Vic Nicholls Business Development Director City Dispense Services

1
Vic Nicholls Business Development Director
City Dispense Services

• With the one stop shop for cellar services
  where is the cost going to sit?

2
With the one stop shop for cellar services where
is the cost going to sit?

• To answer this question we need to look back to
  1989 when legislation changed.

3
1989 Beer orders

• The 1989 beer orders were designed to "control
  vertical links between brewing and pub retailing
  with the aim of widening consumer choice,
  reducing prices and improving market entry".

Source Commons Publications
4
1989 Beer orders

• The new legislation altered HOW pubs were owned
  and managed.
• The new legislation also had an impact on the
  infrastructure of Distribution and Technical
  Services.

5
Before the 1989 Legislation changes
Brewery
All brands stocked were owned by the Brewery
(except stout). Brewery run Tech Depts serviced
brands
Breweries own distribution
Breweries owned the pubs
6
After the beer orders legislation
More Breweries supplying pub cos
Independent distribution to Pub Cos
A wider range of brands from different Brewers is
introduced by the new retail pub cos. Various
Brewery Tech Dept provide dispense services for
their own brands
Multiple pub retailers who are no longer tied-in
to long term supply deals
7
Brewery Technical Services model begins to
change!

• National brewers exit from dispense services
  (e.g. ScotCo / Carlsberg)
• Major brewers focus on own brands and cease to
  offer a One Stop Shop option.

8
Retailers Technical Services model begins to
change!

• Retailers quickly realise that the new model
  Technical Services presented them with some
  further challenges
• Brand variety on the bar meant dealing with
  several call centres, numerous engineers/service
  personnel etc
• Retailers required to re-think their resources
  to handle multiple Service Providers
• Retailers begin to question whether variety is
  always the spice of life

9
Retail Pub Cos look towards One Stop Shop for
dispense services?

• Pub Retailers look to One Stop Shop
• Taking control of overall costs within their
  estates
• One Stop Shop dispense schemes give retailers
  the opportunity to use independent national
  dispense operators focussed on delivering a
  bespoke tailored service

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A different cost model!

• Pub Retail Groups are looking towards their food
  model to mirror the same format for their drinks
  purchasing and dispense services

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Retail Food Model
Food purchased at cost
Equipment purchased owned by Pub Co
Equipment servicing funded by Pub Co
All elements covered from sale profits
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Transparency of Dispense Service costs

• Before the food model can be adopted by retailers
  un-bundling of the barrel price surrounding
  dispense asset values and services needs further
  clarity

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Barrel costs
Ingredients
Production Distribution
Sales Marketing
Dispense Services Equipment
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Cost of dispense included within the Barrel

• Capital cost
• Covers dispense equipment installed in retailers
  outlets and on equipment owners asset register
• Calculation could be based on
• Equipment priced at current equipment values?
• Level of depreciation not defined?
• Labour costs of install may form part of the
  asset?
• Projected cost of future annual brand activity?

15
Dispense costs included within Barrel costs

• Dispense Service Costs
• Cost of labour employed on service activities
• Cost of equipment used for service activities

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Dispense discounts

• Un-bundled dispense prices would not be the same
  for all
• If retailers were willing to invest and purchase
  their own equipment they could negotiate a better
  discount?

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Possible transition method
Retailer pays a barrel price which includes the
cost of equipment assets and dispense technical
services
Equipment/System owned by Principle Brewer
Equipment/System owned by Brewer/Brand Owner
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Possible transition method
Equipment ownership transfers to the retailer
over the period of the drink supply deal
Retailer receives an annul barrelage discounts
as they take over ownership of dispense
equipment and fund Service Installations
Equipment/System owned by Retailer
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Possible transition method

• Equipment owner reduces their asset register over
  the contract period
• No one off capital outlay is required by the
  retailer
• The retailer receives a lower barrelage cost
  whilst entering in to one stop shop arrangements

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Possible transition method

• Retailers takes control of dispense assets
• Retailers can develop retail focused dispense
  systems in line with changing retail demands
• Retailers determines the equipment specification
  and brand positioning
• All drink suppliers would work within the same
  framework

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Other transition options

• Service Provider acquires asset ownership from
  brand owners/principal brewer(s)
• SP has direct responsibility for equipment supply
  specification
• SP is flexible to retailer requirements regarding
  equipment/system development
• SP replaces equipment/systems to an agreed life
  cycle

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Other transition options payback

• SP recovers asset investment and depreciation
  from
• System rental charge to retailer
• Line rental charge to brand owners
• SP would recover asset investment costs if/when
  contract transferred
• This scheme would need the retailer to obtain an
  appropriate barrelage discount

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Current position

• At present the majority of dispense costs reside
  with brand owners or principle brewers
• Retailers have begun to move into purchasing and
  owning dispense equipment
• Retailers will continue to take ownership for
  their dispense systems and equipment ownership
• Retailers will look to Brand owners/principle
  brewers to be realistic on equipment transfer
  rates

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So back to the question?

• With one stop shop for cellar services where
  is the cost going to sit?

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Answer

• Mainly with Brewers
• Due to the scale of their investment in dispense
  assets and associated costs
• With some retailers now sharing costs
• They have shown their desire for one stop shop
  and their willingness to take over dispense
  assets or invest directly in dispense systems
• TO BE CONTINUED!!

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Questions