Enterprise Inns responds to new tenant powers

BRITISH pub landlord Enterprise Inns plans to sell 1,000 pubs, create a large property rental arm and expand its own managed pubs unit in response to a new tenant law that stands to hit profits.

The law will allow publicans to choose where they buy their beer, threatening future profits of landlords, who, under a system known as the “beer-tie”, charge tenants above-market drinks prices and offer subsidised rent and benefits in return.

This system is in operation in nearly half of the UK’s 50,000 pubs, but publicans will in future be able to buy beer from other suppliers and choose a market rent-only option.

Enterprise Inns said it would continue to offer tied deals but also boost the number of pubs it manages directly to between 750 and 850 by September 2020 from the current 16.

Managed pubs, which have higher costs attached, but offer greater profits, have become a focus for many pub firms as they respond to competition from cheaper supermarkets, a recession and Britain’s smoking ban.

“This is a fundamental change in the business... it does appear Enterprise has grasped the nettle, post the Market Rent Only option,” Cenkos analyst Simon French said, forecasting that half of the group’s earnings would come from managed pubs by 2020.

Enterprise Inns said it would also expand its commercial property arm, which includes free-of-tie pubs, as well as retail developments, to between 900 and 1,000 properties from 185 today.