Where We Are Now

Updated: Mar 16


2020/NO.52 - The second lock down is grinding towards release on 2nd December. We are being warned about the imposition of a new round of tier restrictions with untold consequences on future trading in the hospitality industry. A return to “normal” is being forecast by next Spring if all the hype of mass vaccination is to be believed. Well that at least is the theory but let us look behind the curtain and delve into reality for a moment. A telling off the cuff remark by the Home Secretary Matt Hancock in a recent interview confirmed that being back to normal would not change social distancing nor the essential health and safety regulations to “stop the further escalation and prevent a third lockdown”.


So, what might be the “return to normal” ? In all likelihood we will be in an era like flu where Covid-19 is taken as being amongst us for years to come, supressed yes, but not eradicated and contained in at least one if not two annual vaccinations. Fear has been understandably well stoked by “following the science”. Realistically the rule of six may be relaxed, closing times may well ease but social distancing, no vertical drinking, plastic screens and face masks are on the cards to stay.

The pub trade will definitely NOT return to the heady days of 2019. Does this change attitudes between on one side the POBs and the other their tenants? The general perception is that the POBs are singing from a totally different hymn sheet than that of their tenants. From the POBs we have a perceived attitude that everything outside their bubble is to be suspected, unbelievable and up to their necks in conspiracy. To echo a remark that was made, albeit a few years ago by Rob May of Enterprise, to fellow M&C Director Chris Wright in an unguarded moment at a lunch seminar;


“All our tenants are the same, on the take, on the make and robbing us blind”.


Partisan contexts mean that truth is objective but polarised by ‘my side, your side’ and each is as entrenched as the other. So how to broker a compromise in the inevitable battle, because that is what it is, to get to an MRO deal. Difficult if not impossible as the recent example shows.

Pub in Central suburban West London. The original EI Group Free of Tie full response issued in December 2019 was for a rent of £83,500. We asked to have the calculations revisited and back came the answer only the other day, with no associated calculations or reasoning at £63,500. OK so a £20K drop but still way above reality looking into the Covid-19 future.


The recalculation was not freely offered to bring things up to date but was only issued when our involvement was known and the tenant specifically forced the point. Nice. Without reasoning or calculations, the response is bound to fall at the first fence of any form of meaningful negotiations. But can the POBs take a step back and review their position to want to do a sensible deal without resorting to the services of an Independent Assessor. The sad reality is that there is minimal chance of that happening. Why?

Every MRO deal hurts the POBs income stream hard. The loss of wholesale contribution, the middle cut they take on the beer tie is nowhere near compensated by the Free of Tie rent. Indeed, some of the recent Independent Assessor Determinations have been BELOW the current tied rent. To quote from the first Tom Kerridge programmes on the state of the pub world two weeks ago when he interviewed the Director of the Stroud Brewery Company. This was linked to the Prince Albert Stroud (a Punch pub);


“We sell it to the Pubco for £60 per barrel, we brew it, deliver it and take away the empties. The Albert sells it for £100 a barrel. The pubco makes £40 per barrel and never even touch the product. If the Albert was free of tie, they could buy the barrel for £70”.


The Pubco business model, to which the tenant freely signed up to maybe many years ago, is now woefully incapable of coping with the current pandemic. Hereby rests the problem which is both of continuing effect and duration. Fighting tooth and nail for unrealistic MRO rents is like pushing water uphill. Every time we receive a ‘full response’ rent we know as does the tenant that it is way too high.


We have not ever found that by referral to an Independent Assessor has the determination found for either the POB at the quoted rent or the subsequent rent valuation of their “Independent expert”. It must be hugely demoralising for them, all but still they plug on with defeat after defeat after defeat. The cost is in both times wasted and money spent by our clients in the pursuit of what should have been a negotiated deal.

To the POB there are two cop outs. First that the Independent Assessor Determination was a ‘rogue decision’ or second that their chosen ‘expert’ somehow failed in his submission. To a degree we feel a measure of sympathy for the now three Licensed Trade Valuers (LTV) at Ei Group. Look at it this way, EI have about 4500 pubs over the length and breadth of England and Wales, with 3,284 in their tied estate.


With the vast majority on a five-year rent cycle. Do the maths…every year there are about 657 pub rent reviews or 12 - 13 or so a week. Each has to be signed off by the LTV who has to know and understand the trading profile of the pub and validate all the assumptions made. Logical isn’t it if a new rent is being calculated. Well we wish them well in what looks like a monumental task to cover their entire estate.

Tiny piece of history.


Director David Morgan was the anchor ‘technical comment’ in a BBC Wales programme titled “Week in Week Out-Over a barrel”broadcast in 2009. We found the CD of the recording the other day. Amongst others it featured Giles Thorley of Punch, Ted Tuppen and Simon Townsend of Enterprise and Peter Luff MP. What was so sad was reflecting on how little has changed in the underlying attitudes in the intervening eleven years. The ‘my side your side’ culture of entrenchment may have seemed to have improved as a result of the Pubs Code but in the current pandemic achieving MRO is a still very fraught business.

More updates as and when for what looks like a rapidly changing scene linked to the end of the phase two lockdown and the progress of the roll out of the national vaccination programme.


Stay safe and well.

The team at M&C.