One rule for them ...

The ever informative Propel.Info Newsletter contains a fascinating little snippet this morning, that bears sharing to a wider audience and certainly got me thinking ...

Mike Tye and Spirit Pub Company

" Spirit aims to raise £2.1m by selling three freeholds let to Tesco Express at auction today: Three Spirit Pub Company freeholds let to Tesco convenience stores will be auctioned by CBRE today. The three sites are: Tesco Express in Orton Wistow, Peterborough, with a guide price of £750,000 to £760,000 (rent is £56,000 per annum); a Tesco Express in Burley Road, Leeds, with a guide price of £600,000 to £610,000 (rent is £45,000 per annum); and a Tesco Express in Gracemount Drive, Edinburgh, with a guide price of £720,000 to £730,000 (rent is £50,000 per annum). "

The first thing that stuck me was how little the rent being charged on these buildings is. One can assume that the other income streams that pubcos usually derive from their tenants (principally discount income from tied product purchases by the tenant and gaming machine income) are not flowing in from Tesco, so the total income stream is limited to the rent paid by Tesco. 

Which beggars the question of what is a fair market rent in the eyes of pubcos such as Spirit or its step-sister company Punch Taverns? If there are no ties for wet products or gaming machines in these supermarket leases aren't they, in effect,  the equivalent to a free of tie lease, and therefore a free of tie rent? (I know, somewhat simplistic but many tied tenants of these rapacious companies might easily come to the same conclusion). 

Using historic multipliers (such as those used on the How To Run A Pub freehold calculator) to determine an approximate level of trade, would mean that the Peterborough site would trade at 200 barrels; the Leeds site 150 barrels, and the Edinburgh site 210 barrels (all with a nominal £2,000 gaming machine income p.a.) So Spirit have been forgoing £52,000, £41,000 and £54,000 respectively in terms of discount and other income from Tesco and still managed to satisfy their internal profit requirements every year on all these sites.

Which brings me on to the second thought that sizzled through my noggin ... and all this to one of the most irresponsible retailers of alcohol in the UK marketplace ... Tesco ... a supermarket, that along with its competitors, is widely accepted as having had a hugely deleterious effect on the UK pub trade. 

What a signal message this is to its tied tenants ... "we'll not only screw you with unsustainable levels of rent and eye-watering levels of tied product pricing, but we'll also subsidise your most voracious competitors until we can sell your pub to them at auction" ... bloody nice business model! No wonder Spirit is so desperate to bring in new 'business models' such as the three tiered franchise system they are peddling presently.

I wonder how many Spirit (and other pubco tenants) are thinking ... "fool me once, shame on you ... fool me twice, shame on me..." ? 

Well to them I say ... "SHAME ON SPIRIT , NOT YOU ! " ... and all this before breakfast and my morning meds ...