Enterprise Inns and Punch Taverns, the UK"s two largest pub landlords, have seen one in sixteen of their publicans throw in the towel over the last twelve months, MPs were told yesterday.
The scale of the failures came as a surprise, as neither group is required to give these details in their regular trading reports to shareholders. However, the figures came to light as industry leaders were questioned by the Commons business committee.
The committee was investigating the debt owed by large landlords such as Punch and Enterprise (known as pubcos), and the effect that this has on landlords. It was told that many publicans tied to pubcos will only make around £20,000 per year in normal trading conditions.
Publicans who enter into deals with pubcos become "tied" to their landlord. This requires them to purchase beer wholesale from that company. However, many publicans complain that they are being offered poor wholesale rates, and are unable to competitively price their drinks. Furthermore, the pubcos demand a share of various other revenue streams.
Enterprise and Punch are massively indebted; according to Deutsche Bank, Punch has £4.6bn of debt, compared to a total group value of £4.8bn. This poses problems for publicans; the debt is becoming more expensive to service, and beer sales are decreasing during the downturn. As a result, the pubcos look to increase their margins on other revenue streams, further reducing publicans" income.
Of the 929 Enterprise and Punch publicans that failed, around half were forced out by their landlord for "breaking the tie" - essentially selling other beers, or hiding revenues. With pubco profits look to decline further, it seems that this trend of tie breaking is likely to grow.
