According to the British Beer & Pub Association, in 2019 there were 47,600 pubs in the UK. Of these, 22,750 were free houses, 15,650 were tenanted or leased and 9,200 were managed. With pub company owned pubs, the trend has been away from tenanted/leased pubs (down from 37% of outlets in 2016 to 31% in 2022) in favour of managed/franchised (19% in 2016, 23% in 2022).
A CAMRA member since 1980, firstly in Cambridge and most recently in Barnsley, Paul is chair of CAMRA’s Pub Heritage Group and is CAMRA’s National Planning Policy Adviser. Paul is a former regional director for East Anglia.
As a tenant, you rent the pub premises from a pub company or brewery and acquire the right to occupy the pub for an agreed period — usually two to five years. You will generally be ‘tied’ for beer and other drinks i.e. you can only purchase the stock from the owning company — though some companies offer partial or free of tie deals (but invariably demanding a higher rent for the privilege). You are self-employed and responsible for all the staff. Responsibility for building repairs will usually be confined to internal, non-structural work.
A big attraction of the tenancy is the relatively low cost of entry, though you still need around £15k to properly operate a start up; a downside is that if you build the business up you may well get no reward from the pub company other than an increased rent. Indeed, the ‘reward’ might be a refusal to renew the tenancy because, for instance, the company wants to take the now-successful pub into direct management.
The Pubs Code of 2016 was designed to give tenants and lessees greater protection by requiring fair and lawful dealing by pub companies and ensuring that tied tenants were no worse off than if they were free of tie. We’ll have a close look at how the Code is working out in a future article.
Having a lease means you’re entitled to occupy the pub and run your business for a fixed term, often between 10 and 25 years. You’ll still usually be tied for beer and other products and will be responsible for repairs, maintenance, insurance and other running costs. Unlike with a tenancy, you have the option to sell the business, including a sum for goodwill.
In this model, the pub is owned and operated by the pub company, who employ all the staff on the premises. The manager is likely to be eligible for performance-related bonuses in addition to their salary. Many managed pubs are branded e.g. Hungry Horse, Ember Inns, Slug & Lettuce.
The obvious advantage to the company is their complete control over every aspect of the operation. On the other hand, they incur all the costs and accept all the risks, instead of sharing those with a tenant or lessee.
Companies whose pubs are all or nearly all managed include Wetherspoons, Mitchells and Butlers, Sam Smiths and Loungers. Many other companies have a mix of models.
This is the new kid on the block and goes by a variety of names — Manchises (Management Franchises) being an increasingly common term. The model was pioneered by Marstons but most of the bigger companies have now adopted it, each with their own brand name, e.g Stonegate have Craft Union, Star Pubs & Bars have Just Add Talent and Greene King, Hive. Unlike in conventional managed pubs, the licensee is supposedly self-employed. In most cases, their remuneration comes from a percentage (usually 18-20%) of the pub’s net turnover. From this, as licensee, you pay yourself and all your staff plus incidentals like employer’s liability insurance and Council Tax.
So, what freedom do you have to run your own business? In truth, not a lot. The pub company sets the opening hours and the prices, decides what products you sell, prescribes the menu for any food offer and provides all the equipment. You can also be chucked out at pretty short notice (immediately in the case of Just Add Talent). If there’s a stock deficit then you’re charged for it, and these can be mysteriously large. The advantages for the licensee are the low ingoing costs (Hive requires £5000), you get a roof over your head and have a prospect of making money. To do the last, though, you’d probably need to be taking over £10k a week. Urban, sports-oriented pubs seem to do best under this sort of regime. There are, though, many disgruntled ex-licensees who found the scheme a quick way to lose their dosh.
Greene King’s recently introduced Hive scheme offers a somewhat different arrangement in that the franchisee is guaranteed an income of £20k, topped up (if earned) with performance-related bonuses. You still need to pay for staff though.
The current number of these Agreements is unknown but they have certainly been growing rapidly. Many tenants have been effectively thrown out of their pubs so that the company can convert the pub to what, for them, are more lucrative arrangements.
You can see why the companies love this model. It frees them from the responsibility of employing staff whilst retaining full control over what the pub actually does. However, there’s suddenly a cloud on their horizon. Early in 2021, the Supreme Court ruled that Uber drivers were definitely not self-employed. The parallels with Retail Agreement licensees are striking and Her Majesty’s Revenues and Customs are known to be taking a keen interest. Given the amount of control that the companies exert, can they really argue that these licensees are self-employed? Watch this space.
Learning resources start from fifty pence each, or you can Join CAMRA for unlimited free access!