Enterprise Inns

Enterprise Inns Plc

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Type	Public (LSE: ETI)
Industry	pubs
Founded	1991
Headquarters	Solihull, West Midlands
Key people	Robert Walker (Chairman), Simon Townsend (Chief Executive)
Products	Public house leases and tenancies
Revenue	£632 million (2014)
Operating income	£286 million (2014)
Net income	£30 million (2014)
Number of employees	505 (2012)
Website	www.enterpriseinns.com

Enterprise Inns Plc is a British leased and tenanted pub company. Its headquarters are in Solihull, West Midlands. The company is listed on the London Stock Exchange and is a constituent of the FTSE 250 Index.

History

Enterprise Inns was founded by Ted Tuppen in 1991, initially with 368 pubs from Bass. The company listed on the London Stock Exchange in 1991. The group made a series of acquisitions including:-

• 1,864 former Whitbread pubs from Laurel Pub Company in 2002;

• the acquisition of the Unique Pub Company with an estate of 4,054 pubs.

Enterprise Inns had over 9,000 pubs on completion of the acquisition of the Unique Pub Company and it formed part of the FTSE100 Index at that time. However, the decline in the UK pub trade led to its removal from the FTSE100 in 2008. In the face of the level of its debts the company stopped paying dividends to shareholders in 2009. The group has sold many pubs, with 5,493 remaining at the end of September 2013.

Ted Tuppen stood down as Chief Executive in February 2014.

Operations

The pubs are operated by tenants, which means that the company collects rent from individuals who live in and operate the pubs. They also operate (in most, but not all cases) what is known as a beer-tie. This means that tenants renting public houses from them are under contract to buy beer, ciders, RTDs and other alcoholic drinks from Enterprise Inns only. Under some leases tenants are required to also purchase other products, such as soft drinks, wines and spirits from Enterprise, although this is not as widespread as the beer tie.

In the year to 30 September 2013 the net income of Enterprise Inns, £373m, was derived:-

• £186m profit on sale of beer, cider and flavoured alcoholic beverages to its tenants, being a margin of 43% on sales of £436m;

• £174m rental income from tenants;

• £(6)m cost of discretionary concessions to tenants;

• £7m profit on sale of wines, spirits and minerals;

• £12m profit on machines and other income.

In the year to 30 September 2013, there were 579 business failures with tenants, being 257 agreement failures and 322 agreement surrenders. The rate of failures in that one year represents 10.5% of the size of the estate and was less than in the recent past.

The Enterprise Inns group had net debt of £2,521m at 30 September 2013 . The pubs and other assets were valued at £3,997m.

Reflections on business practice

On May 12, 2009, The Guardian newspaper reported how "Enterprise Inns counts cost of bad pub landlords": the recession had forced the pubco to take action against more than 100 "poor quality and underperforming licensees" since last autumn. It is spending £1.4m a month on financial assistance to help those in distress, on top of the £700,000 a month cost of freezing the price of five lager and ale brands. Chief Executive Ted Tuppen told The Guardian: "If people are genuinely struggling and will work with us, we are providing an awful lot of help". The cost of these programmes was however contributing to a slump in profits.

However, on May 13, 2009, a different perspective on the problems of pubcos emerged with the publication of a House of Commons report regarding a monopolies inquiry into pub groups. The report "raises a series of questions about the pub company (pubco) tied pub business model and calls on the Government to act urgently, in particular, to refer the matter to the Competition Commission. It challenges the pubcos which operate a tie to prove its benefits by giving lessees the choice between a tied or free of tie lease." The report also raises issues regarding the actual conduct of pubcos in dealing with struggling tenants.

Committee chairman Peter Luff, MP says: "The report explicitly acknowledges that 'not all the problems of the pub industry come from the tied pub model. It is clear there are many pressures on any retail business ... Nonetheless, our inquiry found alarming evidence indicating there may be serious problems caused by the dominance of the large pub companies.'"

According to an article in Private Eye, the select committee asked 1,000 publicans for their opinions regarding their experiences working with Britain's largest pubcos, which includes Enterprise Inns. The Eye states that the committee's findings had "at last shed light on an industry in freefall, with 40 pubs closing [in the UK] every week. Pubcos are essentially greedy property companies with a cuddly name – and they own nearly half the country’s pub freeholds."

The Committee commissioned its own independent survey as part of the inquiry, to determine whether the negative evidence it initially received from lessees was typical of feelings in the industry.

"The survey results, printed with the Committee’s evidence, underpinned the Committee’s findings. 64 per cent of lessees did not think their pubco added any value and while a fifth had had a dispute with their pubco, few (18 per cent) were satisfied with the outcome. The Committee was astonished to learn that 67 per cent of the lessees surveyed earned less than £15,000 pa and over 50 per cent of the lessees who had turnover of more than £500,000 pa earned less than £15,000 – a 3 per cent rate of return. The lessees may share the risks with their pubco but they do not appear to share the benefits. The report therefore concludes that problems which were identified by the Trade and Industry Committee four years ago remain. An imbalance of bargaining power between lessees and pubcos persists and the arrangements for assessing rents remain opaque. Rental assessment should be the basis for negotiation, but incumbent lessees often risk the loss of their home as well as their business if they cannot reach agreement, the report says."

The Eye says the committee found that pubco tenants are initially attracted to run pubs by low entry costs, but soon find that making a decent living is very difficult. Tenants' leases oblige them to buy alcoholic drinks from nominated suppliers at up to twice the open-market price. If a struggling tenant leaves, another tenant can be found to replace them. In the years of booming property prices this practice was successful, but is much less so now, as evidenced by the number of pub closures. The Guardian reported that MPs found an imbalance of power that can amount to "downright bullying" between the big pubcos, such as Enterprise Inns and Punch Taverns, and their tenants. In 2008, one tenant who felt forced to close the pub he ran with his wife said:

"We told Enterprise [Inns] we were struggling and needed some help; they didn’t come forward with any. If we were late paying bills we would get threatening phone calls. They could have put a hold on the rent or given us a discount until we managed to get business back up. If we didn’t pay bills on time they wouldn’t deliver the beer and when they did deliver it they would charge us for carriage. Instead of helping us they were making it worse."

The MPs are said to also want a ban on pubcos selling pub premises with covenants that prevent them being used as pubs in the future. Ted Tuppen explained the need for covenants to the committee by saying there are too many pubs in some areas and Enterprise used restrictive covenants "because, genuinely, we think these are pubs that have lived their life". However, he admitted that 70% of Enterprise sales have such covenants in place.

The select committee was not generally impressed by the pubcos' senior executives, rebuking them for having given "partial" and even "false" evidence to the committee.

The committee recommended that "the tying of beers, other drinks and ancillary products should be severely limited to ensure that competition in the retail market is restored." The Eye notes that select committee chairman Peter Luff "may be looking to right the wrong created by the Thatcher government’s disastrous "Beer Orders" of 1989, in which he was involved."

Shortly following the committee's report, CAMRA issued a 'Super-Complaint' forcing the Office of Fair Trading to investigate this within 90 days. The OFT published its report on 22 October 2009. The report largely cleared the industry of behaving in any way that caused damage to consumers.

In 2013, a pub owned by the company called the London Unity, located on Islingword Road, Brighton in Brighton, was "saved," up until it was decided it would be sold and possibly converted into apartments.

External links

• Enterprise Inns Plc (official site)
• Enterprise Inns profile from CatererSearch
• Profile of Enterprise Inns Chief Executive Ted Tuppen (Voted most influential man in UK pub industry in 2005)