Why the tied house system and pubcos are failing our pubs

It's a theme I've been mulling over for an article for a while

Easy as it is – and often justified – to blame rising costs, taxation and beer duty for the problems besetting pubs, the stark truth is that, for many licensees, the tied house system, for the last 40 years, has been a major contributor to the failure of pubs and licensees.

The current situation came about through the Beer Orders legislation of 1989, designed to stop brewers having a monopoly by owning too many pubs. It backfired, largely, because the big brewers simply launched separate pub companies (pubcos) to run swathes of pubs. Today, most of those pubcos are in huge debt, in my view because they stick rigidly to an outdated, unworkable view of “how to run a pub”.

I am sure most people who will read this are familiar with the situation. In short, if a pub is tied to a large pubco, depending on the agreement reached, a strictly limited number of products – beer, mainly – are available to the pub manager or tenant and at higher prices set by the pubco.

It is a system, too, which often punishes success. When a tied pub is doing well, the tenant will often find the terms of his or her next lease raised sharply – the pubco wants a bigger share of the success. Often, this makes continuing unviable for the tenant.

Little thought, it seems, is given to the obvious truth that the pub is doing well because of the people running it. Without them, things are not the same. Pubcos do not seem to value continuity.

This subject has been nagging at me and many others for a long while but it tends not to be documented. When I was writing a newspaper column on beer and pubs, the brief was to find positive stories and I only occasionally alluded to the issue.

Here, now, is a collection of anecdotes collected over time which illustrate some of the problems with tied houses. There’s no fiction here but, in some cases, I am leaving out names to protect the business of people still in the trade, battling to make a living.

I was prompted by the recent departure of Kevin and Lesley Taylor from the Admiral Rodney at Hartshorne, a pub owned by Stonegate, one of the biggest pub companies and one in billions of pounds of debt.

Kevin and Lesley had made a great success of the pub over 10 years and, only a year before leaving, had told me they were happy with the pubco, who largely left them to their business. That changed, though, when their lease came up for renewal again. The Taylors would have been happy to stay but the new figures simply made it unviable for them to do so.

Now, I cannot see the logic in Stonegate NOT wanting a successful tenant to continue succeeding. But they and other pubcos do this all the time.

Successful licensees Kevin and Lesley Taylor felt forced out of the Admiral Rodney at Hartshorne by their new lease terms.

Another Stonegate example which can be named is the Old Silk Mill in Derby. Well-known Derby licensee Martin Roper took the tenancy and made a big success of the pub with a winning combination of good food and beer.

In 2018, Stonegate decided that if they put in a manager, they could capitalise better on the success. They refused to renew Martin’s lease. Under a manager, the pub’s popularity soon dropped sharply.

Four years later, finally recognising their mistake, Stonegate advertised for a tenant again, to “return the pub to its former glory.” The irony in that – a former glory they had destroyed themselves.

Martin signed up as tenant again in December 2022 and, naturally, the pub is flying again. Where was the logic, then, in Stonegate changing what had been working well in the first place? You’re right. There wasn’t any.

The Old Silk Mill was returned to tenancy after it did not succeed as a managed house.

Now to Marston’s. There are many examples of them dispensing with successful licensees. At one successful out-of-town pub, where the tenant – and previously, his father – had built a successful business, the tenant, with the last couple of years, was told his lease would not be renewed.

At relatively short notice, his life was in turmoil. Children settled in school, the pub his family home as well as his livelihood. He came close to leaving and taking another pub, an independent one this time.

In this particular case, common sense prevailed. With the departure imminent, Marston’s finally relented and a new lease was agreed. The pub continues to do well. But why did they have to put the tenant through the wringer before making an agreement?

Here’s an example of the difference in pricing to the licensee, in and out of the tie. No names again, but it’s a Star Pubs & Bars (Heineken) outlet. The long-serving licensee renewing a lease, was able to negotiate one free-of-tie pump, to be able to buy and sell a guest beer of their choice alongside those on the pubco’s list.

Understandably, the guest beer has been very popular. Latterly, the licensee has been selling one especially popular beer as the guest, although it could be sold through the regular pumps as it is on Star’s available list.

However, the current price, free of tie, for a cask is £103. Through the tie, it is £170. Yes, really. I did say I wasn’t making this up, didn’t I? That is a stark example of what tied pub licensees are up against, regardless of all the other rising cost issues they face.

The Five Lamps in Derby is a successful example of a Project William tied house by Everards.

Here’s one more, because I could go on a long time. Some years ago, Greene King, the large Suffolk-based pubco, liked what they saw at a country village pub just over the border in Leicestershire. They paid £750,000 for it, a nice retirement sum for the hugely successful owners.

In a familiar scenario, they assumed a manager could replicate what the popular, hardworking couple had achieved. A succession of managers failed to do so. Eventually, Greene King put the pub back on the market.

Would-be buyers watched the price drop and drop until it was sold for around £250,000 – that’s a half-a-million pounds hit GK had taken on the business. Naturally, the pub is doing well again under independent ownership.

As a general point, we all know more than one pubco-owned pub where a much-trumpeted refurbishment has been hailed as a new start and yet the new licensee is gone in less than a year, along with the next one and the next one as they realise the dream they were sold by the pubco is not realistic.

There are many more associated issues, such as a licensee having to stand the cost of repairs, especially at the point of leaving, at exorbitant rates dictated by the pubco. It’s a whole other story, complex and difficult and I’ll not get into it here.

Let’s end on a positive. Everards, the Leicester-based brewer and pub owner, came up with a better tied house offering some years ago, called Project William, and it is still working well today.

In Project William pubs, Everards are the owners but there is only one stipulation, beer-wise, for their tenants – stock one Everards beer. Other than that, run your pub as you see fit. In Derby, two of the most successful pubs, the Brunswick and the Five Lamps, are Project William outlets. Out of town, the Dead Poets Inn, at Holbrook, is another success story.

Will we ever see a situation in which other pubcos recognise such logic and give their tenants and their pubs the chance to thrive? I’m not holding my breath but, sooner or later, things have to change.