Beer Tie

Product Information

Leading c onsumer group CAMRA has called on the Competition and Markets Authority to take the lead and investigate a proposed merger which could reduce the choice of beers available to pubgoers. 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. 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. Is the end of the beer tie good or bad? The pub industry is complex and there’s no doubt that unscrupulous pub operators may have abused the system. However, there are many operators who invest significantly in their pubs and who recognise that supporting successful tenants equates to successful pub companies. 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.”

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.Fair Pint were encouraged by our meetings with MEPs and Commission officials and there is a real concern about the impact of the pubco model on British consumers and individual tied publicans. 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. 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? But she will already be in little doubt as to how many publicans view it. Pub tenants and MPs have been “duped and betrayed”, according to the British Pub Confederation, which said the MRO was little more than a myth. 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.

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? The tie system also allows people to become pub tenants with smaller personal investments. This helps to make the sector more accessible widening the pool of potential applicants. The business model of a pub company combines wholesale with estate management. It uses its purchasing power to buy beer at low prices but then sells it at a high mark-up to the publican who also pays it rent. “The whole business model is wrong. A typical wholesaler might make 10-15%, these guys are making double or treble that,” says Marsden. Mark Robson is founder of Red Mist Leisure, which runs five pubs in the South East of England. He moved into the pub business in 2004 initially operating tied leases via Punch Taverns, but managed to acquire them and now runs them as free houses. He gave the new amendment a cautious welcome. “I am very, very anti-beer tie so if it goes then that’s a good thing. However, usually when the government gets involved in the pub industry they make things worse rather than better. I am little bit sceptical that it will go through as the beer tie has been around for 400 years.”

Reasons to buy

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. David Law and Simon Clarke run the Eagle Ale House, near London’s Clapham Common, and rent the premises from Enterprise Inns, the subject of more than three times as many MRO applications as any other chain. 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. 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. 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.