Tuesday, 30 June 2009

Restrictive Covenants

Heard of them? Possibly not. It's where a pub is put up for sale with a specific condition of sale excluding it being used by the future buyer as licensed premises ever again. This anti competitive practice which basically says "if we can't make money out of it, nobody else is allowed to try" should have been banned by law years ago. A lot of pub owning companies and breweries do it, including some which ought to know better. In almost every case, it's just plain wrong.

Now Enterprise Inns has followed Punch Taverns in removing restrictive covenants from pub sales. This may just give the opportunity to those with a keen eye to spot a business opportunity and snap up decent but failing pubs, dragged down the dead weight of the PubCos pressing down on them. Small brewers and pub chains will be watching this carefully and hopefully at least some pubs, abandoned by the big two, will see a new lease of life under more considerate ownership.

This is the latest in a line of concessions by the big two PubCos in an effort to persuade Peter Mandelson not to refer them to the Competition Commission. Enterprise and Punch are suddenly coming over all reasonable, but they they are beyond voluntary reform and should still be referred.This death bed conversion is too little and too late.

18 comments:

Jeff Pickthall said...

'This anti competitive practice which basically says "if we can't make money out of it, nobody else is allowed to try" should have been banned by law years ago.'

So, let's think: you think it should have been banned years ago because it's anti-competitive.

The tie system is anti-competitive but ................ oh god my head has just exploded!

Karen and Mark said...

Clearly the tied system is not ideal, but arguably it does have some advantages for customers. Restrictive covenents have no advantages for customers, only for the companies imposing them.

Curmudgeon said...

Completely agreed about restrictive covenants – they are a restraint of trade and should be illegal. I've not seen much evidence, though, of independent brewers showing much interest in the low-end pubs being disposed of by the pubcos. The pubs they've gone for have tended to be the high-end, food-oriented ones. In general, the pubs for sale freehold for £200k or less have simply become unviable because of poor location and changes in the pubgoing market, and few are really capable of revival however well run.

And restrictive covenants are nothing to do with the tie!

Tandleman said...

Jeff picks and chooses and conflates to suit his own bias. Fair enough, it's easily spotted. Maybe he should be Jeff Pickthomethings.

The tie IS a different subject and while I don't want to get into it here, it isn't all bad. My own view is reform not abolition. Abolition will probably result in a dreadful drive to the lowest price and quality for most of us and small and family brewers being driven out of an even more polarised market. That's what's happened everywhere else. It's a right wing view elitist solution dressed up as "freeing the market". IMO of course.

Curmudgeon. The pubs that were previously sold with a covenant may have legs in them for someone. At least now we can find out if it makes a difference.

Woolpack Dave said...

Well yes, but the tie IS anticompetitive and so are covenants, so I agree with Jeff's point.

However, I would not want our differences of opinion over the tie to get in the way of the fact that surely we all agree that covenants are bad.

They should have been banned by law years ago.

Tandleman said...

Indeed. But you are both short sighted over complete abolition of the tie. I hope I never get the chance to say "I told you so".

Curmudgeon said...

It would be interesting (although perhaps deserving of its own topic) if JeffP or someone could spell out exactly what they mean by the "complete abolition of the tie".

How would that stack up with the existence of a massive managed pub chain such as Wetherspoon's, or even a chain of restaurants such as Pizza Express all of which offer the same range of beers sourced through central purchasing?

Not to mention that comparable business models exist in many other sectors such as fast food, car retailing and petrol stations.

Jeff Pickthall said...

Curmudgeon: Could you let us know who used the phrase you quote – "complete abolition of the tie"?

Tandlemouth: I've conflated nothing: I've just pointed out the inconsistency of your argument -

x is anti-competitive so it should be banned
y is anti-competitive but it shouldn't be banned

b.t.w. Robinson are big abusers of restrictive covenants in this neck of the woods.

Curmudgeon said...

Jeff,

Tandleman did ;-)

If that isn't your position I would be interested to know in more detail how you would wish to reform it. It's a subject worthy of serious discussion.

I don't support Robinsons imposing restrictive convenants any more than the major pub companies.

John Clarke said...

Jeff,

While Robinson's may have used the occasional restrictive covenant it is not something they use widely - I understand a local micro up your way has pciked up a former Robinsons house.

If however you have evidence of their widespread use by Robinsons please let me have details - I have good contacts at the berwery and would be keen to take this up with them.

Tandleman said...

Jeff - Please cut out the name calling. All blogs are opinion, at least to some extent. If you disagree, please expand your arguments. If for example you don't believe in abolition of the tie, what do you believe should be done with it?

Woolpack Dave said...

"Jeff Pickthomethings" - I think perhaps you might have started that Tandleman.

;-)

But I still agree covenants are wrong.

Tandleman said...

On this occasion, possibly, but I was just trying to illustrate that Jeff has his little bandwagons. It was a play on words.

Paul Garrard said...

The restrictive convenant is something else that should have been consigned to the dustbin of history a while ago.

Things do seem to be changing on the pubco front death bed conversion or not. Some of these changes should be welcomed.

Anonymous said...

I really love the way you talk about things as if you're an expert, when actually you're completely ignorant! Well done, sir!

Tandleman said...

And I like the way you are able to hide behind your very small penis.

Just go away you silly person.

Curmudgeon said...

It's interesting how Jeff, having spouted off about the tie, has gone very quiet once he was asked to put some flesh on the bones...

John Clarke said...

I have crossed swords with Jeff and his brother numerous times in the past (on the old uk.food+drink.realale newsgroup) - at time argiung with them has been like wrestling jelly.