Assesment of the Vertical Block Exemption Regulation (VBER)

23/09/2019

CEGROBB’s assesment of the Vertical Block Exemption Regulation (VBER)

EU Regulation n° 330/2010

Key messages

  1. VBER has a positive impact on the Horeca business (hotels, restaurants, pubs) and the business of the Beer and Beverages wholesalers.
  2. The Horeca business and the business of the Beer and Beverages Wholesalers are important contributors to the economy and the employment in the EU countries. 
  3. A pub tenant has a free choice.  He can have a commercial relationship with his beer and beverage wholesaler without any financial investment of the wholesaler. 
  4. The banking sector is reluctant to give loans to pubs, restaurants and hotels.
  5. If the pub tenant has not the financial resources to start or develop his business and the banking sector refuses to give a loan, the financial investments of the wholesaler or the brewery is the only way for the pub tenant to start and develop his business.
  6. Rent prices applied by the wholesalers and the breweries are lower than the rent prices applicable for commercial real estate. 
  7. The beer and soft drink market is not closed due to the vertical agreements. It is an open market where small brewers and soft drink producers can enter.
  8. The wholesalers are independent companies what guarantees the variety of the product range  available in the market.
  9. The Horeca federations of Belgium, the Belgian Brewers and FEBED signed a Code of Conduct to prevent abuse on the vertical agreements.  In Belgium a Reconciliation Commission is created to handle complaints.

As CEGROBB and FEBED are convinced that the actual Vertical Block Exemption Regulation (VBER) has a positive contribution to the Horeca business and the Beer and Beverages wholesalers business, we recommend to maintain the actual Vertical Block Exemption Regulation.

The economic contribution of the Horeca business and the business of the Beer and Beverages Wholesalers.

The horeca business is an important business in all EU countries.  According to Guidea (Belgian organisation collecting data about the Horeca and Travel business) there are 59.000 horeca outlets in Belgium, generating an employment of 85.931 FTE.

The wholesalers business (CEGROBB) in Europe is representing 8.000 companies, generating an employment of 92.300 FTE and a turnover of 32,4 Bil. €. 

In Belgium, the members of FEBED are generating 2,1 mia € turnover and an employment of 2.660 FTE.  Every year our members invest 45 mio € in the horeca business.

A pub tenant has a free choice how to finance his business

Starting his business, a pub tenant can choose to ask a financial investment to a wholesaler or not. 

In Belgium:

  • 1/3 of the horeca outlets have no contract with the wholesaler.
  • 1/3 received a small financial investment (fridges, furniture or money) by the wholesaler.  These contracts can be stopped at any moment, respecting a notice period.
  • 1/3 is renting the house from the wholesaler/brewery or received a loan. These contracts are made in line with the Vertical Block Exemption Regulation.

The banking sector is reluctant to give loans to pubs, restaurants and hotels. Wholesalers give the opportunity to pub tenants to start and develop their business.

As you know the banking sector applies strict criteria in their decision process to grant a loan.  They make a risk analysis based on the balance sheet of the company, profitability, repayment capacity and reputation of the applicant.

The horeca sector has not a good reputation and is mostly not able to meet these criteria.  As a consequence the loan is refused and the tenant ask the wholesaler to invest in his business. The conditions offered by the wholesaler are in many cases better than the conditions proposed by the banking sector.

Some concrete examples:

Example 1

The two partners acquired the brasserie in 2018.  Before one partner worked as cook, the other as waiter.  The value of the business assets was 150.000 €. They had own resources of 75.000 €. The bank refused a loan for the remaining 75.000 €, which was granted by the wholesaler.  The repayment foreseen in the contract is 1.000€/month.  The tenants receive a discount of 10 % on the products bought at the wholesaler to repay the loan.  At the end of the year a statement is made.  If the discounts are less than 12.000 €, the tenants pay the deficit.  If the discounts are higher than 12.000 €, they receive the surplus. Thanks to the wholesaler the two partners were able to start their own business.

Example 2

The actual pub tenant was a blue collar in a company producing doors for garages. In 2013 he decided to switch his career and bought the business assets of the pub for 35.000 €. In January 2018 the pub tenant decided to renovate his interior. The wholesaler trusted the pub tenant and

Invested 140.000 € in the renovation of the pub.  Half of the amount must be paid back by the tenant with the discounts he receives on the products bought. Afterwards he will receive again the discounts.  6 years after his career switch the tenant has a profitable business thanks to confidence of the wholesaler. 

Example 3

The previous tenant had to stop his business due to a long-standing disease. The 18 year old waiter was interested to acquire the business.  The wholesaler knew the waiter and was confident that the waiter could manage the business and could realise her dream to become entrepreneur. The banking sector accepted to grant a loan to the waiter due to the support of the wholesaler.  The pub is owned by the wholesaler. The rent is 20 % lower than the market price.

Example 4

Previously the tenant was waiter in a professional managed horeca-outlet where he acquired the knowledge of managing a pub.  He wanted to start his own business. The wholesaler gave the tenant a financial investment of 50.000 € and furniture without repayment.  Waiter could start his business.

Example 5

A loan by the banking sector was not granted. Wholesaler granted the tenant a loan of 50.000 € at a rate of 0 %. On top the tenant received furniture for an amount of 15.000 €

Example 6

To be able to acquire the business assets, the tenant needed a loan of 100.000 €, which was refused by the banking sector.  The wholesaler granted the loan, which will be repaid by a discount of 30€/hl.

Example 7

Jeronimo was the chief assistant of an important horeca entrepreneur in the Brussels region. In 2014 he wanted to start his own business. The wholesaler gave furniture to start his own business in ‘Grand Café de La Gare’ in Linkebeek. He was very successful and  today, 5 years later, he is managing 3 outlets and plans to open a fourth. Without the wholesaler, he was not able to create and develop his business.

Example 8

Banking sector was only willing to grant a loan to acquire the business assets, if the wholesaler gave a loan at a rate of 0 % for the lease guarantee and the first month of the rent.  Without the wholesaler, the tenant couldn’t start his business.

Rent prices applied by the wholesalers and the breweries are lower than the rent prices applied for commercial real estate.

Wholesalers and brewers know the business of horeca very well and know which level of lease  price is feasible to have a profitable horeca business.  Their interest is to have a profitable business and not to maximise the rent income.

Some concrete examples:

Example 9

St Baafsplein is a top location in Gent.  The lease contract had to be renewed and a market survey was done to know the current lease prices.  The market lease prices was between 5.000 € and 6.000 € for similar real estate on A–locations in Gent.  The new rent contract has been fixed on 4.300 €.

Example 10

In 2006 the tenants acquired the business assets for 100.000 €. The bank granted a loan for 50.000 € and the remaining 50.000 € was financed by the wholesaler.  The tenants pay

900 €/month to the wholesaler to repay the loan.  The wholesaler is the landlord of the pub and leased the pub for 1750 €/month. A similar pub in the same street is leased for 3500 €/month. Thanks to the wholesaler the tenants were able to develop their profitable business.

Example 11

In 2018 the tenants wanted to start a pub, but wanted to have a possibility to step out of the business if it wouldn’t be successful.  The wholesaler agreed that they could terminate the lease contract after 18 months, respecting a notice period of 6 months.  This is quite unusual.  A commercial lease contract has a duration of 9 years.  The lessee can terminate the contract after 3 years.  By giving that flexibility to the tenants, the wholesaler gave the tenants the opportunity to start their own business with limited financial risks if the business is not doing well.

Example 12

Real Estate owned by the wholesaler.  The rent is 2.450 €/month. This is nearly 40 % lower than the market price.

Example 13

Real Estate owned by the wholesaler.  The rent is 40 % lower than the market price.

Landlords are reluctant to lease real estate to tenants.  The number of failures in the horeca sector is high.  In Belgium 2.133 failures in 2017 (source Guidea).  The wholesaler is leasing the pub and taking the risks.

The market is not closed.  Small brewers and soft drinks producers can enter the market.

Today in Belgium there are more brewers than 20 years ago.  Today there are 324 versus 124  brewers in 1999.

The number of brewed beers has also increased significantly. From about 400 in  1999 to 1.500 today. 

Due to the investments of the brewers and wholesalers in Belgium, we have a unique and diversified proposal of beers and outlets.  This is clearly in favour of the consumer.

In Europe the evolution is similar, but less spectacular.  In 1999 there were 9.295 brewers in Europe.  Today 10.315.

The wholesalers, as independent companies, are the guarantee for the variety of the product range in the market

The wholesalers are independent companies and not owned by a brewery or soft- and water producer.  They sell the products that are asked by the consumer.

If a brewer or a soft- and water producer invest in a pub, the brand of the investor will be sold in the pub, in line with the vertical block exemption regulation. 

But this is a limited number of SKU’s.  The pub sells more SKU’s than those required by the investor.

In the last 3 years, we see an increase in the number of products (liquids) sold by our members.

Between 2016 and 2018, the number of beers increased from 1916 to 2092.  For the same period, the number of softs is increasing from 392 to 456. For the waters, there is no increase in the number of products.  Looking to the number of SKU’s, the increase is more important as you can have several packages for one product (liquid).

In Belgium, a Code of Conduct prevents abuse on the vertical agreements

In December 2015 a Code of Conduct was signed between the Belgian Horeca federations, Belgian Brewers, FEBED (Belgian Wholesalers Federation) and the Minister of Economics. The purpose of this Code of Conduct is to have clear guidelines to be applied in the vertical agreements. The Code of Conduct goes beyond the Vertical Block Exchange Regulation for these topics:

  • Forbidden clauses: to check the respect of the contract in the private rooms of the tenant, obligation to buy drinks for private use, indication of the selling price, rent contract can be ended if volume is not realised, impose opening hours, the contract  valid for pubs not mentioned in the contract.
  • Information duty: 2 weeks before the signing of the contract (lease contracts and investments >15.000 €) the tenant must receive the information about the content of the agreement, the identification of the wholesaler, volumes realised by the previous tenant, prices, discounts if tenant is selling more than de agreed volume and the discounts he will receive at the end of the contract.
    For other contracts, the information must be provided 3 days before signing the agreement.
  • Exclusivity: tenant is allowed to sell 2 specialty beers on top of the exclusivity list
  • Hot drinks: only a tie for coffee. Thea, soup, milk, sugar, cookies, … are free.
  • Spirits:  if tenant has a better offer and wholesaler can’t sell at the same price, the tenant is free to buy the spirits at another wholesaler.

If a contracting party is convinced that the rules are not respected, he can introduce a complain to the Reconciliation Commission.  The Reconciliation Commission was created in 2017 and the foundation’s deed was signed by the same federations as the Code of Conduct.

This Code of Conduct is really efficient and applied by the players in the market.