If you are a brewer, you will naturally see your pub estate as a distribution channel and a showcase for your own products, even if they also sell other brands alongside them. If a pub says Greene King above the door, you would naturally expect it to stock Greene King beers, just as a Ford dealership would sell Fords. Therefore the brewers have insisted that, even under MRO, they still retain stocking rights. A tenant who exercises MRO would still have to stock a certain proportion of the owning brewery’s products, although he would be able to buy them on the open market, possibly at a lower price. The brewers are understandably concerned that this right, while enshrined in the legislation, hasn’t been made clear in the Pubs Code itself. And it’s hard to see that the exercise of MRO by a brewery tenant wouldn’t lead to a strained relationship.
The situation is different with a non-brewing pubco, as MRO wouldn’t lead to any obvious change in the pub’s offer to its customers. It isn’t an inherent part of the appeal of a Punch or Enterprise pub that it sells a certain range of beers. And there have certainly been widespread complaints that tenants were expected to pay well over the odds for beers they could buy much more cheaply on the open market, while receiving very little in return.
However, for any form of contractual arrangement to be a success, it’s essential that it offers some benefit to both parties and, while clearly MRO may be good for tenants, it’s hard to see what it brings for the pubco. Yes, they may get a higher rent, but they lose any interest in the operation of the property as a pub. Their business is running pubs, not acting as a property company, but MRO just turns them into the latter. Nobody in their right mind would set up an estate of MRO pubs from scratch. It also, by removing any financial stake in the pub’s success, may make the owning pubco more willing to sell up for redevelopment. For these reasons I would expect pubcos to take whatever steps they can to prevent any of their pubs falling under MRO – by converting the best ones to management, reducing lease terms and looking at franchise-type agreements that fall outside the scope of the legislation.
The growth of the large leased pubcos was a specific mechanism to enable the traditional tenanted pub model to be maintained under the changed environment resulting from the Beer Orders. Now the Beer Orders are gone, is there any need for them at all? I can see the partial takeover of Punch Taverns by Heineken as the first step in a process whereby ownership of many of the bigger, more successful pubs is taken back by the major brewers, with the remainder passing either to family brewers or to smaller, more nimble pubcos. It wouldn’t surprise me if, within a few years, the large non-brewing pubcos had entirely disappeared. And MRO starts to look much less appealing if the owning brewer can still enforce stocking rights.
I expect history to judge MRO in the same category as the Beer Orders, as an ill-conceived response to a specific issue that ended up causing more problems than it solved and eventually died an obscure and unlamented death.
For those reading the blog on a phone, it's worth pointing out the current poll in the sidebar on whether Heineken or Punch Taverns would make better custodians of pubs.