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Phil Mellows is a freelance
 journalist living in Brighton 
 


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        The politics of drinking

           
January 06, 2015


 

 

The Beer Orders
... not just history

Learning from a dry society
Interview with Redemption Bar's Catherine Salway

Bye-Bye Booze Britain?
Young people seem to have gone off the drink...
Strength in Numbers
Voluntary off-licence bans on strong beers and ciders

Aware of the need for change Inteview with Drinkaware chief executive Elaine Hindal

Stats are the real cause of concern
The misuse of alcohol statistics

Aiming to Serve and Protect
Alcohol policy according to shopkeepers on the frontline

Winning Over the Doubters
Interview with serial pub entrepreneur David Bruce

Your good health?
Drink and the politics of public health

The Benefits of Preloading
Having a drink before you go out may not be so awful

Alcohol and the State
Governments have been wrestling with drinking issues for centuries

The Musical Moderniser
Interview with Fran Nevrkla, chairman of PPL

Bar room brawl
Government alcohol policy and the drinks industry

A man of culture
Interview with Gavin George, who runs 43 pubs in Brighton

All in the detail
Interview with telly troubleshooter and pub entrepreneur Martin Webb

The romance of brewing
Interview with Harvey's Miles Jenner, Brewer of the Year


Having his Tuppen'orth
Interview with Britain's biggest pub owner

Part of the solution?
Interview with Drinkaware chief Chris Sorek

The Price of Cask Beer
Should pubs be charging more?

Demonising Drink
Inside the health lobby

The Beer Orders 20 years on
The story of the law that changed the pub industry

Cask has lift-off
Why cask beer is back in growth

Alcoholism in the pub trade
The issue that dare not speak its name

Standing out from the crowd
What successful pubs do that others don't

Tipping points
What you need to know about the new rules

A Night on West Street
Policing the night-time economy 
in Brighton

Read all about it
Recycling today's news... into the day after tomorrow's news

The People's Pubs
When nationalisation was the answer

On the Road to Prohibition?
Temperance is back on the agenda

Meet Mick the Tick
The king of the beer tickers

From Rags to Riches
A 21st Century Steptoe & Son

Scot Topics
Retailers in Scotland are under pressure...

A Constant State 
of Flux 

The 1989 Beer Orders

A Lesson from the Past
How the trade united in 1908

From the slums to the lap
of luxury

Gin has come a long way

Marketers move in on 
Mardi Gras

Southern Comfort: the spirit of 
New Orleans


Prizes and cabbages: the pub industry and the MRO

It was Friday, it was five-to-five, and we all tuned in to Crackerjack, the climax of which was a game in which kidscompeted to hold in their arms as many prizes as they could without dropping them. And a cabbage. Whatever they hung on to they got to take home. Plus a Crackerjack Pencil, of course. Gone are the days when a pencil was an object of childhood desire.

Anyway, trying to get to grips with all the issues involved in what I will, for short, call the MRO, I feel a bit like one of those kids. Every time I pick something new up, I drop something else. But there are challenges in life that must be ventured.

First, we need to clear up a number of misunderstandings and assumptions.

MPs’ decision  to go against the government and add a Market Rent Option to the Statutory Code regulating the relationship between pub-owning companies and their tenants is NOT the end of the tie.

As the name suggests, the right of a tenant to buy beer from whoever they like in return for paying a market rent is an option. I’m not sure how it’s been calculated but the consensus among industry experts, Deutsche Bank’s Geof Collyer for instance, is that only 20% of licensees eligible for the MRO deal will take it up.

If this is correct it suggests that the other 80% do not see the benefit of going free-of-tie. Or at least don’t want to take the risk.

And MRO only applies to companies with more than 500 pubs. Family brewers and smaller tenanted pubcos, which tend to operate what are known as ‘traditional’ tenancies that are often fully tied not just for beer but other products, can grow their estates up to the 500 threshold – and many probably will.

Between them they could end up with 10,000-plus tied tenancies, a fifth of the pubs in the UK, serving a much more restricted range than that available to a pubco house.

Although family brewers haveprovided more variety of late, it could mean that microbrewers are shut out of more pubs than they are now, a point made to me by SIBA chief Mike Benner, who is less enthusiastic about the benefits this so-called ‘end of the tie’ may have for his small brewery members than you might expect.

But I’ve already dropped a cabbage. The bigger question is how will the big companies, the prime target of this legislation, respond? What strategy will they adopt?

As Geof Collyer has also noted, it may be commercially sensible for them to go completely free-of-tie and truly become what they are already accused by some of being – a property company. They will get rid of most of their support services and make a bigger profit by charging a market rent. There is already one major outfit like this, Wellington Pub Company with 800-odd pubs. But I’m not sure that’s an aspirational model.

You see, the problem is that in the competitive modern market pubs require high levels of capital investment. Where is that going to come from?

One of the main factors that brought the practices of the pubcos under scrutiny was their failure, until recently, to invest in their estates. I’m talking mostly about Enterprise Inns and Punch Taverns, of course, which had to spend their money paying off the ridiculous amounts of debt accrued from their mad scramble for market share.

In the last few years they’ve sold off great swathes of their estates, and that’s made it possible for them to invest a bit more – as well as improve their relationships with remaining tenants. I take the point that the MRO will dissuade them from such investment, but if they’d invested in the past they probably wouldn’t be in this position today.

They might not take the whole business free-of-tie, though. They might go in the opposite direction and convert tenancies to franchises, or even managed houses.

Franchises do not require an MRO in the agreement and typically provide the licensee with enhanced support plus a sales incentive element in return for ‘open book’ accounting. They’re a kind of halfway house between managed and tenanted pubs, and though they don’t suit the out-and-out entrepreneur they offer a little more security to both sides of the deal. Marston’s is one large company that’s been aggressively exploring this route.

A growth in managed pubs would also be cutting with the grain – Enterprise is already experimenting with a managed division.

Another solution, one I quite like the sound of,falls to the proliferation of multiple operators that have been turning around pubs while the headlines have been on those that have sadly closed. Unlike most individual licensees the best of these have the resources to maintain and improve the fabric of pubs as well as deliver the levels of service and sharpness of offer that the market demands. And unlike most individual licensees they can borrow, too.

These multiple operators could well be another beneficiary of MRO should numbers of free-of-tie houses come onto the market, and that might prove to be a good thing for pub industry, lifting standards and bringing fresh ideas.

But that’s some way down the line. It could take seven years for the MRO to be fully introduced, and that’s a long time in pubs.

All we can be sure about at the moment, assuming the House of Lords lets the legislation through intact, is that this thing will neither save the pub industry nor result in its collapse. The MRO is merely a new chapter in a long history of prizes and cabbages that I’ll attempt to gather upin a future diary.

Meanwhile, here area few preparatory readings:

The Beer Orders 20 years on (2009)

The Beer Orders and Me (2009)

Thatcher’s Alcohol Legacy Part 1 (2013)



Previously:

Prizes and cabbages: the pub industry and the MRO

The strength of the drinks industry's alcohol pledge

After the Budget: the forward march of temperance halted?  

The decline of alcohol


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