Monday, 4 September 2017

What goes around, comes round

Hard on the heels of Heineken’s acquisition of Punch Taverns comes the news that Admiral Taverns is being sold to C&C Group, owners of Magners cider and Tennent’s brewery in Scotland. This represents a further unravelling of the industry structure created in the wake of the 1989 Beer Orders, and leaves Ei Group, formerly Enterprise Inns, as the only non-brewing pubco with over 500 pubs still standing.

In reality, the large tied pub companies were only ever created as an expedient in response to the regulatory framework set up by the Beer Orders. Take that away, and they lose any rationale. It has taken a long time since the orders were revoked in 2003, but it was always going to happen in the end, especially after the pubcos ended up in dire financial straits after the financial crash and their disastrous misreading of the impact of the smoking ban. You have to wonder whether the other big brewers are now casting their eyes over Ei Group.

The vociferous anti-pubco campaigners have always been strangely reluctant to put forward any alternative ownership structure for the industry. They seem to have a naive, pie-in-the-sky vision of pubs all being independent freeholds. But, of course, in the real world, that isn’t going to happen, and it would leave the pub trade fragmented and starved of investment capital. The same would be true if pubs were owned by property companies whose only interest in them was collecting the rent.

Provided that there are adequate safeguards against the creation of dominant market positions, either nationally or locally, I really see no problem with pubs returning to the hands of breweries. Indeed in a way it will help safeguard their future, as their owners have a direct interest in maximising their commercial returns by selling their own products, which would not be the case if they were seen only as a financial investment.

The Beer Orders are likely to go down in history as one of the most disastrous and ill-considered interventions in an industry by any British government. As the famous economist Milton Friedman said, “The government solution to a problem is usually as bad as the problem itself”.

16 comments:

  1. It makes sense for a brewer to own it's own outlets if only for quality control, but that doesn't stop a fair number of ropey tied houses.

    I thought beardy types liked free houses with obscure beer? Which is why CAMRA wholeheartedly supported the Beer Orders at the time.

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    1. A classic case of "be careful what you wish for". Mudgie as such wasn't around in 1989, but I often wonder what CAMRA actually expected the result of the Beer Orders to be. Did they imagine that the Big Six would split themselves up into separate regional companies, each with its own brewery?

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    2. Best not ascribe strategic thinking to the beards. Better not even to think of them as a campaign. They can be best understood as an erratic collection of leftish guardian type desires, prejudices and wants. More of what such people want. Less of what they don’t.

      Hence you can understand why a fall of pub numbers from 70k+ to 50k ish represents more free houses, micropubs, obscure beer & less commercial chain national brand pubs. The desired outcome is more of what we like, less of what we don’t.

      The beer orders are less “big beer”, more independent free houses. The smoking ban is pubs that fit a middle-class demographic. All of it is best understood through what they are, rather than what they proclaim themselves to be.

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    3. They also don't realise that cutting or freezing beer duty benefits the off-trade more than pubs. Beer duty in Germany is 4p a pint, but I was told today that 81% of beer in Germany is sold in the off-trade.

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  2. I rather think they did, or st least they'd cut the estates down to the allowed number and offer the rest free of tie. In retrospect, that would have been more sensible.

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  3. The big brewers were never going to see any point in running a large leased estate of free-of-tie pubs, though. It's like MRO - what benefit is there for the pub owner?

    It is perhaps surprising that most of them decided to completely get out of the industry, though, rather than retaining as many tied pubs as they were permitted. In retrospect, it seems a sensible move for Heineken (which took over S&N) to keep their tied estate.

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  4. The former S&N Pub Company was underfunded and poorly operated leading to a far worse trade reputation than enemy Punch and Enterprise. Since the Heineken takeover millions have and are being pumped into the estate and their reputation is now one of the best. They know that to sell more beer they have to invest in both their properties and the people who lease them. Big isn't always bad.

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  5. There could have been many advantages. It would not have been as likely that what did happen would happen and with retrospect a large number of leased pubs, would have provided a steady income and many would still have bought beer from the 2parent" as then beer prices were nowhere near as different, free or tied, as debt was insignificant then.

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  6. The Punch and Admiral news just proves what I've been saying for a while - the non-brewery pubcos were just a transition between pubs being owned by ale breweries to pubs being owned by lager breweries.

    Tying up distribution is a natural response by brands that are struggling to compete - and to be honest it makes much more sense to tie keg lines rather than cask lines, lager drinkers are much more conservative than the cask market which these days demands diversity on the bar. No doubt ABI, Asahi and Carlsberg are all running the rule over Enterprise - who incidentally have a stated target of 1000 free-of-tie sites. In their case the assumption is that they can spin off those 1000 "clean" leases into a "standard" property company, which will get sold off to solve the debt problems of the remainder, which will increasingly manage sites in-house.

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    1. The Big Six had effectively become lager brewers rather than ale brewers by 1990. I'd say it's more a transition between national and international ownership.

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    2. Perhaps more of a transition between private equity ownership and brewing interests which have to be international now as they're the only brewers that can raise that level of funding.

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  7. I knew the Beer Orders were wrong as soon as i read about them,but Camra were fully behind them at the time,i bet you lot thought wow,Bass with 7000 tied houses,that means 5000 free houses with loads of real ales,Ind Coope 6000 odd tied houses well thats another 4000 free houses for us to drink in.
    I now i was right about this from the start but very sad to see what camra supported and the outcome of it.

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    1. I wasn't writing my column in 1989, so can't refer back to what I said then, but I suspect I was always a bit sceptical. The earliest mention I can find is in December 2001 - "I wouldn't be surprised if in ten years' time the giant pub companies in their current form have vanished from the face of the earth just as surely as the dinosaurs." Well, it's taken sixteen years, but they're pretty much gone now.

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  8. According to the book'Government Intervention and the Brewing Industry'CAMRA wanted a ban on both brewing and non brewing companies owning more than 2000 pubs as it,correctly,foresaw the rise in large non brewing pub companies. It is perhaps unfair to blame CAMRA for what occurred as part of their proposals may have addressed some of the issues which arose after 1992

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    1. It seems a rather extreme form of competition policy to limit any participant to what was then about 3% of the market.

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    2. Trouble is that locally it can be far more than that - eg Shep's domination of the Kent pub market. Something like a big surcharge on business rates when one company owns more than 50% of the pub trading floorspace in a borough might do it - and do the same for supermarkets etc

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