Monday 19 December 2016

Not last orders after all

Last week a giant claw unexpectedly reached out from the 1980s and grabbed control of a substantial chunk of the British pub trade, in the form of Heineken’s agreed takeover bid for the greater part of Punch Taverns.

Back then, the British pub market was dominated by the “Big Six” national brewers, who owned getting on for half of all the pubs and controlled many local monopolies or near-monopolies. To address this situation, the government of the day brought in the notorious Beer Orders which have resulted in a situation where getting on for half of all the pubs in the country now sell Doom Bar.

While this legislation was well-intentioned, it is clear with hindsight that nobody really had a clear idea what the results would be. In practice, what happened is that the “Big Six” sold their brewing interests to the giant international brewers, while most of their pub estates ended up in the hands of pub companies such as Punch Taverns and Enterprise Inns. Their prime raison d’etre was to replicate the tied house model that the big brewers had enjoyed, and it is hard to argue that, over the years, they haven’t had a negative effect on the pub trade.

They took on large quantities of debt in order to expand their estates, and were then caught out by the double whammy of the smoking ban and the worldwide recession and left teetering on the verge of bankruptcy. Both Punch and Enterprise have only been able to survive through emergency debt restructuring. This left them woefully short of money to invest in their estates, and they have been forced to sell off many of their best properties to family brewers or managed house operators.

The Beer Orders were revoked in 2003, so since then there was been nothing to prevent the major international brewers rebuilding tied estates in the UK. However, the dire state of pub company finances has probably put them off until now. Heineken retained the rump of the former Scottish & Newcastle pub operation under the banner of Star Pubs and Bars, and so were always the best placed to make a move. Selling out to a brewer with deep pockets is probably going to be the best exit strategy for long-suffering pubco investors.

One inevitable result, though, is that the old issues about restricting supply of certain products will reappear, with the Sunday Times reporting that the move may threaten the availability of Carling, the UK’s best-selling beer, in the former Punch estate. This could prompt the brand owners Molson Coors (who also own Doom Bar) to take steps to protect their own position. I would expect pub operators to recognise, though, that restricting the range of products too far doesn’t help business.

On balance, I would say it is preferable for breweries to be running pubs than pubcos, as they will have more of an interest in actually growing trade rather than just looking at the estate as a property portfolio, and will also have more money to invest. Many pubco leased pubs are now looking distinctly shabby compared with those owned by the family brewers. However, it will be important for the competition authorities to keep a close eye on the market to ensure that the old problems of oligopoly of supply and local dominance do not resurface. It would certainly not be good news if we saw one of the international brewers bidding for Marston’s or Greene King, or indeed for Wetherspoon’s.

But, within a few years, will we have seen the end of the large non-brewing leased pub company, something that only sprang into being in the first place as a response to the Beer Orders?


  1. You make some good points here Mudge - it will be interesting to see how all of this pans out. Might make a good article elsewhere if you are interested...

  2. Whilst Carling is often derided by beer geeks it remains popular enough to retain as it's a brand asked for by name, not just "pint of lager, mate"

    Spoons dropped it a few years back over pricing, only to bite the bullet and put it back on. My guess is Foster's will join Carling in a golden era of choice for cooking lager enthusiasts. With Carlberg refreshing their brand to halt the decline into a bargain basement brand, it may be a golden era for the holy trinity of cooking lager.

  3. I knew when the Beer Orders were first thought of and implemented that it would be a disaster for the British brewing industry and told my brother at the time, Camra backed them to the hilt,stating that all pubs would be able to stock guest beers in tied houses,i think the limit was 2000 so Bass and Ind Coope with massive tied estates had to take drastic action to save their tied estates that they spent years building up and the pub co's were born,which started most of the problems well before the smoking ban was implemented.
    Camra are now probably in denial about this,but i can remember it well.
    I have also never been a Camra member,but have always liked to drink real ales.

    1. Couldn't agree more. Camra now point to the massive rise in the number of breweries popping up but the beer orders are at least in part responsible for the closure of thousands of pubs.

    2. At the time of the Beer Orders, the Big Six oligopoly was already rapidly eroding anyway, with many pubs being sold off to pub companies (e.g. Belhaven) or other breweries. I think Ron Pattinson posted some figures showing it was at its height in the late 70s.

      I'm convinced if they had never happened we would now have a much healthier brewing industry and pub trade.

  4. The British Pub Confederation, which claims to represent more tied tenants than any other organisation, whilst expressing concerns about the deal also made this statement: "...The takeover could, however, have the effect of creating a trigger point for all of Punch’s 3,000 tenants to take up their right to trigger the Market Rent Only option where no beer tie continues to be in force...".

    I don't actually think they're right on that (especially with the non Heineken pubs), but if they are it could leave tenants better off, and customer choice unchanged. Although Greene King and Heineken are insisting on their MRO tenants stocking their Companies' products even if they are supplied by a third party, (as they think they are entitled to do under the legislation) I have seen no reports that stocking other products is forbidden.

    In any event I wouldn't expect Heineken to overnight chuck out all the Carling taps and replace them with Fosters; I would think it much more likely that Fosters would be introduced alongside and the tenant incentivised to promote it with a view to Carling withering on the vine.

    With "cooking lagers" and such it's amazing how loyalties will change with a little price differential!

  5. I'd prefer Heineken running these pubs than the gang of property speculators at Punch, or Enterprise for that matter. Before the Heineken take over of the S&N Pub Co it was generally a terrible place for tenants and customers of their run down and-under invested estate. Since the takeover and subsequent rebranding there have been some disposals but there are six Star pubs near to me that were run down and on the bones of their arses. Each has, over the last couple of years, had the thick end of a million quid spent on them with professional operators running them on sensible, realistic rents. They all have excellent food offerings and a decent choice of beers. I'm never disappointed with the choice of cask guest beers either. Heineken are clearly in this for the long game, not making a constant quick buck from tenant churn.


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