The COVID-19 pandemic exposed many of the existing weaknesses in the industry, as well as many of the strengths, in terms of the resilience and creativity of many of the publicans involved.
As the lockdown is lifted and we move into an uncertain and very different future, it’s clear that things will not return to the way they were in March 2020.
Many publicans are reporting a 50% reduction in trade compared to the same time last year plus they have the additional costs of operating under the new social distancing measures. The costs to implement table service, protective clothing and increased levels of cleaning is high. See the results of our latest survey here.
That’s why one-size-fits-all solutions are not effective.
As an example, the chancellor’s reduction of VAT to 5% benefits those pubs which have a big food offering, including the larger managed estates, which is why Wetherspoons have been able to announce price cuts. But smaller wet–led pubs who have been charged rent throughout the lockdown and are paying higher input prices and work to tighter margins are feeling let down.
Managed houses usually are larger units with more space to work and are showcases for their larger owners. Free houses pay less for the products and services they buy in. Regional brewers view their estate as a shop window for their products and many cancelled rent during lockdown. Finally we have the tenants of the regulated pub companies, who faced continued rent payments throughout lockdown on top of being charged premium prices for products and services.
The industry can no longer claim that everything is fine because a week after the lockdown the BBPA wrote a letter to the chancellor stating “24 hours to save our pub industry – immediate, decisive government action, the UK pub and brewing industry is in the midst of an existential crisis which threatens its very future”.
Right thinking should lead to right action
This is why they introduced the Pubs Code and put the Pubs Code Adjudicator in place as the regulator of the Code.
So one thing the government could be doing to help future-proof the sector would be to address the issues around the Pubs Code and the Pubs Code Adjudicator. It is within their power to do this now, because they are currently engaged in a review of the Code.
At the heart of the Code were two main principles:
“That tied tenants are no worse off than free of tie tenants” and that there is “fair and lawful dealing between pub–owning businesses and their tied tenants”.
If both of those elements of the Code were happening then the pub sector would be a lot more robust, tenants would be in a better financial state and the operating companies would be managing their finances, so they were less reliant on debt.
Creating real change for the future
1. Ensure that a true Market Rent Only (MRO) option is available at agreed trigger points, as a choice for tenants.
This will rebalance the playing field as it puts some power in the hands of the tenants and if the pub companies are behaving fairly and lawfully, tenants will not want to take that option. For this to happen we need independent valuations, which rely on RIC’s surveyors doing a truly independent job.
One way of ensuring fairness would be to have a small panel of independent rent assessors working out of the Pubs Code Adjudicator’s office. They would check assessors’ work and be there to resolve any issues with valuations.
The MRO process should be quick and cost–effective and can be achieved by a simple deed of variation. It does not need a new contract and if it does, it should not have any buying contact attached to it. It should do what it says on the tin, be a “Market Rent Only” option.
2. The Pubs Code Adjudicator (PCA) needs to be just that, an adjudicator, rather than an arbitrator.
The PCA also need to take seriously the bad behaviours of the regulated pub companies and do something about it. In the entire time of their existence, the PCA has launched one investigation and that was into Heineken’s stocking policy while ignoring several evidenced submissions regarding behaviour verging on the criminal.
So, the PCA needs to be given the responsibility and the authority to take on this behaviour and remove it from the trade. Not just through formal expensive and time-consuming investigations, but in writing, through the code compliance officers and if need be, publicly naming and shaming through the press.
3. The PCA got off on the wrong foot with tenants and representative groups.
It would seem as a result of this, they only meet with the regulated pub company code compliance officers and three chosen groups, the BII, The FLVA and UK Hospitality. Interestingly all three have links with the regulated pub companies.
The simple fact is that if your thoughts and actions are going to be effective you need to test out your ideas, you need them to be questioned and you need to welcome that process. That is the role of the Pubs Code Adjudicator, to take in the wide views and ideas from the industry and turn them into meaningful actions.
So, the current PCA needs to take a more open and less confrontational approach to those tenanted bodies of the trade they currently do not engage with. You don’t have to agree with everyone, you don’t need to like those you interact with, but if you are a regulator it comes with the territory, your role is to engage widely and listen, then act if appropriate.
In conclusion, part of the solution with the hospitality industry, at least with the vulnerable regulated pub company tenants, lies within easy reach of the government. At the Forum of British Pubs we can only hope they grasp this opportunity. Because if they do not, we are looking at a further four frustrating years in a far weaker and more vulnerable industry, with the possibility of further damage if we do not look at future-proofing it now!