Research on the pub sector in Scotland phase 1: scoping study

1. Introduction

The last few decades have seen radical changes in the GB pub industry, with the trade facing a wide range of social, economic and regulatory pressures. The main challenges arise from increased competition from cafes and restaurants as well as from people switching their alcohol consumption towards off trade sources - in particular supermarkets.

There has been a significant contraction in the size of the industry in the UK over the last 30 years, from almost 70,000 pubs in 1982 to about 48,000 in 2013. ^[4]

In 2010, despite falling pub numbers, an investigation by the Office of Fair Trade ( OFT) in response to a super complaint from the Campaign for Real Ale ( CAMRA) found that there was still competition in the market - "at a national, regional and local level, the evidence indicates that there is a large number of competing pub outlets owned by different operators and that there is competition and a choice between different pubs." ^[5]

The OFT investigation also found that consumers were benefiting from a significant degree of competition and choice between pubs. Consequently, the OFT did not consider that issues relating to the negotiation process between pub companies and their tenants could generally be expected to result in consumer detriment.

In 2013 the Business, Innovation and Skills Committee at Westminster indicated that they intended to give consideration to introduce pub tie legislation in England & Wales.

Legislation followed enforcing a Market Rent Option ( MRO), which passed through the UK Parliament in 2015 and 2016. The legislation on MRO, does not apply to Scotland as the issue falls within the competence of the Scottish Parliament.

The MRO option allows for tenants and lessees of larger pub companies (with estates of 500 plus tied pubs in their total ownership) to opt for a free of tie rent. The intention is to remove their obligations to all applicable and previously agreed product and service ties (excepting insurance). In essence, this creates an environment where the pub involved is essentially 'free of tie' in relation to the purchase of all drinks and key services within their business, but retaining a contractual relationship with their Pub Company. Contextually, this becomes a relationship of landlord and tenant in a similar way to that of any normal commercial lease or tenancy.

Scottish Ministers received no robust representations which took account of all benefits of particular pub models to highlight whether any particular model was significantly disadvantaged in Scotland. Up to the time of commissioning this report, no pubs in Scotland had availed themselves of formal dispute resolution through recognised industry schemes ^[6] . Highlighting of wider issues within England & Wales provided a focus from which affected groups in Scotland made a request to Scottish Government to consider their position.

The overall aim of this research was to provide a robust evidence base to assist Ministers in coming to a view as to whether legislation on the pub sector in Scotland is required, and where the parameters of that legislation should apply.

This report provides a detailed overview and analysis of the pub sector in Scotland. The contents of this document are summarised below:

• Chapter 2 of this report considers the various reports and impact assessments produced as part of the UK Government and UK Parliament's consideration of the issue.
• Chapter 3 thoroughly explains the methodology employed for the primary data collection.
• The main findings of the primary data collection are in Chapter 4 of this report. Data collected across different operating models helped to establish if any part of the pub sector in Scotland was unfairly treated. The data collected assessed differences in the structure of the sector (in Scotland compared to rest of the UK), different leasing agreements in operation in the sector, and the decision process that licensees of all types go through in determining which contract they want to sign up to.
• The report finishes with some conclusions and recommendations based on the evidence gathered (see Chapter 5).