Tied pubs - pubs code consultation: workshops with tenants

6. Research findings: Guest beer agreements

This chapter looks at tenants' views on guest beer agreements, their importance, how they would use them, and how they should be covered in the Code.

6.1 General views on guest beer agreements

Whilst the provision was broadly welcomed in principle, tenants wanted to see a lot more detail on how this requirement would work for them. A key concern was around where the guest beer could be sourced from. All tenants felt strongly that the main point of guest beer agreements was – or certainly ought to be – to help local small-scale brewers, especially microbreweries, and that this needed to be set out in some way in the Code.

"It's hard to be local, so the size of the brewery you're supporting is important. [It] shouldn't be about freeing you up to go to Tennents and Heineken." – Pub tenant

Some also felt there needed to be some requirements in the Code around ensuring guest beers are rotated and not just a single beer or brewery used indefinitely.

"There should be rotation, somebody can push for it. You should make it part of the lease, that you can't put a beer on the bar forever." – Pub tenant

The potential economic benefits of guest beer agreements were felt to accrue mainly to the local breweries and wider local community. Tenants were quite happy about this and were enthusiastic about guest beer agreements for this reason rather than for the financial benefits to themselves. They welcomed the chance to support local brewers.

"It's not that important for our business, but it's a nice-to-have to help the micro-breweries. It's good for local communities but won't make any difference on [tenants'] profits." – Pub tenant

"Realistically guest beer agreements are of most benefit to the local economy – it gives local brewers hundreds of shop windows to put their product in. They don't need to market it – we put the product on the bar and away we go, we've marketed it for them." – Pub tenant

Some also felt that local beers were something that customers increasingly demanded and expected nowadays, so guest beer agreements were increasingly relevant.

"All our hand-pulls are independent brewers. Customers demand it, tourists look for it. It helps you to create strong local connections which last years." – Pub tenant

One tenant made the point that the Code needs to be careful with the definition of 'microbrewery' – in particular, not all craft beers come from microbreweries.

"There is a definition of a microbrewery, you have to be careful as it's not the same as craft." – Pub tenant

One tenant raised a concern about how the guest beer agreement provision was to be worded in the Code. In their view, the Code needs to make it clear whether this is an obligation on the part of the pub-owning company rather than something they can 'allow' tenants to do at the pub-owning company's discretion.

"The wording concerns me – pubcos will 'allow' tenants to enter a guest beer agreement. Are we not saying this is going to be standard in every single lease agreement, or will you need to negotiate that with the pubco? It needs to be in every agreement no matter what." – Pub tenant

Tenants generally felt it was important that they were able to source their guest beer directly from the supplier if they wished, rather than through the pub-owning company.

"It has to be direct, pub companies would take too long and they wouldn't be interested." – Pub tenant

One tenant added that given ongoing beer shortages, having the ability to source the guest beer themselves could be an advantage in terms of reliably securing supply rather than relying on the pub-owning company's supply chains. This made particular sense to them given the strong feeling that the guest beer agreements should be about sourcing from local breweries.

Another key concern voiced by the two smaller operators on FRI leases was that the Code needed to specify whether the guest beer agreement covered keg beers rather than just cask beers. Under the terms of their leases they were already free of tie for cask (hand-pull) beers with both tenants focusing exclusively on local beers for their cask range. However, they are tied regarding keg beers, so the ability to choose a guest beer on keg would be a step forward for them.

"All our cask is local beers but only one Scottish product keg wise, so this would allow me to grab more of that market and support local businesses. People are more and more supporting local products." – Pub tenant

6.2 Selecting a guest beer

All tenants said they would support local small brewers and were keen that the guest beer agreements should not be used by the big brewers to take even more market share.

"It's got to benefit the smaller micro-breweries or else the big ones will keep making money and taking more share of the market." – Pub tenant

As mentioned, some felt that the provisions in the Code needed to include keg beers. They noted that many pubs cannot currently operate casks so in order to have an impact across the whole sector, including keg beers was crucial. They explained the potential impact generally and to their own business specifically.

"It needs to refer to keg as that will hit the majority of the Scottish estate – many can't operate cask – and it needs to be local-ish and a smaller brewer. They are moving towards keg as it's pasteurised and lasts longer. Just now, [major brewer] have a lot of control over my range of keg beers – any investment you do with them at the moment would mean you have to take out all their 'red' brands i.e. the competitor products. So any agreement I could have that would mean I could take a keg product from a local brewer would be great for us and our customers."– Pub tenant

One tenant wondered whether specifying the requirement as a 'minimum of one beer' in the Code was the best way to do it. There were no definite ideas about how else it could be specified other than possibly as a percentage of beer sold – so for example tenants could be allowed to make up to 10% of their beer sales with a guest beer outwith the tie. Tenants acknowledged that this would raise issues around monitoring flows, but felt it was worth exploring. The concern with specifying a minimum of one beer was that pub-owning companies would deliberately try to restrict it to one beer, especially with tenants who were less adept at negotiating.

"If we word it 'minimum of one' it will only be one – it's all very well to say people can negotiate but in reality many are inexperienced and will struggle to negotiate above one guest beer. [It is] hard to know how else to word it in the Code – maybe state it as a certain percentage of your overall bar offer can be guest beers."– Pub tenant

6.3 Effect of guest beer agreement on rent and Flow Monitoring Equipment

Some felt that the guest beer agreement shouldn't affect the rent, as the point of it, as discussed previously, was more to support the local economy rather than bolster their own takings. Moreover, they felt that the spirit of guest beer agreements was also about 'rebalancing the scales' between pub-owning companies and tenants.

"The point for us is not to buy the cheapest beer but to support a local business. The whole point of this is about rebalancing between publican and pubco and where the money goes. Currently the money goes 90% pubco 10% publican which means publican investment is limited or they have to go to the pubco to get investment in their business. We need to rebalance the scales and the guest beer agreement is a small way of doing it... Pubcos make staggering margins on some pubs."– Pub tenant

Others felt that it was inevitable that guest beer flows would be monitored in some way by the pub-owning company, if not directly then by looking at impacts on flows of the tied beers that are monitored. They accepted that pub-owning companies may then have some justification for charging a fee.

"It comes down to volume. They will monitor it anyway. They'll see less of their beer being sold, if the guest bee hits a certain amount of barrels. Then they can charge you a fee." – Pub tenant

Overall the effect on rent was considered an important area to consider in terms of the Code. One tenant pointed out that until several years ago, pub-owning companies took 50% of the income from gaming machines in pubs; this was stopped as it was deemed unfair. They also pointed out that current rent models already account for beers outwith the tie.

"Current rent models from pubcos include a 'free of tie' line (as well as standard lager, premium lager) so they can then factor in what price you might get for a local product." – Pub tenant