APPENDIX 5
Memorandum from Tennent Caledonian Breweries
Tennent Caledonian Breweries welcomes the opportunity
to contribute its views to the inquiry into the drinks industry
in Scotland being undertaken by the Scottish Affairs Committee.
1. Tennent Caledonian Breweries was founded
in Glasgow in 1556 and is the Scottish trading subsidiary of Bass
Brewers Ltd which in turn is part of Interbrew SA. The Company
brews and packages beers, and supplies beers, wines, spirits,
soft drinks, ciders etc to a large number of licensed trade premises
in Scotland. The Company's Wellpark Brewery in Glasgow is the
only significant beer manufacturing employer in the West of Scotland
with 305 employees at Wellpark and 430 in Scotland overall. The
Company owns Scotland's No 1 alcoholic drink brand, Tennent's
lager, and for many years has been and continues to be a major
contributor to the arts, sport, charities and community life in
Scotland.
2. We have received a copy of the written
evidence submitted by the Brewers' and Licensed Retailers' Association
of Scotland of which we are members, and concur with all points
made in that submission. There is nothing we would like to add
by way of supplement to the submission.
As you may be aware though, one of the most
important issues for us at the moment is the Competition Commission
inquiry into the acquisition by Interbrew of the brewing activities
of Bass PLC (ie Bass Brewers), and I hope you will not mind if
I take the opportunity to draw your attention to a number of aspects
relating to that inquiry.
3. The supply of beer in Scotland should
be viewed as part of the overall UK market.
3.1 Although Scottish consumers are seen
as favouring drinking what they perceive as "Scottish"
beers, seven of the top 10 brands in the Off licence trade and
three in the On licence trade in Scotland are not Scottish.
3.2 Negotiations are frequently and increasingly
with (UK) national trade customers (eg pub and hotel groups, supermarkets,
etc) and involve the same selling price for a given brand regardless
of where the beer is actually delivered or sold. The structure
and dynamics of the supply of beer in both the on and off licence
trades in Scotland are essentially the same as in the rest of
the UK, with the same competitive pressures existing.
3.3 Less than 5 per cent of Off trade sales
in Scotland are to Scottish-only trade customers and penetration
by large independent UK On trade pub and hotel retailers is growing
fast.
4. The acquisition of Bass Brewers by Interbrew
will not materially affect the competitive position in Scotland.
4.1 Although Bass Brewers has a 38 per cent
share of beer supply in Scotland, Interbrew's share, arising from
its ownership of the former brewing division (Interbrew (UK) "IUK")
of Whitbread PLC excluding Heineken and Murphy's not acquired,
is less than 3 per cent.
4.2 Furthermore in the On trade IUK's share
is only 1.5 per cent which is concentrated in the Whitbread PLC
pub estate. Following the breaking of the vertical integration
link as a consequence of Whitbread PLC's sale of its brewing division
to Interbrew, there is no long term security for this volume.
4.3 Tennents is an equity of brands not
a single brand and as such the business cannot be subdivided into
separate ownerships. Any enforced disposal of Tennents would therefore
result in the purchaser having essentially the same share of the
Scottish market as Interbrew, or potentially greater if sold to
a brewer who already has a presence in Scotland.
5. Tennent Caledonian Breweries' future,
and that of Bass Brewers, will be more certain as part of Interbrew,
which is a major international brewing group totally committed
to brewing as its core activity. This will ensure the necessary
resources and focus to succeed in the increasingly global and
consolidating beer industry.
5.1 The UK brewing industry is being adversely
impacted by (a) declining beer consumption, (b) increasing imports
(including cross Channel imports exploiting the significant duty
differential), (c) production over-capacity and (d) severe pressure
on brewers' margins as the increasingly powerful retailers exploit
their negotiating strength. This deal is the best opportunity
to maintain brands, UK and Scottish brewed beers and jobs in a
stronger brewing business.
5.2 Ownership by Interbrew will ensure greater
access to resources for investment in brands, new product development,
and customer services, which is essential if local choice and
variety is to be nurtured and developed.
5.3 The acquisition will result in significantly
greater export opportunities, particularly for Tennents' brand
equities, utilising Interbrew's extensive international network.
5.4 Interbrew has a proven track record
of commitment to the heritage and traditions of local brands in
the countries where it operates. Its commitment to brand variety
at the local level distinguishes it from other global brewers
including the other major European brewers who were bidders for
Bass Brewers (namely Carlsberg and Heineken).
6. The strength of the UK brewing industry
has weakened appreciably in recent years, particularly the last
three, resulting in the decisions of both Bass PLC and Whitbread
PLC to forsake their heritage and exit brewing. The considerable
market power of retailers, combined with declining beer consumption
and increasing imports is seriously weakening the UK beer manufacturing
industry.
6.1 Although net (of discount) wholesale
prices have declined in real terms in recent years, On trade retail
prices have increased in real terms. Some of the independent national
pub chains rely on the discounts they receive for their own profit
stream and do not pass them straight through to their tenants
or lessees. An increase in discounts negotiated is not subsequently
reflected in a reduction in price to the consumer.
6.2 A weak UK brewing industry will result
in reduced investment leading to fewer brands, a disadvantaged
market position relative to global imported brands and UK and
Scottish job losses.
7. The combined UK share of the merged entities
(32 per cent) will be less than that (35 per cent) of the proposed
Bass/Carlsberg-Tetley merger for which the Monopolies and Mergers
Commission recommended approval in 1997 subject to Bass divesting
of tied pubs in excess of 2500 in order to remedy the adverse
competitive effect of the merger.
7.1 Since that time the strength of the
brewing industry has declined appreciably with the balance of
power having moved significantly away from brewers to retailers
as evidenced by the decline in net wholesale prices.
7.2 The MMC in 1997 believed that adverse
effects of the proposed merger would be counteracted by a reduction
in Bass owned tied houses to a maximum of 2500. There is now no
ownership link at all between Bass Brewers and pubs following
separation of ownership between Bass Brewers and Bass Leisure
Retail.
8. Should you want any further information
please contact me at the address above.
Tennent Caledonian Breweries
September 2000
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