The Fair Pint Campaign

News: BBC 2's Money Programme investigates the impact of the pubco tie.

30th November 2008

The Money Programme: Friday December 12th at 7pm on BBC 2
Last orders for pubs? Are we calling time on the British boozer?

Click here to watch this edition of the Money Programme online using the BBC iPlayer:

We all know the headline figure – five pubs are closing every day in Britain – but what are landlords and publicans doing to make sure they aren't locking their door for good? The Money Programme investigated the future of the British boozer, and this is what we found.

By 2012, one in eight of our pubs will have gone under and more than 4000 pubs will go out of business in the next two years.

Publicans are finding it tough for a wide range of reasons.  The credit crunch is biting, utility and beer costs are up while supermarkets are offering cheaper and cheaper alcohol. Then there's the smoking ban, in one pub I visited 80% of the customers were smokers.

And that's all before the awful summer. Between July and September this year 161 million fewer pints were sold compared to last year. In March an above inflation 6% tax rise was slapped on alcohol, in the latest mini budget duty is up by 8%.

This is a perfect storm.

However it's not just the economic climate that's to blame. Many landlords are complaining about their landlords, the pub companies.

More than half of Britain's 58,000 pubs are owned by pub co's. The rise of the pubco's is a recent phenomenon dating back to 1989 when - under Margaret Thatcher - the so-called 'Beer Orders' were introduced.  It was felt then that the big breweries owned too many pubs and that restricted choice for the consumer.

The solution was to force all the big breweries to sell off the majority of their pubs – and who should snap them up but newly created pubco's! No longer were the beer and pub industries tied together, now there was a middleman answerable to shareholders.

The pubco has a 'beer tie' with most of its landlords, which mean they have to buy more expensive beer through the pub co rather than direct from the landlord, this has become one of the biggest issues for struggling pubs. Many of them also feel that their rent is unsustainably high.

Landlords complain that in hard economic ties, the pubco's should be cutting the beer tie prices and reducing rates.

However the pubco's say they are doing nothing wrong. As Mark Hastings of the British Beer and Pub Association put it:

"None of this is to do with pub companies as an entity because of course successful pub companies are built on the back of having and running successful pubs.

"If you were to buy a pub, the costs of furnishing that mortgage of buying a freehold property are huge – you don't have those costs in the tied pub model what you have is a rent that you pay and the costs are balanced out between the rent that you pay and the beer that you actually buy and they form a package. Equally it's important to say everyone knows these numbers when they go into the business – nobody forces any body to take on a pub lease".

Woodford woes

I went to visit the village of Woodford in Northants is like a barometer of the health of the rural British pub. A village of 1500 people, it has three pubs – and all have found it tough going. So tough that the locals are taking bets on which pub will close first.

The Duke's Arms has the best, most central location in the village. But the smoking ban was bad news for landlord Tony Blythe – he was forced to build a special shelter outside for his regulars. Tony's takings have almost halved in the last 18 months. Times are so tough that Tony can't afford to pay himself a wage.

The Prince of Wales is very much a working man's pub. The pub is owned by Punch Taverns, the largest of the pubco's with over 8000 pubs.  Alan Peel has had the leasehold for six years.  His beer is tied, meaning he must buy it through Punch, and his rent increases annually with inflation.  When Alan started at the pub 6 years ago his weekly takings were on average £2800 and that's exactly what they've stayed at.  All his costs – rent, fuel, the price of beer  and so on – have of course gone up. Like the other two pubs in the village Alan is struggling to survive.

The White Horse pub is owned by pubco Admiral Taverns.  In the last 8 years it has seen 8 publicans come and go.  Giuseppe took over in January 2008 and is already £28,000 in debt. The White Horse used to be a 'destination pub' renowned for its food – but that was 20 years ago!  Giuseppe, who was a chef, wanted to restore it to its former glory with the help of Admiral Taverns.

After we filmed, Guiseppe shut the pub. The locals who bet the White Horse would go first were right.

Woodford is representative of Britain in that it has some great pubs, with loyal customers, but also on recycling day you can see the green bins full of beer cans and wine bottles. People have got out of the pub habit, so it's up to landlords and pubcos to get people back through the doors.

Fighting back

Two examples of pubs doing well are in Cumbria. The first one is The Old Crown at Hesket Newmarket.  The secret of its success? It's a co-operative pub owned by 148 of the locals.  Each of them paid fifteen hundred pounds for a share in the pub. Over the last two years the Old Crown has increased trade by over forty percent.

About 40 miles away in Ravenstonedale, the Black Swan has opened a shop within the pub – the first in the village for twenty years. It was helped by an initiative aptly named Pub is the Hub, which was started by the Prince of Wales. The pub has seen its turnover treble from £200,000 to £600,000 a year.

Both boozers are thriving in the evening, and they have the same challenges as those faced by the pubs in Woodford. According to Mike Benner of CAMRA:

"Clearly consumer expectations these days mean that they expect ever improving standards for their hard earned cash. And so pubs have had to diversify. And for many pubs food is now a bigger part of their business than the drink sales. It is a changing climate."

Where now for the boozer?

Things are indeed looking difficult for the traditional British pub. A recent survey by financial experts recommended investors to avoid pubco stocks.  It said the beer tie 'looks increasingly archaic', that a sizeable proportion of pubs are paying too much rent and may not be able to survive long term.

With cheap supermarket beer, bad weather, high rents, big taxes and the smoking ban, it's enough to drive you to drink. And with the economy struggling for the foreseeable future, time could soon be called on a unique part of British life.

Watch this edition of the Money Programme online using the BBC iPlayer:

Register Your Support
Copyright the Fair Pint? Campaign 2010