The truth about pub closures - BBPA lies exposed.

Pub Closures: the truth

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PUB CLOSURES: THE TRUTH

Parliamentary Save the Pub Group publishes figures and report to show that Government has been misled & that as many pubco pubs close, freehouses open

The All Party Parliamentary Save the Pub Group have published a report which shows that CGA Strategy’s figures on pub closures – and other figures – clearly show that the non-managed (largely leased/tenanted) sector has seen many more net closures than those of independent freehouses – the opposite of what the British Beer and Pub Association (BBPA) and the pubcos have tried to claim is the case.

The report, which is based on data and ongoing correspondence from CGA Strategy, who  compile data on pub closures, include CGA’s own figures between December 2005 and March 2013 which show a net closure rate of 15.9% (5,117) for Non-Managed pubs (mostly leased and tenanted) and only  9.5% (2,131) for independent trade pubs.

This clearly exposes the myth – long been peddled by the pubcos and their lobbyists, the BBPA – that somehow “tied” pubs are closing in smaller numbers than free-of-tie pubs and shows that this is actually the opposite of what is going on in the sector.

Extraordinarily, the BBPA’s own numbers – published in their Statistical Handbook 2013 – show that over 10 years from 2002-2012 the ‘Free/Independent’ sector has actually GROWN whilst the ‘Tenanted and Leased’ sector has shrunk.

The BBPA’s figures show pubs in free/independent ownership have actually grown by around 1,600, whilst the pubs in tenanted and leased ownership have shrunk by more than 8,000, showing the ‘free/independent’ sector is bucking the trend.

The BBPA have chosen to omit these clear facts from their pub closures statements and instead made wholly unsupported and incorrect statements giving an entirely misrepresented picture of the state of the UK’s pub sector.

The report also exposes how, with pub transfers from one sector to another (from non-managed to free) not being logged in the figures, some closures of non-managed pubs are being wrongly presented as closures of independent/free pubs – including failed pubco pubs being sold to developers and being classed as a ‘free’ closure, something that is clearly wrong and is distorting the figures. The fact remains that the number of pubs in independent/free ownership has remained stable over the last ten years which means that this must be happening – and therefore giving a misleading picture of sector closures.

The report also exposes how the CGA figures do not record many temporary pub closures – known as “churn” where a pubco pub tenant fails and is replaced. This means that this trend, that is rife, is happening in an estimated third of pubco estates every year according to figures revealed from pubcos is NOT counted where the closure is under two weeks, which is commonplace with pubcos installing temporary managers and replacement tenants on a tenancy at will (TAW) basis.

Finally, using the staggering disposal rates of the large pubcos, from their own report – that show an incredible THIRD of all the pubs of the two large pubcos being sold off – the Save the Pub Group show that it is this part of the pub trade that is doing exceptionally badly – both in terms of temporary and permanent closures. This clearly shows why the Government must act to deal with this – and the endemic pubco overcharging that is leading to so many pubco pub failures and closures.

The required action is to introduce a statutory code of practice for the large pub only companies which enshrines in law a market-rent only option for tied licensees.

This report and figures are clear evidence showing the catastrophic effect of the pubco tied model and the comparative health of free/independent pubs must be used by BIS to back the appropriate action, which is the BIS Select Committee solution. Only their market rent only solution will ensure that pubco tied publicans at last have a fair deal – which will lead to many more pubs being viable and staying open and serving their communities.

Greg Mulholland MP, Chair of the All Party Parliamentary Save the Pub Group, said:

“The reality of the CGA’s figures is that show that over eight years the non managed sector has seen many more net pub closures than independent free pubs, the opposite of what the pubcos and their lobbyists, the BBPA have said.

“What is shocking is that the BBPA’s own figures explicitly show that the tenanted and leased sector has declined whilst the number of independent free pubs has expanded, so the BBPA knew this all along yet have continued to peddle their myth which is utterly disgraceful.

“It is now time that the Government admitted it had been duped by the pubcos and their discredited lobbying body the BBPA but questions must be asked as to why BIS were so ready to accept something at face value that was never true.

“The real evidence is clear – from CGA, from the BBPA themselves and from the pubco disposal figures from their own reports. The tied pubco model has been a disaster and is closing pubs up and down the country and this is what the Government must deal with. This can only be dealt with through a market rent only options for tenants of the larger companies which not only would make those pub businesses significantly more profitable, it would also prevent many closures by preventing companies forcing licensees out through unreasonable terms.

“So the real evidence is clear and BIS are now running out of excuses to not introduce the essential market rent only option. It is time that Jo Swinson and Vince Cable showed the necessary courage, ignored the baseless and in some cases dishonest scaremongering and looked at the stark reality of what is happening to British pubs and finally introduced the Select Committee solution to give a fair deal for thousands of British pubs.”

Simon Clarke, from the Fair Pint Campaign, said:

“Anyone with a modicum of common sense knew the BBPA claim that free pubs were closing faster than tied had to be wrong.

“The BBPA’s own figures show the free sector is actually growing tentatively whilst leased and tenanted pub closures are in comparative freefall.

“Fair Pint consider it has been utterly deceptive for the BBPA to have selectively used some of their data whilst ignoring the truth to support their argument to keep self regulation afloat permitting the asset stripping of the Great British pub sector.

“The figures demonstrate that given a chance, with a Market Rent Only option, many pubs could operate viably and many would not have been lost to corporate greed.”

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PUB CLOSURES: THE TRUTH – REPORT SUMMARY

Summary  Introduction – the CGA figures CGA Strategy are specialists on trade consultants who independently compile data on pub closures.  The main purpose of the CGA figures is not to record closures by ‘tenure’, this is a ‘by-product’ (something that is not understood by many, including BIS). According to CGA “its primary purpose is to provide brand owners (and other suppliers to the on trade) with an up-to-date and accurate database of all currently trading on trade outlets”.  CGA record any closure from the eyes of the consumer, but closures of under two weeks are not recorded. They have two figures, gross closures and net closures as well as figures for openings (that include reopening). Gross closures are all recorded closures and gross openings are all openings and reopening; net closures are recorded openings/reopening less closures – including closures and reopenings of the same pub. The myth CGA figures are both misunderstood, misquoted and misrepresented (it seems deliberately by some) to suggest that they show that ‘free-of-tie’ pubs or ‘freehouses’ have closed at a faster rate than ‘tied’ pubs. The CGA figures do not show that, this is a myth. The reality is that CGA do not collate figures for ‘tied’ and ‘free-of-tie’ pubs. However the BBPA are not even correct when using the CGA categories. What the figures do show – the opposite of the BBPA myth  The CGA figures clearly show that the non-managed (largely leased/tenanted) sector has seen many more net closures than those of independent freehouses -  the opposite of what the BBPA have tried to pretend is the case. CGA figures from 2005 to 2013 the CGA figures shows quite clearly that the net closure rate is considerably less in the ‘independent free trade’ sector (9.5%) than in the ‘non managed’ (mainly leased and tenanted) sector (15.9%). The BBPA’s own numbers – published in their Statistical Handbook 2013 – show that over 10 years the UK has lost just over 10,000 pubs (they have been quick to quote this statistic) BUT over the same period the ‘Free/Independent’ sector has actually GROWN whilst the ‘Tenanted and Leased’ sector has shrunk. The BBPA’s own figures 2002-12 show pubs in Independent ownership have actually grown by around 1,600, whilst the pubs in Tenanted and Leased ownership have shrunk by more than 8,000, showing the ‘Free/Independent’ sector is bucking the trend.  The BBPA have chosen to omit these clear facts from their pub closures statements and instead made wholly unsupported and incorrect statements giving an entirely misrepresented picture of the state of the UK’s pub sector. What the CGA figures do not show CGA have confirmed they have never been commissioned to consider the pub closure rates of ‘tied’ and ‘free of tie’ pubs. The CGA categories are ‘managed’, ‘non-managed’ and ‘free’. ‘Non managed’ and ‘free’ do not equate to tied and free of tie. In CGA’s own words “we classify based on the ownership of the premises rather than the business model or tied status in terms of supply to the business”. CGA do not, and never have been asked to, distinguish between Tied and Free of Tie pub numbers – be it closures or ownership levels. This demonstrates that the BBPA, stating that Free of Tie are closing as fast or faster than Tied, is fundamentally an unsupported statement. It may be true to say the CGA sector ‘Tenanted and Leased’ are mostly Tied and ‘Free/Independent’ are mostly Free of Tie but even then the CGA figures do not support the BBPA statement – and actual both net closure figures and the BBPA’s own  figures show that it is the non-managed (mainly leased and tenanted sector) that has seen many more closures than the free sector. It is deeply worrying that the Department of Business, Innovation and Skills (BIS) and the Office of Fair Trading (the OFT) have both taken at face value the myth about ‘tied’ versus ‘free-of-tie’ pubs without scrutinising this – when there are no figures for tied v free of tie pubs – and actually the figures anyway show that more non managed pubs have closed than independent free pubs. This warrants an investigation.  The figures do not represent permanent closures i.e. loss of a pub through demolition or change of use and yet are often wrongly assumed or believed to be – which is why they fail to expose and indeed have been used to cover up the reality that pubco pubs are being sold off for alternative use and bulldozed in their thousands. The CGA figures do not include all failures of pubs businesses and not all pub closures are included so they exclude a considerable amount of pubco “churn’ – the failure of a pubco tied pub and installation of a new tenant or a temporary manager, within two weeks, would NOT count as a closure even though this is happening to many pubs, each one representing the clear failure of a pubco tied pub business. With so much churn not included in the CGA figures, the business failure rate of pubco pubs remains a closely hidden statistic. We estimate using their own figures and projections, that around one third of the large pubcos estate is churned every year equating to some 5,000 business failures –many being unrecorded temporary closures too that therefore are not recorded in the figures. A key issue – non inclusion of transfers Crucially, CGA figures do not include transfers from one sector to anotherwhich is hiding further closures of non managed – pubco pubs. So where a pub changes tenure, then closes, the transfer is ignored – this means that former pubco run down/failing pubs that are categorised as ‘free’ for a short period (as little as three weeks) are then listed as a FREE closure – even when they have been bought by a developer or a another owner who has bought it to close it – and when the reality is that they business was made unviable due to the pubco model.  The reality of the pubco model – pubco disposal rates  The reality of pubco performance is exposed by pub disposals of the big companies.  Enterprise Inns and Punch Taverns have together disposed of a THIRD of their estates in only four years (between 2008 and 2012), a disposal rate out of all proportion from the rest of the sector. So at a time when the leased pubs that are not being sold off for development/change of use are being bought by successful smaller companies and individuals and turned into free and managed pubs, the Government must focus the statutory code on the problem – the large companies in the tied leased sector. Focusing on the problem – the pubco leased model – not the CGA categories The issue – as agreed by BIS – is not actually ‘tied’ versus ‘free-of-tie’ – but the large pubcos taking more than is fair or sustainable form pub profits through excessive prices and rents that do not compensate. Some ‘tied’ pubs – the family brewers – have proportionately fewer closures (temporary and permanent) than the pubcos. So this shows that the pubcos are the worst performing part of the sector. So BIS need to be looking at the pubcos separately and not being sidetracked by the CGA very broad categories – which don’t even show what they themselves (BIS) have reported them as showing.  Conclusion We wish to make clear that we believe that CGA have complied the information accurately based on the data available to them.  Our criticism is wholly of those, including the pub companies and the BBPA, who have used this information in a way that is completely misleading.  The CGA figures do show that non managed (mainly leased and tenanted pubs) have closed in much greater numbers than independent free trade pubs, however due to the methodology and client confidentiality, whilst being useful to drinks brands, what they are not able to show is the catastrophic failure levels of leased pubco pubs including temporary closures or ‘churn’ (much of which is ignored and permanent closures.) Of the many failing pubco tied pubs, whilst many are being lost permanently (even when turnover was at a decent level) an encouraging number are being bought and being re-opened as a freehouse or managed pub – and then trading successfully. This would happen much more with a market rent only option to stamp out the abuse of the tied model through the double pubco overcharging. The true picture is shown by pub ownership figures – which show free pubs increasing and non-managed pubs declining, by the pubcos own disposal figures and by the simply reality  of local permanent pub losses to development, supermarkets and other change of use. So it is the pubco tied model that therefore the Government must deal with in its much needed statutory code  – having previously failed to do so, partly by being all too willing to accept and worse still refer to figures that do not show what the BBPA (then BIS and the OFT) claimed they did.

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.