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Last Updated: Friday, 10 September, 2004, 12:59 GMT 13:59 UK
Pubcos change the British pub
Beer pumps inside a pub
Pubcos own more than a quarter of the UK's pubs
The news that Punch Taverns has added another 1,064 pubs to its estate has focused attention on the venture capitalist backed pub companies known as pubcos.

Punch and Enterprise Inns, both of which are backed by venture capitalist companies, have spearheaded a new breed of leased-pub groups. Between them, they now own more than a quarter of the UK's 60,000 pubs.

On Friday, Punch announced that it is to buy 1,064 pubs from Innspired, in a deal worth 335m ($598m) including 258m of debt.

This latest deal comes as debate is growing on whether the rise in pubcos is leading to a blander, less customer-friendly pub experience.

The rise in the pubcos can be linked to a 1989 Conservative government decision to limit the number of premises owned by the big breweries, with the aim of making the market more competitive and diverse.

"It was felt there was too much concentration of power in too few hands," Andrew Pring, editor of pubs trade paper the Morning Advertiser told BBC Radio 4's Food Programme.

"People feel the same thing is happening only the whip hand is held by the pubcos rather than the brewers."

Giant pub portfolios

Critics bemoan a loss of community focus in the managed pub and bar chains that have sprung up on the UK High Street.

Some customers complain that expansion has lead to huge branded and homogenised chains and there is little real choice.

Others welcome an increased choice of products and say that the financial might of the pubcos has financed many pub renovations.

Simon Loftus, chairman of Suffolk's Adnam's Brewery, said his company is able to sell more real ales and has lower transport costs, thanks to the pubco system.

"There are plenty of examples of things going right and good co-operative partnerships between tenants and landlords whether they are big or small," he added.

Smaller brewers, however, are worried by the grip of the pubcos, saying centralised distribution systems freeze out traditional and niche products as pubcos buy in drinks with greater profit margins such as lager.

DTI inquiry

A Trade and Industry Select Committee inquiry into pubcos has reconvened this week, with its focus on the impact that pubcos have had on the brewing and pub industry.

Pubcos lease pubs to tenants and frequently take a cut of their profits as rent, which some critics say could disadvantage the tenants.

Small business groups fear that the beer-tie system, where pub tenants buy most of their beer from the pubco which owns the premises, pushes wholesale prices higher.

"The changes over the last decade have created problems but also benefits," Rob Hayward, head of the British Beer and Pub Association (BBPA), said.

The nature of pubcos have also changed, with more now in the business for the longer term.

In the mid 1990s Japanese bank Nomura quickly became Britain's biggest landlord, building up a chain of more than 4,000 premises, only to sell its holding in 2002.

"What we are seeing now is groups of companies who are in it for longer than was the case a few years ago," Mr Hayward said.

Tougher environment

Punch is adamant that pubcos operate to the advantage of the tenant, the pub companies and consumers.

All pubs, whether owned by a pubco or not, are operating in an increasingly competitive environment.

People are tending to drink at home and pubs face fierce price pressure from supermarkets.

There is also competition from bars, which tap into the lucrative young persons market.

Some analysts have adopted a cautious approach on the longer-term future for pubco tenancies.

"We estimate that the typical tenant in the last year has experienced a 2-3% rent increase, a 5% beer price increase and a 2-3% volume decline," said Investec's James Wheatcroft.

"How long is this sustainable in a market where managed pub operators are putting sustained downward pressure on pricing?"

Punch buys Innspired pub group
10 Sep 04  |  Business
Landlords attack pub companies
22 Jun 04  |  Politics
Brewers bow out of the pub
06 Oct 03  |  Business


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