Business Economic Notes 9 - Licensed Victuallers
Contents
- Introduction
- Managed houses
- Tenanted houses
- Free houses
- Beers, Lagers, Stouts and Ciders
- Wines, Spirits and Minerals
- Off sales
- Catering, Functions and Accommodation
- Amusement and Vending machines
- Ancillary sales and expenses
- Profitability
- Appendices
Introduction
A Justice's Licence to sell intoxicating liquor by retail on and off named premises is granted to an individual or individuals who hold the licence personally. There are various kinds of both 'on' and 'off' licences, which may have conditions or undertakings attached to them which limit their use. In most cases, the licensee(s) - 'Publican(s)', 'Licensed Victualler(s)' of a Public House - 'Pub' - hold an annual licence to sell intoxicating liquors of all descriptions both on and off the premises for seven days a week, but there are exceptions.
Besides selling beers, wines, spirits and minerals most public houses also serve food and cater for functions on the premises. A good number also cater for 'outside' functions, setting up a bar and possibly supplying food as well. Some offer accommodation. Many houses have one or more amusement machines, with or without prizes, such as fruit machines, juke boxes, pool tables, and video games. Incidental sales include cigarettes and allied lines, packet snacks such as crisps and nuts, miscellaneous vending machine sales, advertising, payphones, garaging or other kinds of lettings. Entertainment may be provided for clients.
The weather has a marked effect on trade. Sales increase as the weather improves, and fall away when it worsens.
The beers sold are supplied by the brewery companies. Nine large groups of brewers operate on a national basis with a further six smaller companies operating on a regional basis. About seventy smaller brewers operate on a local basis. Beers are sold in large volumes, so a brewery producing a general range of beers needs to secure sufficient profitable volume outlets (pubs and clubs) to ensure the necessary bulk sales. The licensing and registration system places constraints on the number of volume outlets available, so each brewery tries to guarantee its share of the market and fend off its rivals by either acquiring worthwhile licensed premises outright, or by becoming the sole source of supply to licensed or registered premises.
Registration is a form of licensing available only to members' clubs, that is clubs which are owned by and run for the benefit of their members such as Sports clubs and Working mens' clubs.
Between them, the brewery companies own about two thirds of all UK public houses. Roughly three tenths of the brewery owned - 'tied' - houses are 'managed' houses run by licensees who are brewery employees. The other seven tenths are 'tenanted' houses run by licensees holding leases from the breweries.
The third of all houses not owned by the brewers are 'free' houses which are free to obtain their supplies from any source. In practice, many 'free' houses enter into 'tie' contracts with the breweries in exchange for loans on advantageous terms. Most houses in Scotland are 'free'.
Pub prices vary from house to house. Very generally, in England, Wales and Northern Ireland the prices charged in managed and tenanted houses in the same locality are similar and lower than the prices charged in nearby 'free' houses. In Scotland, the prices are similar in all three kinds of house, subject to regional differences.
The contractual arrangements between breweries and the houses they supply vary from house to house. The arrangements most commonly met are, in broad terms, as follows.
Managed houses
The brewery runs the house through its manager, who is an employee in receipt of a salary and bonuses. The salary is usually related to the amount of business transacted by the house and is either based on the house turnover or a brewery 'house evaluation scheme'. Bonuses are commonly dependent on an increase in the house's annual profits. A manager's spouse, if employed by the brewery, will have a separate contract of employment.
All breweries have regular checks and stocktakes in managed houses, and expect the manager to keep discrepancies in the stock or till records down to the lowest possible level. A few breweries may charge the manager if the discrepancies rise above specified levels. The manager may be required to deposit a sum of money with the brewery as a security against such losses. The brewery may pay interest on this sum.
Many managers used to receive commission on the amounts taken by the amusement and vending machines, and advertisement boxes, sited in the house. Most breweries have now ceased to pay commission, and have increased the manager's salary instead. Where a manager continues to receive commission (commonly about 5% of net takings after winnings and VAT, or 10% after deduction of winnings, VAT and the rental paid to the machine supplier) it is usually paid by the brewery, although the machine supplier may pay it in accordance with the brewery's instructions.
The manager usually holds the house licence jointly with the brewery's area manager, so that relief can be provided to cover periods of illness and holidays.
The brewery sets all the prices charged, apart from those relating to the manager's own activities.
The arrangements regarding catering profits can vary between houses managed by the same brewery, the treatment usually depending on the size of the house's catering turnover. Where the catering is no more than at the 'Pub Grub' level - snack catering of the sandwiches/rolls/something and chips variety - the manager will probably retain the profits under a franchise agreement with the brewery. Where it is at a higher level (akin to a restaurant) it is likely to be 'company catering' where the brewery retains the profits. The brewery will review any franchise arrangements at intervals, but may wait until there is a change of manager before altering them.
The arrangements concerning the profits from lettings (functions, paying guests, etc.) also vary. As with catering, the treatment often depends on the size of the income - as a very rough yardstick, where the house has fewer than four bedrooms or has a small income from functions the manager may be allowed to retain the profits under a franchise arrangement, otherwise the profits will accrue to the brewery.
Subject to any arrangements such as the above, the brewery pays all the outgoings and receives all the takings for the house.
A few managers may be tempted to indulge in a practice known as 'buying out' or 'buying away' whereby they purchase items on their own behalf, sell them to the house customers, and pocket the proceeds. Such sales may include lines which the brewery is supplying to the house:- beers, wines, spirits, etc. The breweries frown severely on this practice. Modern till and accounting systems have made this practice more difficult.
Tenanted houses
Subject to the conditions laid down in the tenancy agreement, the terms of which vary from brewer to brewer, a tenant runs the house independently of the brewer, sets all the prices charged, and retains all the profits. Commonly, the agreement entitles the brewery to a share in the take from amusement machines. The goodwill of the house is reserved to the brewery, except in a very few cases.
In many cases the agreement rolls on from year to year subject to one year's notice on either side, except where the tenant is in breach of the agreement when three months' notice may be given by the brewery. Some brewers have shorter terms of notice. A few smaller breweries grant licences to trade, which confer lesser rights of notice, to new tenants while they are on probation.
The brewery usually supplies the tenant with a guide to profit margins, or a list of recommended prices, to help in arriving at a suitable price list for the house. The list supplied by the larger breweries is often their current managed house basic prices list.
At one time all agreements required the tenant to buy all supplies of beer, wine and spirits (and possibly minerals as well) from the brewery - the 'tie'. Recent EEC regulations, which will apply to all leased houses from 1989, have the effect - if certain conditions are satisfied - of allowing tenants to buy wines, spirits and minerals from other sources. In many cases the brewery has reduced the prices charged to the tenant for those lines or (more commonly) has released the tenant from the wine and spirits 'tie' in exchange for an increase in the rent. In practice, the regulations are not likely to affect the beer 'tie' and in probably all cases the brewery will remain the sole supplier of beers.
The tenant is usually made responsible for the maintenance and insurance of the interior of the house. He or she is also likely to be responsible for small repairs to the exterior of the house and in some cases will be responsible for all exterior maintenance and insurance. The tendency in recent years is for the tenant to take over more and more of the responsibility for maintenance. The brewery normally remains responsible for the maintenance of the dispense equipment, including those few and decreasing cases where the tenant owns that equipment.
The tenant often owns the bar and the fittings behind the bar (the optics,
etc.) and possibly the 'truncheon' type beer handles.
A new tenant will pay an 'incoming' to his or her predecessor for the
trading stock and those fittings etc. now owned by the brewery, and will
also place a sum of money on deposit with the brewery as a security ('brewery
deposit'). Some breweries also require sums to be deposited with them
annually, as security for the tenant's responsibility towards maintaining
the house ('dilapidations deposit'). The 'dilapidations deposit' can be
substantial and may be paid by monthly instalments. The brewery pays interest
(net) on the sums deposited with it, usually at six month intervals at
seven day bank deposit account rates.
In the past, it was a common practice among breweries to charge a low rent for the premises (the 'dry' rent) and charge more than their standard wholesale prices for the draught beers supplied. The amount of the increase (the 'wet' rent) over the standard wholesale price of the beers depended on the house turnover and the 'dry' rent, and ranged up to four per cent or so of the wholesale price of the beer. Wine, spirits and any other lines supplied by the brewery would be charged at their standard wholesale prices. In addition, the tenant might be charged for the right to engage in catering.
Those arrangements have now been superseded by agreements under which the tenant purchases supplies from the brewery at its standard wholesale prices and pays one rent. The method by which the rent is calculated varies from brewery to brewery. In many cases the rent is a percentage of either the house turnover or its net profit, commonly eight to ten per cent of the turnover after perhaps excluding certain income such as machine takings or tobacco sales. The brewery either has the right to see the tenant's records, or calculates the turnover or profit on the basis of the volume of its supplies to the house, plus other information held. In some cases the rent is a percentage of the potential turnover.
Another common method of fixing the rent is that the brewery decides on the return on capital it requires for its investment (the house) and deducts from that figure the non rental income received from the house (the profit on supplies of beer etc. to the tenant, and its share of machine takings). The balance is the rent chargeable.
Nowadays rent reviews often take place at three year intervals. The tenant is entitled to discuss the proposed rent with the brewery and to go to arbitration if need be.
Subject to the terms of the agreement with the brewery, profits from ancillary activities such as amusement and vending machines, catering, functions, lettings, advertising, and so on are either shared with the brewery or retained by the tenant.
The amusement and vending machines sited in the house may be chosen by
the tenant, provided the machine supplier is on a list of approved suppliers
maintained by the brewery. The law prohibits the supplier of a gaming
machine (broadly, a machine which pays out a prize) from entering into
a profit sharing arrangement with either the tenant or the brewery; he
may only receive a fixed rental. Subject to this, there is a wide variety
of arrangements governing the share-out of the machines' net takings after
payouts, VAT, and rentals. A common arrangement for 'fruit' and video
games machines is that the brewery sites and runs the machines and gives
the tenant around 25% to 33% of the take, the tenant paying the VAT due
on the total takings.
Other machines can fall under any of the following arrangements which
may not involve the brewery at all.
- paying a rent and retaining the takings
- sharing the takings with the supplier (not 'gaming' machines)
- receiving a rent or a commission (vending machines).
A tenant may be offered various incentives by the brewery to increase the house turnover. For instance, he or she may receive the offer of a bonus if the turnover, or purchases of particular lines, rise above specified levels. Incentive schemes can be complex, involving reinvestment of the bonuses/discounts on the tenant's behalf.
On the other side of the coin, the rent a tenant pays to the brewery is often based on the brewery's expectation of the turnover the house should achieve. Consequently, the greater the failure to meet the brewery's target turnover, the more heavily the rent will bear on the tenant.
The requirement that a 'tied' house must buy its supplies of beer, and possibly other lines from the owning brewery at that brewery's standard wholesale prices, coupled with the fact that the tenant's rent is in many cases effectively geared to the volume of the supplies purchased from the brewery, may tempt a tenant to 'buy out' or 'buy away'. This is the practice of obtaining some supplies from cheaper sources and is regarded by the breweries as a serious breach of the terms of the lease.
Free Houses
'Free' houses are able to purchase their supplies from any source. In order to attract and retain the custom of such a house, a brewery may offer a discount from its standard prices. Discounts can vary according to the volume of purchases, or may simply be a flat amount per barrel or case ordered.
It is also a common practice for a brewery to offer one or more 'trade loans' of either money or equipment, or to offer to assist with refurbishment, to persuade the licensee to enter into or renew a 'tie' agreement. A 'tie' requires the licensee to buy either a specified amount, or all his/her supplies of beer and perhaps other lines from the brewery over an agreed period. Such an agreement may involve supplanting a rival brewery as the licensee's sole supplier. 'Trade loans' can take many forms, the most common are
a) No or little interest is charged on the loan; the borrower's purchases from the brewery are invoiced at full trade prices, the discounts to which the borrower is entitled being set against the loan.
b) No or little interest is charged on the loan, which is written off over the period of the loan agreement. Sometimes the loan is partly cleared by setting against it any discounts, or other entitlements earned through incentive schemes.
c) The brewery purchases from the licensee fixtures and fittings considered to equal the value of the sum loaned, and returns them to the house at the end of the loan agreement (which is often for seven years).
The takings from amusement machines, net of token redemptions/payouts and VAT, are taken by the licensee and a rent paid to the machine supplier. Alternatively the licensee may share the takings with the supplier (not gaming machines). Vending machines may also be rented, or accepted on a commission basis. Profits from other activities such as catering, lettings, advertising and so on are retained by the licensee.
Let us turn now to a general description of the goods and services offered in a typical house.
Beers, Lagers, Stouts and Ciders
(a) Storage
All these beverages have a finite life which is considerably shortened if they are not kept at the correct temperature, away from the air. They keep best at 53 to 57 degrees Fahrenheit. Cask conditioned beer goes "off" rapidly if it becomes too warm, and may turn cloudy if it becomes too cold.
Most houses have a cool and well ventilated cellar or storage area where the draught beers etc. are stored and from which they are piped to dispense points at the bars. Bottled beers and the like will also be kept in the cellar and will be brought out to the bars as required. Most bottled beers keep well at ordinary room temperatures. Nowadays few houses store casks or kegs at the bar, unless this is unavoidable or the trade is such that they are changed frequently, because it is more difficult to keep the beer at the right temperature in a public room. It is also easier to accommodate kegs and casks away from the bar. A few houses store casks of 'Real Ale' (see below) in a storage area away from but convenient to the bar, and draw the beer direct from the cast as required.
The traditional kind of beer ('Cask conditioned beer', or 'Real Ale') has a short life (ten days or so) and requires careful handling and storage to keep wastage to a minimum. The two other main kinds of draught beer ('Keg', and 'Bright beer') together with draught ciders, stouts, and lager are much easier to store under optimum conditions and keep longer.
All three main types of draught beer are produced using much the same methods, up to the point at which they have been 'fined' (clarified) after the fermentation process. At that point, cask conditioned beer is run into wooden or metal casks, without being filtered, and 'primings' are added to induce a secondary fermentation. The beer is then ready for delivery to the licensee. 'Keg' beer is filtered, is usually pasteurised, and is chilled before being pumped into metal kegs which are then pressurised with carbon dioxide gas to exclude all air. It is then ready for delivery. 'Bright beer' is filtered, may be pasteurised, is chilled, and is pumped into tankers which will in turn pump the beer into the licensee's cellar tanks. The cellar tanks are then pressurised with carbon dioxide gas, or compressed air.
A brewery may supply a beer in either 'Keg', 'Cask conditioned' or 'Bright' form, under the same name.
The filtration (and pasteurisation, when undertaken) prevents any subsequent fermentation or sediment occurring in kegged or 'bright' beers. Draught lagers, stouts and ciders are pumped into kegs and pressurised with gas in the same way as 'keg' beers. A small number of kegged beers (special brews produced by certain breweries) are of similar character to 'real ales'. These types are only roughly filtered and will throw a sediment in the keg.
'Kegged' beers etc. are available for sale immediately after delivery to the licensee and have shelf lives, provided they are stored properly, which are measured in weeks. This is more than adequate for normal conditions. The common keg sizes are either 11 or 22 gallons (about 50 or 100 litres).
Like 'keg', 'bright' (tank) beer can be sold immediately after delivery and has a more than adequate shelf life, provided it is kept properly. The nominal capacity of a 'tank' is usually 180 gallons. Some breweries do not filter out all the yeast from 'bright' beer, to give it a different flavour. Some tanks hold the beer in a bag which is surrounded by the compressed air or carbon dioxide gas, to prevent undue absorption by the beer. Neither of these practices should affect the storage life of the beer.
Cask conditioned beer is usually supplied to the licensee in casks which can vary in size from 9 gallons (a Firkin) up to 54 gallons (a Hogshead). The casks most commonly in use are either the 18 gallon ('Kilderkin') or the 9 gallon size. The standard measurement of quantity in the trade is the 'Barrel' (36 gallons).
Before it is ready for sale, cask conditioned beer needs to stand, after delivery to the licensee, until any fermentation has ceased and all the sediment has sunk to the bottom of the cask. This usually takes 24 to 48 hours or so. On delivery, the casks are wedged in position on their sides so that the vent ('spile') hold is uppermost and the tap ('bung') hole is lowest. A tap is immediately driven into the bunghole (fitting the tap later risks disturbing the sediment which is accumulating at the bottom of the cask). The cask is vented to the air either by leaving the vent hole open or by stopping it with a porous peg.
Once the beer has stopped 'working' a non porous ('hard') peg is used to stop the vent hole and reduce exposure to the air and other possible contaminants. Prior to sale, the peg is eased periodically to relieve any build-up of pressure in the cask. While the beer is on sale the vent hole is either left open or lightly stopped with a porous peg, to enable air to be drawn into the barrel to replace the beer drawn out. The storage area needs to be clean and free from smells to prevent the air drawn in from contaminating the beer.
Where cellar space is limited the licensee may be forced to keep the casks upright and syphon the beer out via the taphole. This situation will be avoided wherever possible as beer kept in this way throws more sediment and less can be drawn off.
Cask conditioned beer has a life of only a few days and the licensee has to be careful to use his oldest stocks first and match his stocks to his trade. It is however unusual for beer to be lost because it has become stale through ageing.
A carbon dioxide gas cylinder can be connected to the vent hole so that
the beer is covered by a blanket of the gas, so excluding the air and
extending its life. The beer will absorb some of the gas, depending on
the pressure used. Some licensees use a light gas pressure and pump the
beer to the bar, other utilise a higher pressure to drive the beer to
the dispense point. Beer kept under gas for too long (7 days or so) will
absorb so much gas that 'fobbing' (excessive frothing) will occur at the
dispense point.
A carbon dioxide gas cylinder can be connected to the vent hole so that the beer is covered by a blanket of the gas, so excluding the air and extending its life. The beer will absorb some of the gas, depending on the pressure used. Some licensees use a light gas pressure and pump the beer to the bar, other utilise a higher pressure to drive the beer to the dispense point. Beer kept under gas for too long (7 days or so) will absorb so much gas that 'fobbing' (excessive frothing) will occur at the dispense point.
Bottled beers are generally less troublesome to store and dispense than their draught counterparts. There are a few varieties of bottled beer that mature and throw a sediment in the bottle in the same way as cask conditioned beer. These types need care in storage and in pouring out, if the beer is not to be lost through tops blowing or rejection by the customer because it is cloudy. The great majority of bottled beers akin to 'Keg' beers in that they have been filtered before bottling. Consequently, few bottles should be lost overall, provided the beer has been kept properly. Losses arise mainly through breakages, which should be minimal given careful handling.
(b) Dispensing
There are various methods in use to transfer the draught beer etc. along the pipes from the cellar to the bar. The traditional beer engine or hand pump, and the various types of electric pump (metered or free flow), pump the beer to the dispense point. The Scottish water engine, and the air pressure pump, force air into the beer casks in the cellar and drive the beer to the bar under air pressure. Alternatively, a cylinder of carbon dioxide gas can be connected to the beer keg or cast to drive the beer to the bar under gas pressure. 'Bright' beer is contained in large tanks and driven along the pipes by air or gas pressure. 'Fobbing' can be a problem with 'top pressure' (gas driven) systems, especially with lager (which uses a high gas pressure). Lagers and some ales are passed through a cooler before serving.
When casks are stored at the bar, the beer can be tapped directly from the cask. Kegs stored at the bar will still require pressurised dispense equipment.
Barrels of cask conditioned beer will need to be tilted while in use, to obtain as much of the contents as is possible. Tilting has to be done with care, to avoid disturbing the sediment, and is not normally feasible once the barrel is much less than half full.
At the dispense point the beer is measured into pints (20 fluid ounces) or half pints, either by a metering device in the dispense system or by filling a glass which itself forms the measure. There are three main types of glass:- the various sizes of 'brim measure' glass, which hold slightly more than a pint, or a half pint; the various sizes of 'oversize' glass, the most common of which holds 24 fluid ounces/12 fluid ounces and is marked with a line showing the exact 1/2 or 1 pint measure; and the various sizes of 'oversize' glass without a line, which can only be filled via a metering device. The Weights and Measures Act require that metering equipment, 'brim measure' and lined glasses must give accurate measure, subject to specified tolerances (see Appendix 2), and must be stamped.
The pipes and dispense equipment need to be cleaned at regular intervals, using detergent followed by a rinsing with water. Kegs, casks and bottles are returned to the brewery for cleaning. Most cellar tanks do not need cleaning as the beer is held in a plastic bag within the tank, and the bag is replaced at each delivery. A few tanks do not use bags and need cleaning each time they are emptied. The cellar or storage area will also need cleaning at frequent intervals.
(c) Losses of stock
The amount of beer lost by a licensee depends on a number of factors, each of which affect different houses to a different extent. Most publicans are content to ensure that their losses are minimised and do not try to quantify them precisely. An experiences licensee should be able to reduce losses of beer to the lowest level feasible in the circumstances; it is more often a matter of care in handling and dispensing beer, rather than skill. Rarely, a whole delivery will go 'off' for no apparent reason. When this occurs it is often due to errors at the brewery and more than one pub will be affected. In such circumstances the licensee will receive a credit from the brewery for any beer lost.
The monitoring of stock includes
Deliveries
The amount of beer actually delivered to a house, as distinct from the amount invoiced to it, has always been a contentious issue in the trade. The Weights and Measures Act does not cover 'large' containers such as casks and kegs, and the measures used in the industry - Pin, Kilderkin, Barrel, and so on - are not specific measures of volume and consequently are not legally enforceable. It follows that a licensee who has been supplied with a keg or cask which is short of its nominal contents has in theory no grounds for complaint. This problem does not arise with 'Bright' (tank) beer, which is metered into a house's cellar tanks, so the quantity supplied is easily checked.
Unless a licensee is able to measure the precise contents of each container, both on delivery and when no further beer can be drawn from it, it is impossible to know exactly how much beer was delivered and how much of it has been obtained from the container.
Monitoring tank beer should be straightforward - the beer is metered in and any residue left is easily measured. Casks and kegs are more difficult to check; a few licensees have installed weighing machines and can measure what they have received by identifying each container and weighing it in and out (the containers themselves vary in weight), but most licensees are not able to be so precise.
They can check casks, on delivery by using a dipstick (which is only accurate to within two or three pints) and after use, by pouring the residue into a bucket. They cannot check kegs as these cannot be opened because of the internal gas pressure. An experienced licensee can tell if a keg is not completely full by shaking it, but will not know the exact shortfall.
The general policy among brewers is to fill kegs and casks so as to give half a pint or so more than the nominal amount due, on the basis that any shortage that happens to occur in one container will be compensated by the excess given in other containers. A few breweries check the contents of their containers more precisely and give little, if any, excess over the nominal contents. In general, breweries will not entertain any claims for short measure unless the shortfall in a container amounts to more than a gallon and the container has been left untouched until examination by the brewery's representative.
The majority of licensees without weighing machines have to take the quantity delivered in kegs and casks on trust, as they cannot tell whether they are receiving more or less than the nominal amount unless the error is substantial. The breweries' general policy of overfilling precludes any claims unless there is a large shortfall in any one container.
The number of complaints made by licensees over shortfalls in deliveries is not as great as it once was, but it is still a grey area which can cause ill feeling. The Brewers Society has produced a draft code of practice, based on the small packs legislation, to cover quantities delivered. It requires a brewery to quote the average and minimum contents of containers on their invoices. Discussions are being held with other interested bodies and if it is implemented the code should hopefully reduce complaints to a minimal level.
Nowadays, most containers are made out of aluminium or stainless steel, to precise capacities. Older containers, some of which could be undersized, have been largely phased out. Dents in a container should not significantly affect its nominal capacity - a container can only suffer minor dents before beginning to leak.
Storage
Provided the beer is stored properly it should not go stale in normal use. A little cask conditioned beer may be lost via the vent hole while the beer is 'working' or via the tap hole while the tap is being inserted.(the vent hole is stopped while the tap is fitted, to slow the overflow). No more than half a pint or so would normally be lost through either venting or tapping - it could well be less. A credit from the brewery should be available to cover beer lost via leaky containers.
Changing over
- to a new keg or cask should not normally involve any losses, apart from any unusable beer left in the previous container.
Residue unusable
Cask conditioned beer ('real ale') and those types of 'keg' or 'bright' beer which are close to being 'real ale' (particular beers associated with particular breweries) will always leave an unusable residue ('bottoms') in the container. The quantity will vary from container to container depending on the brew and the size of the keg or cask. A rough guideline is two pints in a 9 gallon container, two or three pints in an 18 gallon container, and four pints in a 36 gallon container. A few breweries give a credit or supply extra beer to compensate for 'bottoms' - the majority do not, the licensee accepting as part of the bargain that certain beers will throw a sediment. Exceptionally, where the sediment is slow to settle the last few gallons might be unusable, in which case the brewer would normally allow a credit.
The keg and its allied dispense equipment (comprising the 'spear', which is a draw-off pipe inserted into the keg, and a gas cylinder) are designed to ensure that at least the nominal contents of the keg can be dispensed. Any residue - usually less than a cup full, except in the case of beers akin to 'real ales' - should be 'excess' beer not invoiced to the licensee provided the keg was filled according to the brewers' general practice of overfilling. If the keg contents had been subjected to excessive gas pressure because the cylinder pressure reducing valve was not set correctly, the last couple of pints might become froth - an inexperienced licensee should be able to avoid this.
Cellar tank dispense equipment is designed to ensure that only a minimal amount cannot be drawn off. Any small residue is usually thrown away.
Pipe and pump cleaning
The dispense points, and the pipes connecting the beer containers to them, need to be cleaned regularly since unclean pipes will cause 'fobbing' and will affect the taste of the beer. How frequently this is done depends on the length of the pipes and how vulnerable they are to temperature changes, yeast deposits (cask conditioned beer) and other deposits. Once every five days in hot weather, and once every seven days in cold, is a common practice.
The pipes are disconnected from the containers and detergent is drawn (pump system) or driven (gas pressure system) through them to the dispense points.
The beer that was in the pipes is forced out of the dispense points. After a time, the pipes are flushed out with water in the same way. The pipes are then reconnected to the containers, and the beer is reintroduced. The beer first drawn off at the dispense points will be unsaleable as it will be contaminated with water.
Most of the beer that was forced out of the pipes when the detergent was introduced is, usually, sound. Wholesome cask conditioned beer can be returned to the cask through a filter, provided this is done soon and the cask is at least half full (to avoid disturbing the sediment). This practice is becoming less common, partly because of Customs regulations and partly because many brewers do not recommend it and no longer supply the necessary equipment. A good number of licensees still do it.
It is not possible to return keg beer back to a keg without first releasing the gas pressure inside the keg. This can be done with an appropriate key but it is a very dangerous procedure and forbidden by the breweries. It is not feasible to return beer to a tank. Beer which is not returned to the container may be utilised over a short period for mixed drinks such as 'shandy', although this is not condoned by the breweries.
The beer lost through pipe cleaning varies from house to house. The volume drawn out of the pipes can be calculated by reference to the length and bore of the piping - see Appendix (1b). The net amount actually lost will depend on how frequently the pipes are cleaned, what amount of sound beer is drawn out of the pipes each time, and what happens to that beer. The maximum (total) loss would be double the volume of the pipes.
'Pull-Ups'
is the term for beer that may have become warm and possibly stale in the pipes and dispense points in the intervals between each session, and which may need to be drawn out at the beginning of a session. The amount affected depends on the length of time between sessions, the temperature of the pipes, and how often the pipes are cleaned. Keg and 'bright' beers should not need to be drawn off more than once a day, perhaps ely to be affected, but no more than half a pint may need to be drawn off per session under usual circumstances. Any beer drawn off is sound and can either be returned to the cask where possible, or used for 'shandy', where these are the licensee's practices. Neither practice is condoned by the brewery companies.
Serving and pilferage
Where 'brim measure' glasses are used at an unmetered dispense point, the glass may not contain a full pint of liquid if there is a head of froth on the beer, as froth is only one third beer. This 'gain' to the licensee is an offset against losses from the spillages occurring when the glasses are overfilled. Where 'oversize' glasses are filled through a metering device spillages are minimised and accurate measure (subject to the accuracy of the device) is given. It is unlikely that a licensee would use 'oversize' glasses together with an unmetered pump - part from the risk of filling the glass to excess and giving beer away for free, the law requires that draught beer is supplied in exact half pint or pint measures, subject to the tolerances allowed.
It is unlikely that a licensee would give over measure of beer when supplying drinks such as 'light and bitter' or 'lager and lime' since the law requires that draught beer is supplied in either half pint or pint measures and accordingly the beer should first be measured into a glass and then the light ale, lime or whatever else added. The law does not require mixed drinks such as 'shandy' to be supplied in specific measures (unless the licensee advertises the mixed drink for sale by specific measure) but it is unlikely that a licensee would give excess beer in a mixed drink as it is a common practice to draw the beer first.
A licensee who utilises an 'economiser' to draw spillages from the drip tray back into the dispense system, or who returns spillages to the cask, risks prosecution by his local Environmental Health Officer. These devices are being phased out and most of them should have disappeared by early 1988. Some licensees utilise spillages for 'shandy' although the breweries do not approve of this. Generally, both the breweries and Environmental Health Officers do not approve of any practices which recycle beer once it has been withdrawn from the dispense system.
A worn dispense point or excessive pressure can cause 'fobbing' (excessive froth). An experienced licensee will be aware of this and will guard against the possibility.
Rejections by customers, for example where the beer is cloudy, should only be a minor problem, where cask conditioned beer is served.
Licensees may supply drinks free or at reduced prices to bar staff, draymen, visiting darts teams, and others. Staff may help themselves to drinks or supply friends with free or cheap drinks. Inexperienced staff may give over measure when serving. A licensee's own consumption will also be a loss to sales where the full bar price is not paid into the till.
As mentioned previously, accidental loses of bottled beers should be minimal, perhaps 1 to 2%. Breweries usually allow a credit for bottles damaged while having their caps removed. No deposit is charged on kegs, casks, or gas cylinders. The breweries charge the licensee for the carbon dioxide gas used in 'top pressure' (keg type) systems.
With so many factors contributing to the total, it is impossible to arrive at a precise overall figure for losses on beer stocks. It is likely that many licensees suffer overall net losses on beer sales in the range of 1% to 3% of the volume invoiced to them, the majority being around the top of this range. There will be those whose losses fall outside this range.
Wines, Spirits and Minerals
The shelf life of these lines is more than adequate for normal trading conditions, and they rarely require special handling beyond keeping cool. Wines are supplied in either bottles of 'boxes', spirits in bottles, and minerals in either bottles or kegs. Nowadays the contents of most of those containers are quoted in centilitres, or multiples of a litre, instead of the more traditional fractions of a gallon - see Appendix (1c).
Gin, rum, vodka and whiskey are required by law to be sold in measures of either one sixth, one quarter or one third of a gill, and a notice must be displayed stating which measure is being used. A gill is one quarter of a pint (5 fluid oz, 14.2 cl). The one sixth gill ('six out') and one third gill (double) measure is commonly used in England and Wales, and the one fifth gill (and less commonly the one quarter gill) in Scotland.
Most licensees dispense from bottles holding either 75cl or 40 oz, using either an 'optic' or a 'thimble' measure to give the legal quantity. The legal tolerances applicable to such measures are given in Appendix (2). The actual number of measures obtained from a bottle will vary according to the accuracy of the optic or thimble and the care of the user. For instance, a 'six out' measure should theoretically give almost 32 measures from a 75cl bottle, and 48 measures from a 40 oz bottle, but fewer will be obtained in practice.
Other spirits, wines and minerals may be sold in whatever measures suit the licensee, as there are no legal requirements for measures for them, except that the licensee has to abide by any quantities shown on the house price list. Many simply display prices by 'the glass' or by 'the measure'.
Brandy is often dispensed from 24 oz (68 cl) or 40 oz bottles, which theoretically give respectively just over 28 and 48 'six out' measures.
Vermouth, Cinzano, port and sherry are commonly dispensed from 75cl bottles in 'three out' (double gill) measures, giving 15 measures or so per bottle.
Cask port or sherry is usually supplied in gallon casks giving 96 'three out' measures or so. Larger size ('Schooner') 2 or 2 1/2oz glasses may be used, giving respectively 13 and 10 glasses or so from a 26 oz bottle or about 80 and 64 glasses from a gallon.
Liqueurs are normally supplied in 70 cl bottles, which should theoretically give slightly over 29 'six out' measures.
Wines are supplied in various bottle and 'box' sizes, including 75 cl and 100 cl (one litre) bottles and 3 and 10 litre 'boxes'. Many houses follow a voluntary code of practice whereby each bar or restaurant will display a notice stating the quantity or quantities of wine that will be served by the glass, and the price(s) payable for each quantity offered. The quantities offered (a maximum of two per bar or restaurant) may be chosen from a list of either five imperial measures (4fl oz to 8fl oz) or six metric measures (100ml to 250ml) but may not be a combination of both imperial and metric. If two quantities are offered there must be a difference of at least 2fl oz or 50 ml between them. Wines are commonly served in either 125ml, 150ml or 175ml measures.
Losses due to spillage or leakage should be minimal. As with beer, losses will arise on drinks given free or at reduced prices. The main cause of losses for most licensees is the inadvertent giving of excess quantity when measuring out the amount ordered.
Off sales
Managed houses and those tenanted houses still subject to a wine and spirits 'tie' have to obtain their supplies of wine, spirits and minerals at the supplying brewery's wholesale prices, which puts them at a disadvantage with their trade competitors (free houses, tenanted houses without the wine and spirits 'tie', off licences, and supermarkets) which can buy in their supplies at lower prices.
Most licensees regard off sales across the bar as more for the convenience of their customers than for profit, since the profit margin on full bottles of spirits and wine is considerably less than if they had been sold by the glass.
Sales of spirits in miniatures (1/16 bottle), flasks (1/8 bottle), quarter and half bottles will all usually have been 'off sales'. When bottled beers are sold off sale across the bar, many licensees charge the bar price plus the bottle deposit. Some licensees now stock plastic bottles of beer for sale, of the type available in off licences and supermarkets.
Catering functions and accommodation
In recent years there has been a rapid expansion in pub catering facilities. Most houses now offer sandwiches and pies, and many also offer 'super' sandwiches and hot 'fork' meals served from hotplates at the bar. A good number can supply complete meals, either prepared in-house or obtained ready frozen from a specialist caterer or a central supply point run by the brewery. Many houses run proper restaurants.
The various kinds of arrangements between breweries and their managers and tenants concerning rents, etc. were discussed generally in sections (2) and (3) above. Apart from the costs and losses involved in preparing and serving food, the licensee may have to engage in extra casual staff and supply them with a meal. Some breweries make reimbursement for meals supplied to staff in their managed houses.
A number of houses offer bed and breakfast accommodation, and a few operate partly as hotels. Some licensees are able to rent out parts of their car parks for one day markets, boot fairs, and so on or have garages or out buildings to let.
Many houses have a room or rooms which can be let out for functions, giving the opportunity for sales of food and drinks provided that adequate car parking and reliable casual staff are available. Functions tend to run on 'after hours' and the licensee will need to obtain an extension to his licence from the Magistrates to cover that possibility. In addition, many licensees supply a bar to outside functions, and will need to obtain an 'occasional' licence for this activity.
Amusement and Vending machines
Nowadays virtually all houses have fruit machines and video games machines on site. Many also have juke boxes and coin operated games tables as well as cigarettes, contraceptive and other vending machines. The machines are supplied by specialist companies to whom the brewery or licensee either pays a rent ('gaming' machines) or has other profit sharing arrangements. The cost of licenses from the Performing Rights Society can be a substantial proportion of the cost of running a juke box or similar machines.
By law, the prize money from fruit machines in public houses is restricted to either a lower payout in cash or a higher payout in tokens. The tokens are paid across the bar in exchange for goods and should accordingly be treated as takings. The tokens are then replaced in the machine (the number inserted is metered). Where the licensee is renting the machine from the supplier and is entitled to all the takings, he or she will have access to the machine cash box. Where there is no access to the cash box the supplier's representative will call at (fortnightly) intervals and pay the licensee the agreed share after taking account of any tokens on hand or replaced in the machine.
Ancillary sales and expenses
These include sales of cigarettes, cigars and other tobacco products; packet snacks such as crisps and nuts; the rent from advertising boxes; payphones; and receipts from charging admission, or increased prices, when live entertainment is provided. A licence for music and dancing will be required for this last activity.
In some managed houses the manager may be entitled to a commission for overseeing some of these activities. In tenanted houses the licensee normally receives the profits from these or similar sales in full.
When payphones are installed, the licensee receives a bill for the use of the phone in the usual way. A rebate is allowed on the cost of all calls made, apart from certain operator connected calls. The licensee empties and is entitled to the money in the phone cashbox.
Profitability
No two houses' overall rates of gross profit will be the same, as there are so many factors, differing from house to house, which affect the final result. Tenanted and managed houses with the same kind of trade, in the same locality, should have results falling in the same range, as should free houses in Scotland. Free houses in England and Wales should make more.
Spirits, wines, minerals and food are generally sold at a greater rate of profit margin than beer, the profit on which varies according to the kind of house and type of bar in which it is served (for example Public of Lounge). Machine takings enhance the profit rate, off sales diminish it, and other receipts are not usually large enough to affect significantly the overall result. Houses with higher than average sales of spirits and such like, and only one type of bar will have a higher rate of profit margin than those which do not.
The ability of the licensee to monitor and reduce stock losses is an important factor. A minority of licensees of tenanted and free houses use the services of a stocktaker at regular intervals to check their stocks, review their sales, and advise them of what areas may need review. Stocktakers are increasingly using computers to provide detailed analyses for their clients.
The general trend in recent years has been for houses' rates of gross profit on sales to rise. In more affluent areas, many houses' gross profit rates were between 35% and 45% in 1980, and are now (1987) between 40% and 50%. In less affluent areas, houses may not achieve quite the same results.
Appendices
1(a) containers used for beers
| Container | Usual Abbreviation | Nominal Contents |
|---|---|---|
| Hogshead |
- | 54 gallons |
| Barrel | BRL | 36 gallons |
| Half Barrel | HLF | 18 gallons |
| Kilderkin | KIL | 18 gallons |
| Qtr Barrel | QRT | 9 gallons |
| Firkin | FIR | 9 gallons |
| Keg | - | 22 gallons |
| Keg | - | 11 gallons |
| Standard | STD | 10 gallons |
| Half standard | 1/2 STD | 5 gallons |
| Pin | - | 4.5 gallons |
1(b) Volume of beer piping per ten foot length
| Bore (Inches) | Volume (Pints) |
|---|---|
| 3/16 | 0.096 |
| 1/4 | 0.17 |
| 5/16 | 0.265 |
| 3/8 | 0.382 |
| 1/2 | 0.68 |
| 5/8 | 1.06 |
| 3/4 | 1.53 |
Volume of "Flash" cooler" = 1/3 pint, "Dual flash cooler" = 2/3 pint
1(c) containers used for wines and spirits
| Bottle/Cask | Volume Equivalent in 1/6 Gill Measures | Volume Equivalent in 1/5 Gill Measures |
|---|---|---|
| 24 Fluid ounces (68 cl) | 28.8 | 24.0 |
| 26 2/3 fl oz (1/6 gall) | 32.0 | 26.7 |
| 40 fl oz (1/4 gall) | 48.0 | 40.0 |
| 48 fl oz "Magnum" | 57.6 | 48.0 |
| 80 fl oz "Tregnium" | 96.0 | 80.0 |
| 133 1/3 fl oz "Quin" | 160.0 | 133.3 |
| 160 fl oz (1 gall) | 192.0 | 160.0 |
| 0.7 Litres | 29.6 | 24.6 |
| 0.75 L | 31.7 | 26.4 |
| 1.0 L | 42.2 | 35.2 |
| 1.13 L | 47.7 | 39.8 |
| 1.5 L | 63.4 | 52.8 |
| 2.25 L | 95.0 | 79.2 |
| 4.5 L | 190.1 | 158.4 |
One Gill = 5 fluid ounces = a quarter pint = 14.2 cl
7.04 Gills - 1 Litre
2. Accuracy of measures in use as at September 1987
a. Beer metering pumps (SI 1983:1656, amended by SI 1984:273)
| on testing | in use | |
|---|---|---|
| Half Pint | ± 3ml (± 1%) | + 6ml (+ 2 2.1%) |
| Half Pint | - 3ml (- 1%) | |
| Pint | ± 0.5% | + 1% |
| Pint | - 1/2% |
b. Beer Glasses (SI 1963:1710)
| On testing and in use - line | On testing and in use - brim | |
|---|---|---|
| Half Pint | + 0.375 fl oz (3.7%) | + 0.5 fl oz (5%) |
| Half Pint | - Nil | - Nil |
| Pint | + 0.5 fl oz (2.5%) | + 1.0 fl oz (5%) |
| Pint | - Nil | - Nil |
c. Spirit Optics (SI 1983:1656, amended by SI 1984:273)
| on testing | in use | |
|---|---|---|
| 1/6, 1/5, 1/4, 1/3 gill | ± 0.7 ml | + 1.4 ml |
| 1/6, 1/5, 1/4, 1/3 gill | -0.7 ml |
| 1/6 | 1/5 | 1/4 | 1/3 | |
|---|---|---|---|---|
| Tolerance % 0.7ml | 2.9% | 2.5% | 3% | 1.5% |
| Tolerance % 1.4ml | 5.9% | 4.9% | 3.9% | 3% |
d. Thimble measures SI 1963:1970
| On testing and in use | |
|---|---|
| 1/6, 1/5, 1/4 gill | + 0.0625 f oz (7.5% of 1/6; 6.25% of 1/5; 5% of 1/4) |
| 1/6, 1/5, 1/4 gill | - Nil |
| 1/3 gill | + 0.125 fl oz (3.7%) |
| 1/3 gill | - Nil |
e. Wine glasses (SI 1983:1655)
| Metric | Imperial (fl oz) | Tolerance (plus or minus) |
Metric (plus or minus) |
Imperial (plus or minus) |
|---|---|---|---|---|
| 100 | - | 5 ml | 5% | - |
| 125 | 4 | 6.2 ml | 5% | 5.4% |
| 150 | 5 | 7.5 ml | 5% | 5.3% |
| 175 | 6 | 8.8 ml | 5% | 5.2% |
| 200 | 6.2 / 3 | 10 ml | 5% | 5.3% |
| 250 | 8 | 10 ml | 4% | 4.4% |
