UK: Enterprise Committee calls for review of pub “tie”
The UK House of Commons Business and Enterprise Committee is calling on the Competition Commission to consider a reform of the "tied" arrangement that binds many of the UK's pubs.
Around 24,000 pubs operated under the "tie" contracts also known as "wet rent", whereby pub tenants are obliged to buy their beer supplies from their landlords.
The tie is an issue of particular contention for the lessees who submitted to the inquiry. Opponents believe the price lessees are charged for beer through their pubco is causing them financial difficulties and is putting them at a competitive disadvantage to the freehouses and managed pubs.
Up to 40 pubs are closing their doors permanently every week, according to the British Beer & Pub Association.
In a report of the Commons Business and Enterprise Committee's findings published this week, Morgan Stanley said: "Arguably, [the tie] is exacerbating the volume declines in tied pubs, who are unable to reduce price without taking a significant hit to their cash margins."
However, Punch Taverns, the UK's largest pub chain, disagreed.
Commenting on the Commons Committee findings, its said that the tie operates to the advantage of the tenant and that high beer prices are offset by lower rents and they provide a cheap way to get into the trade.
Punch called on the Government to reject the Committee's call for an inquiry.
"If the Government does decide to refer this matter to the competition authorities, we are confident that the outcome will reconfirm the competitive nature of the pub sector once and for all.
Punch added: "We strongly believe that the tied pub model provides a fair and equitable approach to sharing risk between ourselves and our licensees, represents a low cost opportunity for entrepreneurs, and has a rightful place in the market.
"We will be reviewing the committee's findings in more detail over the coming days and will update the market further in due course, as appropriate. In the meantime, we strongly call on the industry to come together to focus on the real task - supporting licensees and pubs through these challenging economic conditions."
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