UK: Heineken faces potential penalty over pubs code breach

Deputy pubs code adjudicator Fiona Dickie has stated Heineken UK could face a financial penalty of up to 1% of its annual UK turnover if Star Pubs & Bars is found to have breached the pubs code.

As reported by The Morning Advertiser, Heineken’s pub arm Star Pubs & Bars will be the subject of the first investigation by the pubs code adjudicator (PCA), which believes the operator of around 2,700 pubs may have breached the pubs code.

“We suspect that [Star Pubs & Bars] has breached the pubs code by offering unreasonable stocking terms to tenants seeking to go free of tie,” Dickie told The Morning Advertiser.

“A stocking requirement is not a tie, it’s a new concept that was created by the pubs code and it does permit a brewing pub owning business to require a tenant going free of tie under MRO (the Market-Rent-Only option) to continue to stock products. But there are limits and the requirements must be reasonable. The tenant must be able to buy products on the open market, to secure the best price and they cannot be prohibited from stocking competitor brands.”

Dickie confirmed the PCA would be investigating whether terms offered by Star prohibited tenants stocking competitor brands, whether the terms offered have extended to cover brands that Heineken don’t produce, and whether the brewer and operator had sought to control product price through its use of stocking terms.

“I issued some awards for Star, setting out what the law was and what their obligations are,” Dickie explained. “We didn’t see the change in Star’s behaviour at the time that we expected.

“Myself and Paul Newby have together engaged with Star as regulators in relation to these issues and after a process of engagement we both agree that now is the right time to launch a formal investigation.”

According to figures revealed by Dickie, Star has issued 111 proposed tenancies to publicans looking to go free of tie, 39 of which have been referred for arbitration due to issues over stocking terms.

“We know how many tenants have brought disputes to the PCA for arbitrations but what we don’t know is whether there are tenants who have been put off their free-of-tie ambitions by the terms offered,” Dickie added.

“That’s a central focus in this investigation. We have opened a call for evidence. We want any Star tenant who has been offered stocking terms to tell us what they’ve been offered and tell us how it’s impacted on them.”

According to Dickie, the PCA wields the power use enforcement action and to impose financial penalties if a beach of the code is found.

“We can make recommendations to Star as to steps it should take and monitor their compliance,” she said. “We can require them to publish information and we can impose a financial penalty up to a maximum of 1% of their annual UK turnover.

“The maximum financial penalty that we could impose could be well into seven figures.”

The investigation will cover the period between 21 July 2016 – when the pubs code became law – to 10 July 2019.

Dickie explained that the PCA had engaged with solicitors to carry out the investigation and had been given extra resources in order to collate and analyse evidence before arriving at a conclusion.

“Star has told us that it has changed its processes but we do need to understand the impact of these behaviours since July 2016 and the commencement of the code on tenants,” she added.

“We’ve made it quite clear that we’re committed to making the MRO process successful for tenants. This investigation is a demonstration of that commitment.

“It is our first investigation, it may not necessarily be our last.”

A spokesperson from Star Pubs & Bars said: “This investigation applies to a very small proportion of our total pub estate – fewer than 5% of our 2,700 pubs.

“The legislation is clear that as a brewer we have the right to ensure that the pubs we own sell our beer and cider. This reflects the significant ongoing investment we make and the jobs we support in our UK breweries, cideries and supply chain.

“While the principle of the brewers’ stocking requirement is clear, this part of the new legislation is complex and not clearly defined in the pubs code. We, therefore, hope this investigation will provide the certainty and clarity that we have sought repeatedly over the past three years.

“We will, of course, co-operate fully with the PCA while robustly defending our position.”

12 July, 2019