APPENDIX Ai
Pricing Strategy for Beach Huts
2010/11 to 2012/13
The information contained in this document is the property of
Borough Of Poole
1
1
1.1
Executive Summary
A formal review of the Borough’s Pricing Strategy for Beach Huts has been
completed by Officers in Leisure and Financial Services. This review has been
undertaken in accordance with principles outlined in the draft Corporate Income
Strategy1 and seeks to consider the following areas:








1.2
Legislative framework governing the charging capabilities of local authorities
The extent to which the cost of providing, administering and maintaining beach
huts is recovered through chargeable income (and whether there is scope for
greater recovery of beach related spend)
How Poole’s current fees and charges have changed over the years
How Poole’s current (and projected) fees and charges compare with similar
authorities
Whether there is scope to increase Poole’s fees and charges further – in addition
to current uplift within the MTFP
Potential barriers to charging (including customer impact)
Assessment of strategic direction - what should our pricing structure look like in 3
years?
Development of an implementation action plan that underpins and delivers core
objectives of the Strategy.
The following Borough policies and strategies have been considered in developing
this strategy:



Corporate Income Strategy (draft)
Beach Master Plan (in development)
Medium Term Financial Plan
1.3
Consultation - Officers are grateful to colleagues from neighbouring authorities for
their assistance in completing this project. Property Services have been
commissioned to help identify more commercial rates for beach huts – this is an area
that requires additional consultation/work.
2
Overview – where are we now?
2.1
Poole currently provides 1,157 beach huts/sites along the Poole Bay frontage. All
Beach huts are licensed on either an annual or short term basis (998 annual
licences, 114 sites only at Hamworthy and 45 available on short term lets). Prices for
beach huts vary according to style, facilities and location.
2.2
The beach huts themselves are of varied construction and are sited at different
locations across the breadth of the frontage:
 Branksome Dene
 Branksome Chine
 Canford Cliffs
 Flaghead
 Shore Road
 Sandbanks
1
Report produced by the Head of Audit & Management Assurance and is at Officer consultation stage
2

Hamworthy
2.3
No formal benchmarked review (comparison with similar authorities) of Poole’s
prices for beach huts has been completed for a number of years. Comparative
research completed in order to produce this strategy has identified differences in
approaches to pricing between Poole and neighbouring authorities as well as
potential anomalies within internal pricing.
2.4
The majority of Poole’s beach huts are brick built constructions. In comparison
Bournemouth offer timber built beach huts at a higher annual lease price than Poole.
There is therefore scope not only to increase fees to similar levels but to charge a
more commercial rate for brick built huts.
2.5
Excluding site rentals at Hamworthy, Poole currently offers two forms of beach hut
hire – annual leases (96% of beach huts) or short term hire (4% of beach huts).
Other authorities including Bournemouth offer a wider range of beach huts including
25 year long leases, private site only beach huts (where the lessees incur all
maintenance costs).
2.6
Access to annual lease beach huts (96% of beach hut asset base) is restricted to
residents of Poole only. Despite this there is currently a waiting list of 500 people –
equivalent to an average waiting time of 8 years. The waiting list was closed to new
entrants 3 years ago.
3
Legislative Framework
3.1
The provision of beach huts is a discretionary service governed by section 19 of the
Local Government (Miscellaneous Provisions) Act 1976. Under this act local
authorities have freedom to set charges for recreational & sport facilities as they
deem appropriate. With no legal restriction on the level of fees that can be charged,
local authorities are also permitted to generate surpluses from recreational & sport
facilities – i.e. income from fees can exceed the cost of service delivery. For most
other discretionary services income from fees cannot exceed the total cost of
providing the service.
4
Costs Recovered through Fees, Sales and Charges
4.1
In 2009/10 Poole’s beach huts and sites generated total income of £904k and an
overall surplus of £456k (after central overheads and depreciation). This means
Poole currently recovers 202% of direct beach hut related expenditure. In
comparison Bournemouth Council realised an overall surplus of £1,291k in 2009/10
from the provision of higher priced beach huts (277% cost recovery) and the
availability of alternative beach hut products (Super Huts and Private Sites) for which
the Council incurs no maintenance and minimum administrative expenditure (709%
cost recovery). Comparative 2009/10 income and expenditure for beach huts is
summarised in exhibit 1 below:
2009/10
Asset
Type
Income from
fees, sales
and charges
£000
3
Expenditure
£000
Net Percentage
Surplus expenditure
recovered
£000
%
Poole
Beach
Huts
Bournemouth Beach
Huts
Bournemouth Beach Hut
sites only
Bournemouth Super
Huts
904
(448)
456
202%
450
(162)
288
277%
993
(14)
997
709%
19
(13)
6
146%
Exhibit 1: 2009/10 beach hut related income and expenditure (Bournemouth v Poole) showing
difference in cost recovery per ‘product’ 2
4.2
Costs summarised in Exhibit 1 do not include additional spend incurred by the
Council’s Environmental & Consumer Protection Services for the cleaning of Poole’s
beaches (i.e. foreshore and promenade sweeping). Should these costs be factored
in to cost recovery calculations for 2009/10, the percentage of beach management
and beach hut expenditure recovered through current beach hut fees charged falls to
around 140% (from 202% above).
4.3
Poole’s beach huts are surplus generating assets – but there is scope to improve
surpluses through a comprehensive review of fees and charges.
5
Current Fees & Charges – Annual Leases
5.1
The vast majority (97%) of Poole’s beach huts are disposed of through annual
leases. Exhibit 2 below compares Poole’s average annual lease beach hut charges3
over the last 5 years with South Coast authorities Bournemouth, Christchurch and
Torbay. Despite offering ‘superior’ huts of brick construction, Poole’s annual lease
fees (for all beach huts) have historically been lower than neighbouring authorities
(17% lower than Bournemouth in 2006). What Exhibit 2 also demonstrates is the
impact of Poole’s response to the legislative transfer of liability for National Non
Domestic Rate (NNDR) from local authority to customer in 2008. Poole reduced
annual lease fees in 2008 by around 10% to compensate customers for the
additional burden of NNDR – Bournemouth and Christchurch did not. This had the
effect of widening an already significant gap in annual fees charged (between Poole
and Bournemouth) from 17% in 2006 to 35% in 2009. The difference between Poole
and Christchurch is even wider.
As the majority of Bournemouth’s beach huts are timber built, the average of Poole’s
annual wooden hut fees has also been plotted in Exhibit 2. This demonstrates an
even wider gap between the two authorities.
5.2
Exhibit 2 also shows the difference in Councils’ approaches to annual price
increases. For the last 5 years Poole has increased historic prices incrementally by
on average 8% per annum (10% uplift in MTFP for 2011). Bournemouth in
comparison took a more strategic and commercial approach and reached a 5 year
strategic price target through phased increases of 10% per annum.
2
Bournemouth management accounts information supplied by Chris Saunders, Bournemouth Council Leisure
Services
3 Current average annual lease fee at Poole is £846 (ex VAT)
4
5.3
Based on an approved uplift of 10% in the current MTFP, the average cost of an
annual licence in Poole in 2011 will be £931 (ex VAT). This will still fall short of 2010
fees of £1,115 (ex VAT) in Bournemouth and £1,107 (ex VAT) in Christchurch.
1200
1100
1000
900
800
700
600
Christchurch
Bournemouth
Poole Average
Poole Timber Built
500
2006
2007
2008
2009
2010
2011
Exhibit 2: Chart demonstrating how Poole’s annual lease fees for all beach huts (and timber built huts
shown separately) compare with other South Coast authorities.
5.4
In addition review of Poole’s annual beach hut prices has identified potential
anomalies in annual prices for similar beach huts at similar locations. For example
there is inconsistency in prices of beach huts on the upper terrace at Shore Road.
Despite all offering the same position and facilities, some are priced at £763 per
annum whereas others are priced at £979 per annum.
5.5
Poole’s beach hut fees were originally set with the financial aim “to be self financing
having met all maintenance needs and an appropriate return on asset value”4. Beach
Huts are surplus generating and are not subsidized by residents of Poole. Despite
this, Poole has restricted access to annual lease beach huts to Poole residents.
Bournemouth Council has no residency restrictions on beach huts, which enables
them to target a wider customer base with more commercial annual prices.
6
Current Portfolio of Beach Huts Available
6.1
Poole’s capacity to generate additional income from beach huts is influenced not
only by price but also by the volume and ‘product mix’ of assets available for hire.
Bournemouth offers a much larger and wider (more commercial) range of beach huts
that caters for different customer needs and budgets.
This statement originally appeared in Leisure Services Budget Book 2004/05 and is repeated in this year’s
Budget Book
4
5
6.2
Only 4% of beach huts are available on a short term let basis – despite the fact that
short term lets generate proportionately more net income than annual leases and
facilitate wider access to beach huts for the local community. In addition
Bournemouth Council offers a suite of beach huts available for hire on a 25 year long
lease basis (‘Super Huts’). Bournemouth receives up front payments from customers
for the use of the lease (varying between £30k and £40k) and customers are
charged standard annual lease fees thereafter. Super Huts are marketed on the
basis of exclusivity – i.e. each has private access. Bournemouth has had varying
levels of success in their disposal (a small number remain vacant as at date of this
report). Private Sites are also popular in both Bournemouth and Christchurch with
the added bonus of maintenance expenditure incurred by customers and not the
Council.
6.3
Officers in Leisure Services are in the process of developing a longer term Beach
Master Plan – a long term beach management strategy for Poole’s foreshore. The
Plan will address the need to rebalance Poole’s portfolio of beach huts and also
explore the commercial viability of alternative products (e.g. long leases). In addition
Leisure Services’ 2010/11 Business Plan includes a target of achieving 150 short
term lets by 2015 - this may require the construction of additional beach huts.
7
Strategic Direction – where do we want to be?
7.1
Comparative research with other authorities further confirms that Poole is not
securing best value from its beach hut asset base. There are known pricing
anomalies between similar beach huts offered as well as an overall price difference
in annual leases between Poole and similar authorities. Additionally Poole offers
brick built beach huts (other authorities do not) – so there is scope to take a more
commercial approach to pricing in future years (rather than comparing with near
neighbours alone).
7.2
There is a clear opportunity and need to better maximise return by increasing annual
lease fees in the first instance to more comparative levels over the next 3 years, with
the potential for further increases to more commercial levels that better reflect the
type of asset offered in later years. In the opinion of Officers parity with near
neighbours needs to be achieved in phases over a 3 year period. Various options on
how this should be managed are considered in Exhibit 3 below:
7.3
Exhibit 3 – 3 Year Pricing Strategy Options (to achieve closer parity with near
neighbours)
6
%
Option 1
£000
Option 2
%
£000
Option 3
%
£000
Option 4
%
£000
2011/12
Beach Huts
MTFP approved uplift
Proposed additional uplift
10
-
84,431
-
10
15
84,431
126,646
10
5
84,431
42,215
10
10
84,431
84,431
2012/13
MTFP approved uplift
Proposed additional uplift
5
-
46,437
-
5
-
52,769
-
5
10
48,548
97,095
5
10
50,658
101,317
2013/14
MTFP approved uplift
Proposed additional uplift
5
-
48,759
-
5
-
55,408
-
5
10
55,830
111,660
5
15
58,257
174,772
20
6,981
186,608
35
12,408
331,662
Increase in Hamworthy
Private Sites over 3 Years
Total
45
17,100
456,879
55
21,522
575,388
7.4
Office advice is that Option 3 is pursued as the recommended option. This option
introduces a phased programme of total increases of 15% per annum over the 3
years of the pricing strategy. In Year 1 this will mean an additional increase of 5% in
addition to the 10% already in the Medium Term Financial Plan. Years 2 and 3 will
require additional uplifts of 10% in addition to the 5% approved to date within the
MTFP. The effect of Option 3 will be to price Poole’s annual leases at a more
comparable rate with neighbouring authorities by the end of Year 3 of the Pricing
Strategy. Under Option 3 the average annual lease fee for Beach Huts in Poole will
increase to £1,286 by 1st Jan 2013 (compared to Bournemouth current rates of
£1,115).
7.4
Exhibit 4 shows the impact of proposed increases in Option 3 on the average annual
lease fee5 (including average annual increases to the customer):
2010
£
Price before annual increases
MTFP increase (10%, 5%, 5%)
Proposed additional increase
Total Increase to Customer (ex VAT)
Increased Average Lease Price
846
Total Additional Income
7.5
2011
£
846
2012
£
973
2013
£
1119
85
42
49
97
56
112
127
146
168
973
1119
1287
126,646
145,643
167,490
What is clear is that, at best, proposed actions in Option 3 will bring Poole’s annual
lease fees more in line with current fees at neighbouring authorities. The need for
additional benchmarking of fees in years 2 and 3 of the strategy therefore remains –
as well as the need to explore more commercial rates to improve income generation
further. These, along with other income related actions, are identified as planned
activities within the 3 year Implementation plan underpinning this strategy (Appendix
A). In summary these are:
5
Using current (before MTFP uplift) average price for all Poole annual beach huts of £846 per annum (ex
VAT)
7







Series of phased annual price increases to achieve additional income
(including MTFP increases) of £456k by the end of Year 3
Review and address known pricing anomalies between existing beach hut
fees
Undertake comprehensive benchmarking of fees to understand near
neighbour pricing structures/approaches
Consider removing residency restrictions for annual leases (Officers
recommend that annual leases will only be offered to non-Poole residents if
current licence holder does not wish to renew and no one on the waiting list is
interested)
Introduce processes to allow for all leases not renewed to be charged at Year
3 prices from the outset (average turnover of annual licenses is 60 per year)
Complete a review to understand the potential for Poole to move to more
commercial rates for its beach huts (this may require external specialist
support)
Conduct customer impact assessments to understand the effect of price
increases.
8
Customer Impact
8.1
Discussions with counterparts in Bournemouth suggest that whilst a significant
volume of complaints were received in response to phased price increases, the
overall relinquishment rate did not increase (customers unhappy with increases did
not necessarily withdraw their business). The key message/point of learning from
Bournemouth Council is that a robust Public Relations Strategy is required to help
manage price increases. Beach huts are luxury recreational items in relatively short
supply that customers are prepared to pay premium prices for.
In addition, to balance the price increases, Poole Council is planning to make more
short term lets available as these are more affordable. In addition Access to Leisure
discounts will continue to apply to short term lets.
8.2
Should customers decide not to renew licences at the higher rate, Poole also has the
following options to mitigate the risk of beach huts falling vacant:
 Offer annual leases to the 500 residents currently on the waiting list
 Reopen waiting list to new entrants (closed for the last 3 years)
 Remove residency restrictions for annual lease lets (widen accessibility and
customer base)
 Convert beach huts to short term lets (if suitable)
 Convert beach huts to long leases (if suitable)
8.3
The Implementation Action Plan contains specific actions to complete impact
assessments of price changes in Year 2 of strategy.
9
VAT implications
9.1
VAT is chargeable on beach hut fees and is due to be increased from 17.5% to 20%
on 1st January 2011. The higher rate applies to all licences renewed after 1st January
2011 and will be an additional cost to customers who do not renew before then.
8
10
Recommendations
10.1
1) A series of strategic annual price increases of 5%, 10% and 10% is introduced in
addition to uplifts of 10%, 5%, 5% already approved within the current MTFP.
Including MTFP uplifts this will generate additional income to the Borough (compared
to current fees) of £456k by the end of 2012/13 (Option 3 above).
2) Annual Leases not renewed – first choice will be given to Poole residents but
leases that are not able to be immediately let to Poole residents will be open to
anyone.
3) Annual leases not renewed in Years 1 and 2 will be leased at projected Year 3
prices (provided they are not suitable for short term lets).
Report author:
Shirley Haider/Dean Daniels/Stuart Terry
Responsible Officer:
Clive Smith – Head of Leisure Services
9
Appendix A
Beach Hut Pricing Strategy – Proposed Implementation Action Plan
Action Required
Resources
Required
£000
Responsible
Officer
Target Date
Additional
Income
£000
2011/12
1 Increase annual lease fees by additional 5% (in addition to 10% uplift in MTFP)
0
Clive Smith
Oct-10
126.6
2 Increase Hamworthy Site Rentals by additional 5% (in addition to 10% uplift in MTFP)
0
Clive Smith
Oct-10
4.9
3 Manage VAT increase from 17.5% to 20% from 1 January 2011
0
Stuart Terry
Jan-11
0
4 Leases not renewed charged at Year 3 prices in Pricing Strategy
0
Stuart Terry
Mar-11
x
5 Develop product based monthly management accounts to allow greater transparency
and understanding of surplus by product
0
Stuart
Terry/Russell
Smith
Mar-11
0
131.5
2012/13
1 Increase annual lease fees by additional 10% (in addition to 5% uplift in current MTFP)
0
Clive Smith
Oct-11
145.6
2 Increase Hamworthy Site Rentals by additional 10% (in addition to 5% uplift in MTFP)
0
Clive Smith
Oct-11
5.7
2 Review known pricing anomalies between similar beach huts (e.g. beach huts at
Shore Road and Sandbanks)
3 Leases not renewed charged at Year 3 prices in Pricing Strategy
0
Stuart Terry
Oct-11
x
0
Stuart Terry
Mar-12
x
4 Conduct Impact Assessment to understand impact of phased price increases on
customers and levels of demand
5 Assess potential to remove current residency restrictions on annual lease beach huts
0
Stuart Terry
Mar-12
0
0
Stuart Terry
Mar-12
0
6 Complete 'market testing' to understand demand for and interest in new long leases
(25 years or 10 years)
7 Undertake benchmarking exercise with near neighbours to compare beach hut fees
0
Stuart Terry
Mar-12
0
0
Stuart Terry
Mar-12
0
Property
Services
support?
Stuart Terry
Mar-12
0
8 Obtain an understanding of potential commercial rates that could be achieved for
beach huts to ensure best value achieved (so may be higher than near neighbours)
151.3
2013/14
1 Increase annual lease fees by additional 10% (in addition to 5% uplift in current MTFP)
0
Clive Smith
Oct-12
167.5
2 Increase Hamworthy Site Rentals by additional 10% (in addition to 5% uplift in MTFP)
0
Clive Smith
Oct-12
6.5
3 Refresh Pricing Strategy in accordance with findings of Beach Master Plan
0
Stuart Terry
Mar-13
0
174
Overall Impact of 3 Year Pricing Strategy
456.8
10
Appendix B – Proposed Pricing Structure for the Poole Bay Beach Huts for the calendar year 2011.
Location
Details
Numbers
2010
(Ex
Vat)
2010
(Inc
VAT)
2011 MT
FP (Ex
VAT)
2011 MT
FP (Inc
VAT)
2011 +
5% (Ex
VAT)
2011 +
5% (Inc
VAT)
Branksome
Dene
Ground
Level Nos
1-50
Upper
Terrace
Nos 51-68
& 87-96
Balcony
Nos 69-86
Wooden
Huts –
Prime
Position
Wooden
Huts –
Secondary
Position
Ground
Level
Balcony
46
£893.04
£1,027
£982.34
£1,154.25
£1,027.00
£1,206.73
28
£697.39
£802
£767.13
£901.38
£802.00
£942.35
£21,500
£22,500
18
£893.04
£1,027
£982.34
£1,154.25
£1,027.00
£1,206.73
£17,700
£18,500
5
£663.48
£763
£729.83
£857.55
£763.00
£896.53
£3,600
£3,800
12
£605.22
£696
£665.74
£782.25
£696.00
£817.80
£8,000
£8,400
101
£878.26
£1,010
£966.09
£1,135.15
£1,010.00
£1,186.75
£97,600
£102,000
104
£878.26
£1,010
£966.09
£1,135.15
£1,010.00
£1,186.75
£100,000
£105,000
Sites
4
£482.61
£555
£530.87
£623.77
£555.00
£652.13
£2,000
£2,200
Wooden
Huts –
Prime
Position
62
£651.30
£749
£716.43
£841.81
£749.00
£880.08
£44,400
£46,400
Branksome
Dene
Branksome
Dene
Branksome
Dene
Branksome
Dene
Branksome
Chine
Branksome
Chine
Branksome
Chine
Branksome
Chine
11
BoP
BoP
Yield
Yield + 5%
MTFP
(Rounded)
(Rounded)
£45,200
£47,200
Location
Details
Numbers
2010
(Ex
Vat)
2010
(Inc
VAT)
2011 MT
FP (Ex
VAT)
2011 MT
FP (Inc
VAT)
2011 +
5% (Ex
VAT)
2011 +
5% (Inc
VAT)
Branksome
Chine
Wooden
Huts –
Secondary
Position
Promenade
12
£589.57
£678
£648.53
£762.02
£678.01
154
£893.04
£1,027
£982.34
£1,154.25
4
£893.04
£1,027
£982.34
36
£651.30
£749
36
36
91
£878.26
£878.26
£851.30
33
Canford
Cliffs
Canford
Cliffs
Canford
Cliffs
Flaghead
Flaghead
Shore
Road
Shore
Road
Shore
Road
Shore
Road
Sandbanks
Sandbanks
Hamworthy
Total
Huts Over
Shelter
Chine –
Wooden
Huts
Promenade
Balcony
Ground
Level
Balcony
Upper
Terrace
Nos 67-72
Upper
Terrace
Nos 46-66
Ground
Level (Inc
Pavilion)
Balcony
All
BoP
Yield +5%
£000
£796.66
BoP
Yield
MTFP
£000
£7,800
£1,027.00
£1,206.73
£151,300
£158,200
£1,154.25
£1,027.00
£1,206.73
£4,000
£4,100
£716.43
£841.81
£749.00
£880.08
£25,800
£27,000
£1,010
£1,010
£979
£966.09
£966.09
£936.43
£1,135.15
£1,135.15
£1,100.31
£1,010.00
£1,010.00
£979.00
£1,206.73
£1,206.73
£1,150.33
£34,800
£34,800
£85,200
£36,400
£36,400
£99,100
£851.30
£979
£936.43
£1,100.31
£979.00
£1,150.33
£30,900
£32,300
6
£851.30
£979
£936.43
£1,100.31
£979.00
£1,150.33
£5,600
£5,900
21
£663.48
£763
£729.83
£857.55
£763.00
£896.53
£15,300
£16,000
114
£920.87
£1,059
£1,012.96
£1,190.22
£1,059.00
£1,244.33
£115,500
£120,800
79
114
1,116
£920.87
£287.83
£1,059
£331
£1,012.96
£316.61
£1,190.22
£372.02
£1,059.00
£331.00
£1,244.33
£388.93
£80,000
£36,100
£967,100
£83,700
£37,700
£1,021,700
12
£8,100
13