The pub sector is back in the news after MPs passed an amendment which impacts on pub companies who operate tenanted pubs. The move is being seen as the end of the beer tie and of excessive control over landlords. So what is the beer tie and why is it news?
The ‘tie’ system refers to the structure of businesses where pub companies buy a pub and then lease it to a tenant landlord who pays rent to the pub company. The agreement also ties the tenant into buying their beer from the same parent company. Proponents of the bill argue it ends an archaic system and will make pubs more profitable. Opponents including the government argue that it will result in pub closures and job losses.
The clip below presents both sides of the argument.
Ending the tie – why it’s good
The vote to end the tie is supported by bodies such as CAMRA and the Federation of Small Businesses. They argue that removing the tie will save many pubs from closure and bring greater competition to the market.
Their view is that the tie forces tenants to pay unnecessarily high prices for their beer which according to CAMRA can be 60 – 70% more than non-tied pubs. This impacts on their profitability and ultimately results in too many pub closures.
The new system would let tenants have their ties reviewed and where appropriate, move to a market rent with the freedom to buy their beer from other suppliers. Tenants can adjust their prices to better meet the needs of their customers and compete more effectively.
Are there benefits to being tied?
Others argue that the tie remains a key part of the industry that works well for pub companies who have ambitious tenants. One of the key arguments against the change is that the tie is about more than the rent and beer.
Being tied also gives tenants access to wider business support: from maintenance to financial and marketing support. Many pub companies highlight this and argue that this support is vital to many of their tenants especially those who’ve come into the industry from other professions.
The tie system also allows people to become pub tenants with smaller personal investments. This helps to make the sector more accessible widening the pool of potential applicants.
So who is right?
Is the end of the beer tie good or bad? The pub industry is complex and there’s no doubt that unscrupulous pub operators may have abused the system. However, there are many operators who invest significantly in their pubs and who recognise that supporting successful tenants equates to successful pub companies.
For those new to the sector, the tie may appear limiting but with the right backing it also ensures support, resources and a helping hand in making the move into pub tenancy a success. It’s also important for those entering the market to understand the complexity and financial commitments that many pub companies make in renovating and restoring pubs.
There’s a real risk that a move that aims to remove the worst offenders reduces the investment and support going into pubs. The government’s own research suggested that job losses would follow and the reaction so far has seen large falls in share prices for the big pub operators. It could well be that this amendment was a sledgehammer to crack a nut.