Beer Tie

Product Information

The Campaign is now asking the CMA to prove its credentials in standing up for consumers and commit to triggering what is known as the ‘Article 9’ referral procedure – meaning that the UK competition body could lead an investigation instead of the EU Commission, because the joint venture will mainly impact the UK beer and pub market. As such, Marsden is delighted with the vote. “It’s basically fantastic,” he enthuses. “The industry has been dominated by these pub companies and over the past 20 years they have extracted a massive amount of profit, but have done very little of value.” The pub companies have borrowed heavily to expand their portfolios and since the credit crunch they’ve been forced by the banks into massive sell-offs. Some of these pubs have become free houses, but many others have been converted into other uses such as supermarkets. Merger activity has accelerated hand-in-hand with globalisation, driven by the search for increased economies of scale and larger markets. While demand for beer in the UK and Europe has remained fairly static, demand in China and the rest of Asia has accelerated. For example, during 2011, sales of beer by volume by AB-InBev grew by just 0.4% in Western Europe compared with an 11% growth in beer volumes in China. In contrast, sales by volume to Easter Europe actually fell by around 5%. The preferred marketing strategy is to focus on non-price competition and developing premium brands which command a higher price. Globally, this means targeting the growing middle classes in China and India who prepared to spend a little bit more on premium brands. Being tied also gives tenants access to wider business support: from maintenance to financial and marketing support. Many pub companies highlight this and argue that this support is vital to many of their tenants especially those who’ve come into the industry from other professions.

Their view is that the tie forces tenants to pay unnecessarily high prices for their beer which according to CAMRA can be 60 – 70% more than non-tied pubs. This impacts on their profitability and ultimately results in too many pub closures. Challenges arising from supermarket pricing, pub regulation and punitive leases all have a cost. And that cost is a dire selection of the cheapest brands of beer, "ready" meals, poorly trained staff and management, delayed refurbishment, increasingly desperate price promotions and so on. In other words, a disheartening experience for the customer creating a spiral of decline, leading sooner or later to yet another closure statistic. What is it we stand to lose?I certainly don’t have any sympathy for them,” says Marsden. “I hope that many publicans are able to buy their premises, I’d certainly like to buy the Prince.” Independent Family Brewers of Britain chairman Paul Wells said: "It's great news because it does validate the business model that the family brewers have been championing for a long time. In 2009, CAMRA submitted a super-complaint to the Office of Fair Trading (‘OFT’) regarding the UK ‘beer ties’ issue. The OFT rejected the complaint, arguing that it had not found evidence of any competition problems having a significant impact on consumers. In contrast, it argued that at a national, regional and local level, there was evidence of a large number of competing pub outlets owned by different operators, who were competitive and offered sufficient choice, arguing that large pub companies source from a number of suppliers. Critics argue that, despite the reduction in the power of large brewers, the competition authorities have failed to recognise the continuing significance of the ‘beer tie’ to pricing, competition and choice. Brewers been forced to sell-off some of their pubs as a condition of being allowed to merge, hence enabling new firms to enter the market. For example, in 2000 the UK’s Competition Commission forced Interbrew to dispose of some 75% of its pubs.

The vote to end the tie is supported by bodies such as CAMRA and the Federation of Small Businesses. They argue that removing the tie will save many pubs from closure and bring greater competition to the market.Others argue that the tie remains a key part of the industry that works well for pub companies who have ambitious tenants. One of the key arguments against the change is that the tie is about more than the rent and beer. He and Clarke claim that when they applied for the MRO option, Enterprise tried to attach unreasonable conditions to their new lease that made it unworkable. They were left facing the prospect of spending huge sums on legal advice and hours of time on protracted negotiations. They also felt that the supposedly independent assessors who set the market rent were anything but. The new system would let tenants have their ties reviewed and where appropriate, move to a market rent with the freedom to buy their beer from other suppliers. Tenants can adjust their prices to better meet the needs of their customers and compete more effectively.

Pubs in less affluent areas of Britain are in danger of becoming extinct. They have been priced out of the market by rapacious landlords and the supermarkets. If we don't look sharp we are in danger of losing them forever. The BPC chair, Greg Mulholland, who pushed the MRO option through parliament as a Liberal Democrat MP, said that in its current form “tenants do not have the rights they were promised by ministers”. According to dozens of pub landlords around the country, already wrestling with the rapid decline in the number of Britain’s pubs, the reality has been very different. The small business minister Kelly Tolhurst recently announced the first statutory review of the pubs code and the way it is arbitrated, via the pubs code adjudicator. Since the day that it was announced, CAMRA has raised serious concerns about the proposed Carlsberg Marston’s Brewing Company and choice for beer drinkers, pub goers – and over the future of British beers, brands and breweries.His case was helped by publicity whipped up by the dispute, not to mention romantic regard for the Blue Bell, a 200-year-old pub whose interior has not changed since 1903 and where York City football club was formed. Clarke says he helped draft the pubs code regulations but has still been unable to make them work. He and Law still do not know whether they will get their MRO or end up signing a new tied tenancy with “onerous” conditions. Even if they get their wish, they will have wasted three years of time and money.

The new rules have kept the same threshold of market share - 30% - under which the exemptions will apply. The decision confirms that under EU law the tie, along with many other similar business agreements, remains a recognised and legitimate business model, which fully complies with EU competition rules. T he Competition and Markets Authority exists to promot e competition for the benefit of consumers – therefore it i s disappointing that they are seemingly disinterested in investigating something that will have potentially anti-competitive effects on the UK beer and pub market. Brigid Simmonds, chief executive of the British Beer and Pub Association, said: "This is a positive decision by the European Commission, which follows an exacting examination by them of all the evidence from a wide range of parties. Community Pubs, aka the traditional boozer, (as distinct from metropolitan or "country" gastropubs) are vital meeting places for the forgotten agricultural villages, market towns and down-at-heel districts of our cities. Yes, they may be entropic hubs of indolence and indulgence. But where's the harm in that? Aren't we hard-pressed enough? What's gone so dreadfully wrong?It accused pub companies of seeking to scupper MRO applications by any means necessary, including spooking them with eviction notices. The group also cast doubt on the independence of assessments used to set rents. They say the tied option does not make financial sense for them and the pub would be more profitable – as well as offering cheaper and better beer – if they were free of the tie. According to data from the British Beer and Pub Association, there have been 739 MRO applications since the system began three years ago. Only 57 resulted in MRO tenancies. The BBPA, whose members include the six largest pub companies, believe the pubs code is working well. Fair Pint and the GMB had been lobbying the European Commission not to renew the opt out for the beer tie.