John Walters

Pubcos Move Centre Stage

Within two years of delivering its report on the Beer Orders, the Office of Fair Trading (OFT) again found itself embroiled in beer and pubs. The Federation of Small Businesses (FSB) had latterly recruited into membership numbers of pub tenants, most of whom had joined the Federation to gain greater lobbying power in tackling what they saw as unreasonable behaviour on the part of their pubco landlords. In pursuit of the interests of these members, the FSB made a complaint to the OFT in 2002.

The OFT Prepares its Case

When Sir Gordon Borrie, Director General of Fair Trading, told the Brewers’ Society in August 1985 that he had advised the Government that the task of reducing local concentrations of pub ownership had been effectively completed, the Society believed that a long saga had ended. Thus it was remarked in its Annual Report for the year to September 1985 that “This was an extremely satisfactory position and represented a closing of the files on matters which had caused the industry concern since the days of the Monopolies Commission (MC) inquiry in 1966.”1

Complying with the Orders

The reference of the brewing industry to the Monopolies and Mergers Commission (MMC) in August 1986 had brought about a slowdown in the rate of corporate activity within the industry, but by no means a complete cessation. Thus, just a couple of weeks after the announcement, Scottish & Newcastle (S&N) bid for Nottingham-based Home Brewery, at the invitation of the family owners, and then in the following year it made a second, this time successful, attempt to acquire Matthew Brown. By the end of 1986, however, events which would ultimately prove rather more significant for S&N were in train.

The Beer Orders Emerge

The principal recommendations of the Monopolies and Mergers Commission (MMC) Report had been set out in the first chapter of the Report, under six broad headings, which, to reiterate, were: (1) no brewer to own more than 2000 on-licensed outlets; (2) covenants on premises being sold either specifying a product tie or precluding future use as a pub to be prohibited; (3) no new free trade loans to be made; (4) all tenants to be allowed to stock at least one guest draught beer and to be free from tie in respect of all beverages except beer above 1.2 per cent alcohol by volume; (5) all tenants to be given the protection of the Landlord and Tenant Act 1954 Part II, and a revised and binding Code of Practice to be negotiated with the Director General of Fair Trading and incorporated into all tenancy agreements containing a beer tie; and (6) all brewers to publish wholesale price lists, including details of quantity discounts and further discounts available for collection from the brewery by independent wholesalers.1

Radical Change Proposed

The Monopolies and Mergers Commission (MMC) Report, The Supply of Beer,1 was completed early in 1989, and confidential copies were sent to the Lord Young of Graffham, Secretary of State for Trade and Industry, and Sir Gordon Borrie, the Director General of Fair Trading (DGFT), on 3 February 1989. The Report was signed by five members of the panel, the sixth, Leif Mills, having written a Note of Dissent. The panel had said in their opening Summary: Eloquently though the industry’s case has been put, we are not persuaded that all is well. We have confirmed our provisional finding that a complex monopoly position exists in favour of the brewers with tied estates and loan ties.2

Mixed Reactions to the Report

The Brewers’ Society issued a detailed press statement on the day that the Report was published. It dismissed both the criticism of the industry and the recommendations put forward by the Monopolies and Mergers Commission (MMC), declaring that the Report’s remedies were “a charter for chaos”, and, pace Leif Mills, represented “an unnecessary leap in the dark”.1

Pub Companies and Licensees

The Beer Orders, together with undertakings given to the Office of Fair Trading (OFT) as a result of the Grand Met/Courage deal, obliged the major brewers to release over 11,000 public houses from the tie by November 1992. As Allied-Lyons commented in evidence to the Agriculture Select Committee in 1993, the authorities had given no great thought as to who would buy these pubs.1 There appears to have been an assumption by the Monopolies and Mergers Commission (MMC) that pub landlords and regional brewers would purchase a large number and, in fact, had been waiting to do so. As it turned out, slightly under half of the pubs were sold or leased to individuals or regional brewers, and rather more went to the new multiple pub operators. It is often said that this marked the beginning of the pubcos, but, in fact, there had already been a number of significant developments in that direction.

Four More Reviews

The Beer Orders were not fully operational until November 1992, but even before then there had been mounting disquiet about the initial impact of the measures. As we have seen, such doubts had surfaced in Parliament as early as June 1991, when Stan Crowther MP put down an Early Day Motion (EDM) bemoaning the disruption to the licensed trade.1 He hadn’t left it at that, securing an Adjournment Debate in November, in which he lambasted the Beer Orders,2 and following this up with another EDM, calling for their immediate review.3 Crowther was primarily concerned with the position of tenants in a rapidly changing world, but he also lamented what he saw as the impact on consumers in the shape of rocketing prices and reduced competition.

The Regionals React

The 1989 Monopolies and Mergers Commission (MMC) Report had been quite explicit as to the motivation behind its proposal that brewers should be allowed to own only up to 2000 on-licensed premises, namely, its authors’ belief that if the tie were broken completely, many small brewers “would withdraw from brewing, concentrate on retailing, and leave the market to domination by national and international brand owners”.1 This was certainly going to be no level playing field, but the possibility that the majors would themselves react in just this way if the 2000 ceiling were implemented, and the effects that their reactions might have on the regionals, apparently weren’t considered.

The “Big Six” Brewers and the Early Investigations

Prime Minister Harold Macmillan was no doubt right when he told a Conservative party rally in July 1957 that most British people had “never had it so good”, and that the country was in “a state of prosperity such as [it had] never had in [his] lifetime”. While, however, a nation emerging from post-War austerity was indulging a developing taste for consumer durables and foreign holidays, one UK industry remained in the doldrums: namely, brewing. Thus beer production, which in the last year of the War (12 months to March 1945) amounted to 31.3 million barrels, had by 1950/51 fallen by over 20 per cent, to 24.9 million barrels. It remained at around this level for the next eight years, reaching a nadir in 1958/59 of 23.8 million barrels, down by almost a quarter on 1944/45.