

While in Oregon I was introduced to a chain of pubs that seemed to really work. They all served their own beer and each have an individuality and friendliness that our own UK industry could learn from. If the reader knows a little about US liquor laws then they might question how a chain of pubs can serve their own beer. It would seem that at least every other pub in the chain is a brew pub. This enables them to comply with the liquor laws.



The pubs are McMenamins and across Oregon and Washington they have 24 Breweries and 57 Pubs. We were only introduced to two but they were both nice and individual. Edgefield is actually a large leisure complex and would be plastic and tacky if it were in the UK. As a large venue of a large organisation the care and individuality of the decor and conviviality of the staff was amazing. Mind you, not for the first nor last time, my English accent was a noticeable asset for the female staff, if only I were young, single and handsome again.


High Street Brewery and Cafe has significant individuality. All the properties have hand painted wall decor. The service again was superb. Perhaps the tipping culture here helps. This makes for interesting economics. Leaving food aside, which frankly does not deserve a high price tag, the beer is typically $3.50 upwards a pint (16oz) for quality beer. At current exchange rates this is starting at around £3.20 for a 20oz British pint. You are expected to tip at least 10% on top of this. 15-20% is common for a large group. This is effectively retailing the beer at around £4 per pint and sometimes more. But boy do you get good service.

No snow? yeh, I pinched this picture off their web site and all the others on this post.

What makes a great pub?

I know that there will be plenty of you will disagree with me on this one. I will of course make broad sweeping statements here that will have many, many exceptions. I think though, it is an interesting question worthy of airing.

I would say, without doubt, the best pubs are freehouses. This is a non negotiable point in my view. It is just not possible for a tied house to do everything that I want from a pub. There will be an element of predictability in the beer range and rarely anything at all from a good microbrewery. Generally there will be ties in other areas of the business such as bottled beers, wines and spirits which will limit customer choice. There will be a product range which generally leaves me feeling cold. I like to see things that I have never seen before when I visit a pub, not the predictable range of mass marketed products I can get down the supermarket for a fraction of the price.

Now I know Tandleman and Tyson will jump in and tell me how good the tied houses are around their neck of the woods. I will certainly be disappointed if they don't comment. But while tied houses can be good, the best of them are never as good as the very best free houses. Tied houses are a reality though, despite some of us, me included, wanting to put an end to it, I rather think it's a futile struggle.

It is possible to make a tied house very good, not the best but putting on a good show. The best example in my view, that I have visited recently, is Jeff Bells pub of Stonch's blog which gets a mention here. I hope Jeff doesn't mind me using his pub as an example, but having visited and talked to him he clearly is working the ties he has to his advantage. When I was in there I had two good beers. He had Timothy Taylors on, which I can get easily anywhere, but two others of a reasonably interesting rarity for me. I believe he chooses carefully off his list to give good variation for his customers. My only complaint was the lack of use of a sparkler on northern beers.

The key though to a great pub is the right ambiance. This is affected by so many things. Lighting, furniture, temperature, decor, music and hosts welcome; a thing that Jeff Bell clearly works very hard at. The ambiance is also affected by the customers themselves. This can be a difficult ingredient for the publican to get right. What I find is that for me, the more pleasant clientele are generally to be found in the freehouse. The tied system normally encourages a volume style of trade. The landlord, be it pubco or regional brewery are looking to maximise barrelage and so marketing and promotions are on a sell more save more basis. These pubs tend to push the higher profile, mass produced and mass marketed products such as "cooking lager" and "Alcopops" that are associated with, in my view, less savoury clientele and "binge drinking".

In discussions with a friend of mine who runs a highly regarded pub we shared our experiences of "regulars" affecting the ambiance in the pub. In my friends case the existing customer base sat right in front of the handpulls in a way that was intimidating to new customers. Effectively staking their right to be sat exactly where they were. Eventually this group had to be banned for the pub to progress. This is one of several pubs I hold in high regard, where they are completely and proudly free of tie. The lack of any mass produced products make this type of pub very special. Lager HAS to be properly lagered rather than some fast fermented thing that is effectively a light mild just gassed up and chilled to death.

Another great freehouse closer to me has the most wonderful ambiance due to it's refusal to serve any mass marketed products. Keeping out the "cooking" lager reduces the mass brand conscious types that are, in my view, the source of the social problems facing the pub industry. The sense of belonging to the establishment is so much appreciated by the regulars that they positively welcome all comers to peruse the array of handpulls, and if Continental fizzy is your thing then you are directed to the discreet gassy stuff that might contain many true pilsners or lambic fruit beers.

Clearly some of the smaller tied houses are suffering. Looking at the reports from the Pubco inquiry that is currently getting going there seems to be some worthy grilling being given to the pubco's. Jeff Picthall has provided some links. It is my belief that the tie is not good. It may help some regional breweries to survive, but this is at the expense of small community pubs being able to be flexible. I have tried to take a balanced view here but I believe that the disadvantages of the tie far outweigh the advantages.

For me the tie restricts the abilities of smaller community pubs to be flexible and limits the customer base to a bland, one size fits all, mass produced, mass marketed and go large style product range. It encourages volume consumption by the methods of promotion brought down from the pubcos and breweries.

Yes, phasing out the tie may well result in some regional breweries failing. But why is that a problem? We have more new microbreweries springing up all the time. Loosing Tetley's for instance is no bad thing. There are so many newer beers around and many more to come, I expect. If that is the price to pay for better pubs then I'm all for it.

I have found myself damning the tied system here more than I intended to. My intention was to support the freehouse. I maintain that the best pubs will always be freehouses. So why then is it that the industry is stating that it is the freehouses that are more likely to close? I think the main reason is because when they could, the pubcos bought up the more viable properties leaving the rubbish to the free market. Although I have no firm data to hand, the number of free houses as a proportion of the overall number of pubs has been falling for many years. This has to be a concern for the beer drinker.

The pubcos and the regional breweries alike are only interested in money. Yes sure, I am too as a pub owner. But I also care about what I'm selling. Pubcos and big breweries alike only really care about money for the shareholders. They may own the precious rights to the brand of beer that you grew up with, but they can't all live forever.

We must remember one thing, and if the rest of what I have said does not ring true, then I hope these final words you can agree with. We need to do something fast about our pubs. With so many closing we need to rethink what we are doing, and rethink fast. This is happening with the pubco inquiry, but as Nick Bish has pointed out “evolution” and not “revolution” is required and that any dumping of the tie overnight would be "cataclysmic".

I just hope it is not too late for many pubs.

More on the tie

Firstly, Hoppy Birthday Tandleman - It's not the blog authors birthday you understand, just his blogs first year. I have Tandleman to thank in part for helping me find my way in the blogging world by comments on my blog, and putting up with my comments in reply to his writings.

Another blogger who has helped me is Jeff Pickthall, who regularly puts up worthy issues for discussion and provokes Tandleman into interesting counter comment. Recently the discussion has been over the tied pub. Tyson also occasionally has some things to say on this and other subjects that cause stimulation of my thought processes.

What is interesting about these three worthy characters is that although they seem to disagree on finer points, there seems to be a general consensus that there are problems with the tie system. What is not being agreed upon is just what should be done. Ho hum, at least there is some common ground. Mr Tandleman has helped me realise that the discussions are good.

But what shall we do about it??

I don't know, but Mr Tyson made an interesting post here about the governments ideas to tackle drink related problems. His post seemed to have a level of sarcasm in it as far as I could tell. No? Must be my imagination then. Anyway, after recent postings by all three of these bloggers I started doodling - and the diagram here is the result after tidying up.

Jeff's recent post

Tandleman's recent post Actually I thought he'd made more posting on the subject - perhaps I'm just getting mixed up with comments

I knew there was another one,It's here

....and a bit more on the Beer Tie

I was going to say something thoughtful about Ted's post yesterday on The Round. But at least mentioning it here gives Ted a link for now. Have a look at it. It's interesting, but I'm afraid it's one of those cultural things that is fading here as well. I'll say more later.

More urgently Jeff Pickthall reminds me again that I don't like the tied house. I've tried to give a balanced and factual account, but I still don't like it. Jeff clearly is in no doubt but despite me wanting to vote "both" on his little amusing poll, I have thoughts about the wider picture.

The problem is, if we suddenly banished the tie what would happen? I guess I don't really know and neither does anybody else. But be sure that the pubco's make their money out of selling beverages to tied pubs. If they all of a sudden stop being able to make money this way my guess is that rents would go up. In any event the economics of the model would change. It might mean that pubcos sell off some estate. It might mean some lessees find the rent too high. Maybe it's the right thing, but there would be an upset to the industry as big as the smoking ban was.

I think the smoking ban was done incorrectly. I am in support of it now but I think it was too much of a shock to the industry and a half way house should first have been employed. If we ban the tie overnight then we would undoubtedly rock the pub boat so much that innocent pubs would fail. I am in suport of a change but if it happens it needs to be done carefully.

But really, what's the problem? Well I don't like the tie because it creates the sort of pub that I don't like. So I go to a pub that isn't tied. This is almost entirely true whenever I am aware there is a choice. It's true that in some areas there is no choice and sometimes the pubcos eliminate the choice in a particular geography. I would hate to run a tied house, so I don't and I knew I wouldn't when I started in the industry.

The punters who use tied houses generally like them. Those that don't like them choose a free house (although there are some "free houses" that are not, but that's perhaps a different story) I am very happy to hear from anybody who thinks that an area is devoid of sufficient choice, this would help me to sure up my need to hate the tied system.

Where there really is a problem is the case of licensees that find themselves running a tied house. Yes they signed a contract. Yes they really, really should have read the small print. I really do not think that most licensees go into the industry fully understanding the implications of the tie. I know far more people who believe they want to run a pub than are actually doing it. I also know quite a lot of people who have given it a go and failed, or at least got out as soon as they could.

I believe that the tied, leased pub works because many people go into it being promised the world by the pubco, and because they are so struck with the idea that they would like to run a pub they would agree to anything. I believe this is being exploited by the pubcos, perhaps not cynically or even deliberately, but everybody considering taking a pubco lease needs careful, unbiased advise.

I know how easy it is to get behind on suppliers payments. There are all sorts of reasons for it. In the free trade it is not uncommon to be put on "stop" by a supplier. It's a kind of telling off. But normally you just go to another supplier and order off them for a while whilst you get the original supplier in credit again and go back to normal. It's a nuisance and it's supposed to be because suppliers need to be paid and "stopping" the account normally works.

There is also the situation where the pubco fails to deliver. It does happen. We've been let down by suppliers more times than I care to remember. We just do what we have to, buy from where we need. It helps keep suppliers on their toes to stop buying of one that is failing to deliver. The tied lessee has not got that advantage. The pubco can still put them on stop, a little unfair I'd say.

With the tied lease the lessee has not got that valuable strategical tool. A few hundred pounds owing to the pubco can prevent trading for a weekend. What would you do? I'd go to the cash and carry for sure. If the wrong item was put on the waggon I'm sure I'd get it anywhere I could to keep my customers happy.

I'm afraid the tied lease will continue to work so long as people think it's good to get into the pub industry that way. If I were to advise anybody I would say don't take on a tied lease unless you were sure and even then be sure that the property was right. But most of all, screw the pubco for the best deal you can get, including an element of freedom, if they don't play ball, walk away because running a pub is your life and your life is worth more than that.

The Tied Pub - for and against

The beer tie and pub companies (pubco's) are being blamed for much of the trouble that pubs are suffering. I'm not altogether convinced that this is true. I am however against the beer tie as I believe it restricts the potential of the craft brewed market, limits customer choice and is a monopoly which exploits the aspirations of up and coming licensees often dashing all their dreams of running a good pub. Conversely it has also provided many people with the ability to gain a foothold on the ladder of pub management, one that they might otherwise have been unable to attain.

In this piece, I intend to explore some of the advantages and disadvantages in a constructive way. I hope, that if nothing else, it might provide an insight for the prospective pub entrepreneur into the various methods of starting out with your own pub business. Careful shopping around at this time, if you can finance the right project, could be very lucrative. Although the pub market is in a bad way, there is the possibility that it will turn around some time soon. As they say, invest when the market is at the bottom, it's judging when the bottom is. It could be a very exciting market to be getting into for those who are brave enough.

The models of ownership

There are 4 basic models of ownership: managed, tenanted, leased and freehold. All these can have a tie associated with them. Freehold is much less likely to have a tie and is only very subtle in the form of a loan with strings, it only requires alternative financing to enable the removal of tie. All other forms normally, although not always, have a tie of some form or another. There is however normally only a tie on the wet trade so the pub that does food or even better has rooms will have various areas of the business with better freedom.

Before I proceed though, I have to point out that whatever model of ownership is in force the thing that will effect success more than anything else is location of the property. I will look at this in more detail later but a pub that is located near centers of permanent population will always do better. Where there is the ability for several pubs to survive in a close proximity, they can often feed off each other, provide a pub "circuit" or an area known for diversity. For location, I would argue that where one pub has a population of less than 500 within a 1 mile radius there is doubt about it's viability. There are special cases in tourist locations, but weather and seasonal effects can make it difficult to make a pub viable where the vast majority of the trade is from visitor numbers.

I am not going to discuss in any details the managed or tenanted model more than to say these properties normally offer the licensee the ability to run a pub without any risk of his own capital. Handing back the keys and walking away is often an option without loosing out. The risk is low but the gains are also likely to be low.

The tied lease

The vast majority of tied pubs after this are leased. There are free of tie leases available but they are not as common. When you "buy" a lease, you are paying for the right to operate the business that runs the operation in the pub building. This lease has a value and the value of the lease is influenced by how well the business runs: a combination of turnover and profit. The building is owned by somebody else, often a pubco or brewery. The responsibility of the owner of the building and the owner of the lease will have been defined when the lease was drawn up by the property owner, although with a new lease there is sometimes a chance to negotiate the terms.

The terms of the lease will determine such things as who is responsible for maintenance of various aspects. Some leases will require the lessee to carry out all necessary work. Often though the property owners will ensure the fabric of the building is maintained and internal decor, fixtures and fittings becomes the responsibility of the lease.

Most importantly the lease will state where the lessee may purchase various product from. In a tied lease much of the "wet" product, i.e. beer, wine and spirits will need to be bought through the property owner, sometimes this can also extend to soft drinks and occasionally food. Sometimes though there is an agreement where flexibility of the tie is permitted.

The cost of buying a lease is a fraction of what it would cost to buy the freehold of the same property. Sometimes it can be a significant portion and sometimes less so. It is though, a significantly less expensive option than a freehold in most cases. There is a bias to this as leased properties tend to be better located for reasons I will come on to. Better location results in a better trade which results in the business being worth more.

Pros and cons of the tie

A significant advantage of the tied lease model is the great support that the pubco or brewery gives to the licensee. They will normally look after such things as the building infrastructure and significantly invest where this is required. If the pub needs a new roof, then it will get one. If the electrics are not to regulations then they will be upgraded. Wet rot, dry rot, rising damp and subsidence should never be a problem for long to the leased pub licensee.

A further advantage is that there is often significant support to deal with legislate issues such as employment law, health and safety and accessibility. Training is often provided and support for cellar management are all provided at either reduced prices or without cost. In short the leased model has inherent built in support. It was recently estimated that current legislative overheads now accounts for £30,000 on average per property.

The leased model has it's disadvantages. For a start the whole of the licensees investment is into the pub business. His only assets are often a few tables and chairs and maybe the kitchen equipment, most of which will have very little second hand value. The majority of the capital he puts into the project is to buy a viable business. If this business turns out to not be viable and folds, he looses everything he has put in.

Free of tie

The free house does have huge advantages. The initial investment costs are normally significantly more but the licensee will have full ownership of the property. A bank may have first call in the event of bankruptcy, but by and large this is a technicality. The property itself would normally have intrinsic value in the bricks and mortar. Even if the pub business were to fail then the owner may still sell the property, although it's value may be reduced due to there being no viable business at a commercial property and the problems associated with applying for a change of use.

It is then, somewhat easier to purchase the lease on a pub than the freehold. But I'd like to explore that a little. As the lease on the pub only has intrinsic value while the business is viable, it can be harder to get a loan. Any loan would have to be an unsecured loan with higher interest rates and the proportion put up by the prospective licensee would have to be greater. For this reason it is often the case that the new lessee will be putting all he has into the business. This can often be the equity in any property he might currently own. Conversely it is perfectly possible to put the equity of many houses owned by 40ish year olds into the deposit for a reasonable freehold property and get a mortgage for the rest. In my limited experience of looking at purchasing freehold against lessee hold the deposit is not that much different.

The current credit situation does make this rather more difficult just now, but then everything is a bit difficult right now. It is important to remember though, and I can't stress this enough, with the leased model, if the licensee fails he will loose everything, but the pubco or brewery will still have the freehold title to the property, the property owner, the pubco or brewery, is putting up very little risk. The leasehold model is there to pass the risk on to licensees and away from pub companies and breweries.

Forming a monopoly

It has become apparent to me that very successful free houses tend to be the properties that get bought up by the pubco's and breweries. They are prepared to pay just that little bit more for the ownership of a very successful pub as it is guaranteed to provide a significant outlet for their own product. This has resulted in a bias in the trade. As mentioned above the location of the pub is going to provide success over and above the type of beer sold, quality or style of food or the friendliness of the staff. Not that I'm diminishing the value of these pub features, but it still remains a fact that some pubs are much harder to run due to location and some will be much easier. The pubco's and breweries avoid like mad the more difficult to run establishments, the ones that rely on food and accommodation for the majority of the revenue, basically, the ones where the location results in low beer volume. The remainder that are in the free trade are more marginal, as a rule or are not true pubs but diverse pubs that might be simply a public bar in a hotel or similar.

Where the tied pub is really a problem is in the removal of customer choice. There will always be a restriction on what the landlord is permitted to sell. A tied pub will almost never sell micro brewed ale. The economics of it will not permit this to happen. Pubco's and breweries own pubs so that they can sell their beer into these tied estates and make money out of the pseudo monopoly it creates. Without this commercial advantage of owning tied pub estates they would not be investing in pubs. In short, it's a double edged sword that cuts at the pub industry.

It's down to choice

The reason that the tied houses work is because both licensees and customers alike choose to get involved. Without customers who patronise these establishments they would not work. People who are looking to run their own pub find the leased property as a perceived lower risk and lower cost option. I don't believe this is the case, but perceived like that it is.

If every person who was looking at investing into the pub trade thought very carefully about what they're taking on there would probably be less successful leases taken out. If every customer looked twice at the beer range and realised that they had chosen a tied house then the free house model would do better.

The most disgracefully action of pubco's is the act of putting a failed tied house on the free market with a covenant on it to prevent it ever being used again as a pub. I am all for free houses that have failed being allowed to be sold and converted to dwellings if the alternative is for a licensee, who has put his life's worth and more into a pub, to loose everything. But it must be tested on the free market first. There are examples of tied houses, where the pub company has competing property close by,  are being sold with a legal covenant that prevents it being opened as a pub.

We do have to remember that there are some good tied houses out there. Generally the vast majority of the general public like the product that is delivered by the tied houses as it represents a consistent and reliable product. This is the same reason of course that keg beers still take up the majority of the market. Bland and predictable is what the majority of consumers want.

Disclaimer - I am not an expert on the legal issues surrounding leasehold's and it is possible I have some details wrong. Please seek independent  expert advise if you are thinking of taking on a leasehold. This independent advise will not come from a brewery, pubco or estate agent. I would recommend the BII in the first instance.

As this is an important issue, please comment on any inaccuracies as I believe we need the issues into the open, as I've said, if for no other reason than to advise new licensees.