Posted by: The Prince of Whales | February 13, 2010

Nelson Mandela and the Beer Tie


Ever wondered why prices are so high in many pubs? Why the cask beer range is so limited, with so few new microbrewery ales on offer?  Doesn’t it seem strange that often, quite busy pubs close down for a few weeks or months and reopen with a new landlord?

It’s complicated but here’s my own personal perspective.

A great leader

I recently went to the cinema to watch “Invictus”, the film about South Africa, rugby and the leadership of Nelson Mandela. It was a great film; fine acting from Morgan Freeman and Matt Damon, with an emotive script and bone crunchingly good camera work on all the rugby scenes.

It told the story of how years of oppression, abuse of power and simple plain unfairness moved towards an end. How great leadership moved bitter enemies closer together and how one man’s vision swept away years of hatred and planted the seeds of trust in people’s hearts.

Now I have never met Nelson Mandela, but last week I did meet Roger Whiteside, the man in charge of Punch Partnerships, the pub company that owns 7500 pubs including The Prince of Wales.

He has the job of transforming Punch’s leasehold division – a pub company that does not brew any beer, does not deliver any beer and technically does not own too many pubs (they are all re-mortgaged).

Roger Whiteside

His job’s a tough one. A very tough one.  Not only does he need to tackle the socio economic factors of healthier lifestyles, greater competition for the leisure pound, a massive government tax hike on alcohol, cheap supermarket lager, a smoking ban and the deepest recession for several generations, but he needs to do this with both arms tied behind his back!

I say this because the business he works for is in trouble. Big trouble on several fronts.

As a plc, shareholders matter for Punch and with share prices down from their 2007 high of £13.70 to just 70p, many institutional investors would prefer to break the arms of the management team rather than simply tie them behind their backs.

Their bankers too are unhappy. In behaviour typical of that which brought the world economy to its knees in Autumn 2008, the banks have lent Punch over £4bn (yes that’s not a typo, £4 billion) over the last few years to acquire and then remortgage their pubs. Not a problem when asset prices are going up and cashflow is strong, but when the opposite happens, sooner or later, the proverbial hits the fan. For the moment though, an old saying is working in Punch’s  favour … “if you owe the bank a little money, you are in trouble; if you owe them a lot of money, the bank’s in trouble”.

Then there’s the crux of the problem … the relationship between the company and its customers; between Punch and its publicans.

I have no doubt that some Punch leaseholders have a good relationship with the company and are happy running their pub on a tied basis. These people are few and far between.

There are many others who have learned to be resentful of a business model that exploits their entrepreneurial natures, takes advantage of their optimism, sucks them dry of capital and offers a 90 hour working week for less than the national average wage. They were sold a dream of working for themselves and ended up living a nightmare of high rents and beer prices at up to 50% more expensive than their free trade competitors.

Quite simply the little value Punch add isn’t worth the massive premium on each barrel of beer.

In Punch we trust?

Take the Prince of Wales for example: in 3 years Punch have received almost £1m in contribution from the pub. Yet our average earnings over the same 3 year period as Landlord and Landlady are about £8,000 a year each. That equates to an hourly wage of less than £2.

Resentment amongst leaseholders has simmered for years but Punch, in their search for profit, have actually managed to adapt their business model to exploit this situation. Indeed a key revenue stream for Punch has been “churn”. Churn is the practise of enticing people to take on a lease, charging a lease premium, taking a security deposit, encouraging them to invest their own capital, knowing that within a couple of years, the harsh reality of the pub that they have taken on, in some cases, will have bled them dry.  In debt to Punch, the luckless landlord then sees his savings, his assets and his home taken away as Punch call in the bailiffs.

Everything is lost: the pub is closed for a few weeks and then another hopeful is found and sold the lease. The churn cycle starts again.

Now this resentment has boiled over. Leaseholders of Punch and other pub companies have formed lobby groups (www.fairpint.org.uk), secured support from MP’s, joined trade unions like Unite and the GMB and persuaded Camra to report the pubco’s to the Office of Fair Trading (OFT).

Once divided and outgunned by the pubco’s and big brewers, pub landlords, small brewers and Camra have come together to form the Independent Pub Confederation(The IPC). Over the last 12 months, the landscape has changed and the pubco’s are being forced onto the defensive.

The pressure is building for change and yes some changes are already happening. Politicians eager for votes; trade unions keen for new members; Camra keen to improve choice and lower the price of a pint; a parliamentary enquiry and an investigation by the OFT. All this activity is forcing the pubco’s to change. Not fast enough to save some pubs, some livelihoods or the last local in some communities.

Roger Whiteside didn’t take long to sense where he needed to go. One of his first moves was to change the name of the Punch business from Punch Taverns to Punch Partnership.

This change takes us back to Nelson Mandela, his vision and his trust. Take any definition of partnership, any successful partnerships you like; trust is at its core.

So last week, sat in the snug at The Prince, Roger Whiteside and me chatted about cask beer.  I complained that despite the fact that there are over 2500 cask beers brewed in the UK today, only 47 are available from my local depot. Roger asked me “OK if you weren’t tied and could buy your cask beer from anywhere you liked, where would you go”?  I replied I would approach some of the 50 or so independent breweries within an hour’s drive of the pub and do business direct with them.”

“Ah” was his reply. “That’s where we can’t trust you.”

Pubs dealing direct with local breweries. No in the perverted world of Punch, that will never do!

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