Pubco disposal figures expose the reality of the pubco business model

Analysis of the pub disposal figures reveals the extraordinary extent of pub disposals by the UK’s giant pubcos.

Figures over the last four years, compiled by the Fair Deal for Your Local campaign from the pubcos own reports, expose the calamitous reality of the pubco business model with a staggering THIRD of pubs owned by the two largest pubcos being sold off in just four years.  

Enterprise Inns and Punch Taverns, the two largest pubcos, collectively disposed of over 5,000 pubs between 2008 and 2012 – 33.24% of all of their pubs.

In 2008 Enterprise Inns owned 7,763 pubs.[1] By 2012 this figure had dropped to 5,720 pubs.[2] The story is similar for Punch Taverns who in 2012 owned just 4,529 pubs (excluding the Spirit managed estate)[3] having previously owned 7,560 in 2008.[4]

These statistics expose the catastrophic reality of the pubco tied business model as well as clearly demonstrating the effect this business model has on the viability of pub businesses - and that it is causing thousands of pub closures up and down the country.[i]

No other part of the pub sector has seen disposal levels of anything like this, showing that it is the large, leased pubcos and their restrictive tied model, that are failing on a unparalleled scale. This is also in stark contrast to the many smaller pub companies who are succeeding, increasing their figures and taking on pubs – notably they operate completely different business models.

In what has been described as ‘slash and burn’ tactics both Enterprise Inns and Punch Taverns have steadily been disposing of pubs, or “asset stripping” in a desperate attempt to pay off the extraordinary levels of debt they are in. This debt accumulated after a period of reckless empire building, overvaluation of their estates and over borrowing against that value. This has led to the pubcos taking more from their tenants than is reasonable as well as engaging in huge disposal programmes which are changing the face of villages, towns and cities as much loved local pubs are closed, boarded up and bulldozed.

In 2012 Enterprise Inns had a net cash flow of £296 million from their pubs business but in the same year their debt and interest payments totalled £430 million. To make up the £134 million shortfall Enterprise Inns have had to resort to selling off pubs. This will be the fifth year in a row where debt and interest payments have outstripped turnover.[5]

The Fair Deal for Your Local campaign are campaigning for this asset stripping to be halted through much needed reform of the pubco model, as suggested by the Business Select Committee and backed by the Federation of Small Business, the Forum of Private Business, CAMRA, licensee organisations and trade unions. The only solution to this problem is to give pubco tenants the right to a ‘market rent only’ option, which would mean that they can opt to pay an independently assessed market rent and be able to buy product direct.

As well as giving licensees the chance to receive a fair share of pub profit, currently denied to them, it would make thousands of pubs more viable which in itself would stem the wholesale disposal of pubs by the pubcos. The market rent only option would also itself give pubco tenants more security of tenure and prevent some of the unreasonable practices used to try to force tenants out of the pub, to allow sales/conversions to non pub use. [ii]   

Greg Mulholland MP – Chair of the All Party Parliamentary Save the Pub Group and Coordinator of the Fair Deal for Your Local campaign, said:

“The Department for Business, Innovation & Skills have asked for evidence of the effect of the pubco tied model on pubs and their viability. There is no clearer evidence than the pubcos own disposal rates which show the extraordinary fact that together the two big pubcos, Enterprise Inns and Punch Taverns have got rid of a third of their pub estate in just four years.

“Sadly most of these pubs have been sold for alternative use, to supermarkets and developers, often with strong opposition from local people. So it is communities up and down the country who are paying the price for this as well as the pubco publicans who are being ripped off.

“The pubcos are planning to close thousands more in a desperate attempt to pay off the billions of pounds of debt they are in as a result of their reckless over borrowing and acquisition spree. Many of these pubs could be successful under a different and fair business model but with the pubcos too indebted to change, only the Government can step in and stop the fire sales by stopping the endemic, calamitous overcharging which would give thousands of pubs a brighter future.

“The choice for Ministers is stark. Do what they promised in 2011 and act to save many of the thousands of pubs earmarked for closure by the pubcos by making rents fair or fiddle while the pubco slash and burn continues which means ignoring the unnecessary loss of so many valued and viable pubs which also means a loss to the economy.”

Fionnuala Horrocks-Burns, Policy Officer at Forum of Private Business, said:

“Pubs are disappearing from local communities at far too rapid a rate. Many of these small businesses have struggled in recent years to remain afloat and they should be protected from these disposal practices which act as a buffer for the poor business decisions made by the large pub owning companies.  

“Now is the time for the government to act and show their support for small businesses by ensuring tied tenants have the right to a market rent option.  The UK pub industry needs better safeguarding from the unfair practices of the largest pubcos.”

Simon Clarke, of the Fair Pint Campaign, said:

"The pubcos disposal program of pubs has been in full swing for the last four years. These pubs have not found their way into the managed or free of tie sectors so it seems quite clear that quietly the pubcos are selling off for redevelopment to alternative use.

“It is the tied lease terms that enable pubcos to sell easily to developers as these terms offer an opportunity to evict the tenant by restraint of trade. A Market Rent Only option for tied tenants would help curb this behaviour hence the pubcos aversion to it. A Market Rent Only option not only gives a tenant a fairer share of pub profits, it also makes it much harder for pubcos to force out their tenants which will lead to fewer closures and a more sustainable pub sector”.

Val Spencer, of Licensees Supporting Licensees, said:

“Licensees Supporting Licensees is appalled but not surprised with information on 'The Churn' identified and experienced by Tied Publicans.

“With Enterprise Inns alone 'disposing' of more than 300 Pubs this year & their debt burden increased by £100m in the recent bond issue, the future is not bright without the intervention of Government.

“We look forward to The Government taking control of this situation by implementing a structure curbing these blatant excesses of corporate greed.

“LSL have no doubt that this will result in re-invigorated Pubs, local Economies & the Communities they serve.”

Paul Kenny, GMB General Secretary, said:

 "The only solution to this problem is to give pubco tenants the right to a ‘market rent only’ option, which would mean that they can opt to pay an independently assessed market rent and be able to buy product direct.

“As we as giving licensees the chance to receive a fair share of pub profit, currently denied to them, it would make thousands of pubs more viable which in itself would stem the wholesale disposal of pubs by the pubcos."

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[1] Source :Enterprise Inns Annual Report 2008 - page 1 'Financial Highlights' 

[2] Enterprise Inns Interim Results Presentation 2013 - page 13 'Analysis of Gross Profit'

[3] Source: Punch Taverns Annual Report 2008 - page 1 'Key performance indicators' - 'Pub Numbers'

[4] Source: Punch Taverns Annual Report and Financial Statements 2012 - page 4 'Chief Executive Officers review'

[5] Source: Enterprise Inns Financial Statement 2012, Cash Flow Statement. Page 58.

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[i] There are three main categories of pub ownership, 'Non-Managed' representing tenanted and leased pubs, the majority tied, 'Managed' and 'Free'. In December 2008 there were a total of 62,479 pubs, by September 2012 this number had dropped to around 57,652. Over the same period the Non-Managed, mostly tied, category has dropped from more than 31,000 to around 27,448, a drop of 12%. The Managed and Free categories have remained relatively stable in number, dropping by only around 606 (6%) and 335 (2%) respectively.  Shockingly this shows that there are 4,872 fewer pubs in ownership, according to CGA's numbers, and of them over 80% (3,886) were disposals from the Non Managed (mainly tied) sector.

It is clear that the majority of pubco disposals are not finding their way into the other categories and must therefore be closing for good.

[ii]  Redevelopment or alternative use require vacant possession. A tenant in occupation is usually protected by the Landlord and Tenant Act 1954, making vacant possession difficult to obtain. Tied pubs are prime targets for developers and supermarkets as the tied provisions of the lease allow pub owners to circumvent the legislation designed to protect tenants by restricting beer choice, and increase beer price to unsustainable levels, potentially bankrupting the tenant in a matter of weeks and making vacant possession easy to achieve.

Notes to Editors

1.      The figures used are from Enterprise Inns and Punch Taverns own reports (referenced above).

2.    The figures in footnote i. from the sources referenced are all based on/use the CGA figures for closures of licensed premises, which have been supplied to the various sources quoted.

3.    The Fair Deal for Your Local campaign, campaigning for a fair deal for pubco publicans is supported by ten pub industry organisations who have come together on this issue: The Federation of Small Businesses, The Forum of Private Business, CAMRA (The Campaign for Real Ale), the GMB trade union, Fair Pint, Licensees Supporting Licensees, Licensees Unite the Union, Justice for Licensees, The Guild of Master Victuallers and Pubs Advisory Service. All are campaigning for the market rent only option which will mean positive change for pubco publicans, pubs and the communities they serve.

4.    Pub Sales / Purchases by Enterprise Inns 2003 to 2013 H1.

Year	No.of Pubs	Change in Pub no's
2003	5087
2004	8727	3640 bought
2005	8590	137 sold
2006	8522	68 sold
2007	7741	781 sold
2008	7762	21 bought
2009	7399	363 sold
2010	6820	579 sold
2011	6289	531 sold
2012	5902	387 sold
2013 H1	5766	136  sold

All figures gathered from Enterprise Inns Financial Statements 2003 to 2013 Half 1.