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?”

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".

4. 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. 1989 ‘Beer orders’

5. Before the 1989 Legislation changes

6. After the ‘beer orders’ legislation

7. Brewery Technical Services ‘model’ begins to change! National brewers exit from dispense services (e.g. ScotCo / Carlsberg)

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 Co’s 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

10. 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

11. Retail Food Model

12. 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

13. Barrel costs

14. 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 Service Costs: Cost of labour employed on service activities Cost of equipment used for service activities Dispense costs included within Barrel costs

16. 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?

17. Possible transition method

18. Possible transition method

19. 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 Possible transition method

20. 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 Possible transition method

21. 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

22. 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

23. 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

24. So back to the question? “With ‘one stop shop’ for cellar services where is the cost going to sit?”

25. 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

26. Questions