Heineken’s Star Pubs fined US$2.6m for “serious and repeated” breach of Pubs Code

15 Oct 2020 --- Heineken’s pubs business has been fined £2 million (US$2.6 million) by the UK Pubs Code Adjudicator (PCA). Star Pubs and Bars seriously and repeatedly breached the legally binding Pubs Code over nearly three years.

After completing her investigation under the Pubs Code Adjudicator, Fiona Dickie said the nature and seriousness of Star’s breaches merited a financial penalty. The fine would act as a deterrent to Star and other pub-owning businesses she regulates from future non-compliance.

Star – which operates the pub estate business of Heineken in the UK - had persisted in forcing its tenants to sell unreasonable levels of Heineken beers and ciders when they requested to go free of tie. This was despite repeated regulatory interventions and clear arbitration rulings from the PCA.

The PCA found the company had committed 12 breaches. As well as identifying how the company had offered stocking terms that had acted as a deterrent to tenants pursuing a free-of-tie tenancy, the PCA highlighted systemic corporate failures by Star in its approach to compliance.

UK Pubs Code Adjudicator, Fiona Dickie fines Heineken’s Star Pubs and Bars.

Specifically, during the investigation Dickie found that the company had included a responsibility in the job description of the company’s Code Compliance Officer ‘to ensure the Code is interpreted to the commercial benefit of Heineken UK’. 

This breached the Code requirement to appoint a compliance officer whose role is to verify compliance.

“The report of my investigation is a game-changer. It demonstrates that the regulator can and will act robustly to protect the rights that Parliament has given to tied tenants,” she says, following the ruling. 

“I will be holding discussions with all the companies I regulate following my findings of how they will ensure they are Code compliant. My message is that if anyone previously had any doubts about my resolution to act when I find breaches, they can have no doubt now,” she adds.

In the investigation report, the PCA described Star as a repeat offender and said the company had been given opportunities to set itself on a compliant path “but intentionally or negligently failed to do so”.

It failed to heed statutory advice, the PCA’s regulatory engagement and learnings from arbitration awards. It did not engage frankly and transparently with its tenants or meet the standards required of a regulated business when engaging with the PCA.

Where it did change its approach, the efforts it made to comply were, for the most part, inadequate and not credible.

Forcing pubs to stock Heineken
The investigation covered the period from July 21, 2016, when the Pubs Code came into effect, until July 10, 2019. She found multiple breaches by the company relating to stocking obligations. In particular, up to August 2018, 96 tenants who requested a free-of-tie option were told that 100 percent of the keg beer they sold had to be Heineken brands.

This was contrary to the legal requirement that stocking terms should not prohibit a publican selling competitor brands. 

After several arbitration rulings by the PCA, the company switched to a tiered approach to the amount of own brands to be stocked and specifying ‘must stock’ brands.

However, this “crude” policy was still not reasonable and compliant in many cases, notes the PCA. Tenants who sold little or no Heineken products when they asked to go free of tie faced having to stock 60 percent Heineken keg products within one year. 

“This has been a thorough and detailed investigation, and I have concluded that Star used unreasonable and non-compliant stocking obligations in its proposed free-of-tie tenancies over a significant period. Indeed, some of those obligations were not stocking requirements allowed under the Pubs Code,” Dickie adds.

“Despite meetings with me and findings I made in arbitrations, Star did not act in a timely, consistent or transparent way to correct what it was aware – or ought to have been aware – were instances of non-compliance. Supporting what Star’s evidence identified, tenants told me that they felt pressured by the company into settling on unfavorable terms or that they simply abandoned their free-of-tie right altogether.”

“The company must change its mindset and become proactive in its approach to compliance. I have decided this can best be achieved by the imposition of a sanction that will serve as a deterrent to future non-compliant conduct by Star and other pub-owning businesses.”

As well as imposing the fine, which by law is based on the turnover of the whole of Heineken UK, the PCA has also ordered Star to make all its free-of-tie tenancies Pubs Code compliant and to ensure future Code compliance. 

Dickie has also given the company six weeks to provide a detailed response to implementing her recommendations. She has ordered it to write to all its tenants explaining her findings, the measures Star is taking to respond to them and how these will affect tenants in practical terms.

Edited by Gaynor Selby