The UK's largest pub company, Stonegate, is facing a significant regulatory challenge after being placed under investigation by the Pubs Code Adjudicator (PCA) over allegations of mistreatment of tenants. This development marks only the second such probe since the introduction of the Pubs Code in 2016, designed to foster a more equitable relationship between large pub companies and their operators.
Statistics from annual tenant satisfaction surveys have consistently highlighted concerns among Stonegate's operators, with the company recording the lowest satisfaction rating among the six regulated pub firms for three consecutive years. The PCA has identified "reasonable grounds" to suspect that Stonegate may not be meeting its legal obligations to provide accurate and transparent information to tied pub tenants, a core principle of the Pubs Code.
The investigation will cover a five-year period from July 2021 to July 2026 and will scrutinise Stonegate's conduct during this time. The PCA has urged both current and former Stonegate tenants to come forward with any information that could shed light on potential breaches of the code. With an annual turnover of over £2 billion, Stonegate is controlled by private equity firm TDR Capital.
Stonegate has stated its commitment to complying with the Pubs Code and ensuring fair treatment for all publicans, but this probe comes at a challenging time for the company, which reported a pre-tax loss of £174 million in the year to September 2022. A significant proportion of this loss – £411 million – was allocated towards debt servicing. The outcome of this investigation could have far-reaching implications for Stonegate's business strategy, particularly its plans to convert more directly-managed pubs into the tenanted and leased model.
As part of its probe, the PCA has launched a call for evidence from Stonegate's tenants, seeking information that could inform its investigation. The regulator's primary concern is that Stonegate may not be meeting its obligations under the Pubs Code, which aims to ensure fair dealings between large pub companies and their operators.