LONDON LETTER:Britain's equity-backed pub-leasing firms are experiencing a backlash from publicans and criticism from politicians, writes MARK HENNESSY
THE MILBOURNE Arms at the corner of Milbourne Street and Junction Street in Carlisle housed local people in 2005 for days after they were driven from their homes by heavy flooding.
Shortly before 11pm last night, landlady Stacey Yeoman called on regulars to drink up for the final time. Its owner, Punch Taverns, is selling the Milbourne, along with 500 other pubs, in a bid to make a dent in its £3.5 billion (€3.85 billion) of debts.
The Milbourne is far from being alone. Fifty-two pubs a week are shutting, 11 of them in London, hit by cheap supermarket prices, the smoking ban, the recession and the high rent and drink prices charged by owners such as Punch.
Before 1989, breweries such as Ind Coope and Bass Charrington each owned tens of thousands of pubs, but the Thatcher government forced them to sell as it went about “deregulating” the trade so that no brewery would be able to own more than 2,000 pubs. However, the legislation had a loophole. New holding companies, separate from the breweries, could own as many as they liked.
Taken over subsequently by private-equity firms, the new “pubcos”, such as Punch Taverns, Enterprise Inns and Admiral Inns, went on a borrowing spree, racking up £20 billion worth of debt – much of it charged at six percentage points above inflation.
Today, 30,000 of their landlords are struggling, claiming that their rents spiral upwards if they make a success of a pub, or refurbish it, and that they are charged excessive prices for the alcohol they must buy from the pub companies.
Blessed with huge purchasing power, the pubcos buy beer cheaply from the breweries, but, according to a House of Commons inquiry, they fail to pass on a proper share of the discount gained to their tenants.
Every pint that goes through the taps is monitored by a company called Brewlines; a private company, it provides the same service to all of the pubcos.
Brewlines infuriates the landlords, who allege that it counts water run through the lines to clean them as pints poured – leaving publicans to face arbitrarily imposed fines that can run into thousands.
In a battle of claim and counter-claim, MPs believe the publicans. “We were told of pubcos which failed to honour verbal agreements about the status of leases, and pubcos which failed to make agreed repairs.
“There were recurring stories of rent reviews which lessees could not dispute without excessive costs, and stories of lessees not just working long hours for low pay, but supporting their pub from other earnings.
“The consistency of these themes suggests that something is seriously amiss,” said a final report from the Commons enterprise and small business committee, chaired by MP Peter Luff.
“If pubcos push too hard and are too greedy, they will fail. But on the way bad companies will inflict real damage on their direct customers, the lessees, and on their indirect customers, ordinary drinkers.
“The potential for such damage may be increased by current economic conditions producing a ready supply of inexperienced would-be lessees eager to use their redundancy money to enter a new career,” said the MPs.
Now, however, the publicans are getting ready to strike back, helped by Mayo-born GMB trade union organiser Paul Maloney, who has seen 3,000 of them join his organisation’s ranks in the last month alone. Before Christmas, the publicans’ group – who have dubbed themselves a “Pub Revolution” – are threatening to disconnect the Brewlines monitors and buy alcohol from elsewhere. One of the pubcos, Enterprise Inns, criticises Pub Revolution’s “threatening actions”, saying that “a small group of anonymous individuals” are trying to mislead “the vast majority of our hard-working licensees”.
Some companies, however, are interested in buying pubs: JD Wetherspoon recently announced that it would spend £250 million over the next five years to open 250 new premises across the UK.
Wetherspoon chairman Tim Martin, speaking after he announced the company’s best-ever set of profits, said they had “gone back to basics” and “improved all the little parts of our business”.
Another pubco, Marstons, which already has 2,200 pubs, is readying to spend £140 million over the next three years to open 60 pubs targeted at “food, families and females aged between 40 and 50 years of age”.
Such news should be good for pub tenants, but it is not, because, they claim, it acts as an incentive for other pubcos, desperate to reduce some of their borrowings, to evict some existing tenants – all of whom have invested tens of thousands.
Steve and Cheryl Morton invested a £70,000 inheritance, and took on debt, to fulfil a life’s dream to run their own pub, but this week they gave up in the face of a 240 per cent rent hike by Admiral Taverns. Having taken down the last of his pictures from the wall of the Maidstone pub, Steve had one piece of advice for anyone who wishes to call last orders: “Don’t do this. Don’t do this. Think of something else.”