Be careful what you wish for

There has been a great deal of discussion in the media recently about the government’s plans for tighter regulation of pub companies. Now let me make it quite clear that I hold no brief for the likes of Punch and Enterprise – they are an essentially flawed and unsustainable business concept, driven by financial engineering rather than retailing in an attempt to keep alive the tied estates of the former Big Six breweries. They have geared themselves up to the hilt and found themselves in dire straits when it turned out they had taken a hopelessly over-optimistic view of the prospects of the pub trade. And it’s impossible not to feel a touch of Schadenfreude at the way they called the impact of the smoking ban completely wrong.

Punch Taverns remains confident over UK smoking ban

Punch Taverns writes off 491 value-less pubs hit by the smoking ban

However, this saga of corporate disaster has produced a great deal of pain and misery at the level of the individual licensee, and there are plenty of stories of pub companies treating their tenants in a high-handed and bullying manner. So the calls for tighter regulation and a statutory code of conduct are entirely understandable. But it’s important to sound a note of caution.

Firstly, many of the complaints that licensees can buy beer cheaper on the open market than from the pubco come across as distinctly naive. That, quite simply, is how the pubco business model works, as does the business model of the traditional pub-owning brewery. They charge tenants a higher price for their beer in return for a lower rent – what used to be referred to as “wet rent”. Thus the pubco has a stake in the profitability of the pub, and the tenant is to some extent insulated against market fluctuations. If you convert all tenancies to free-of-tie, then the pubco becomes a pure property operation and no longer has any interest in maintaining the premises as a pub.

It’s also the case that, if you impose additional cost and regulation on any business sector, you inevitably tend to get less of it, as it becomes less financially attractive. Thriving sectors can often take it in their stride, but the pub trade isn’t exactly thriving, and, however well-intentioned, any new controls have the potential to backfire. There must be a danger that new regulations could lead to a further damaging shake-out, with large tranches of bottom-end pubs simply sold off, often for alternative use, and more successful ones converted to management. I’m not saying nothing should be done, but the government needs to tread very carefully if it doesn’t want to end up with another Beer Orders disaster on its hands.