Examination of Witnesses (Questions 600
- 604)
WEDNESDAY 8 SEPTEMBER 2004
SOCIETY OF
INDEPENDENT BREWERS
Q600 Richard Burden: I was just interested
because we received evidence from a number of quarters which favoured
retaining the tie. I could not understand where that evidence
was coming from but I believe CAMRA were also saying they would
be quite worried about ending the tie because of the impact that
a free-for-all would have.
Mr Bott: It is very difficult
to look into our crystal ball and decide exactly what would happen
with the removal of the tie. It would be a major change in the
way that the industry works. What we are saying is the removal
of the tie would suit small brewers through the opening of the
market and allowing us to trade more on a regional basis. Currently
at Titanic I am travelling the length and breadth of the country
to find enough accounts to sell enough beer to stay in business.
Quite what would happen with the removal of the tie is something
that really should be looked into and there should be a tremendous
amount of work done in trying to work out how the removal of the
tie would affect the industry. I think it is something that should
be looked at sooner rather than later so that we can genuinely
see if the benefits the small brewers would have would also be
rolled out to the tenants and the pub operators.
Q601 Richard Burden: Could there
be any halfway house with the introduction of an extended guest
beer provision?
Mr Bott: The biggest problem with
the guest beer provision last time was that the licensee, who
we have explained are entrepreneurs, were suddenly able to buy
guest beers from wherever they liked. An awful lot of those licensees
realised that instead of buying their John Smith's from the owning
brewery they could buy Tetley's at the same sort of price that
the brewery was producing John Smith's. We were left out of that
loop. We did not gain the opportunities to sell beer that we thought
we would. I remember thinking when the guest beer provision came
in that this was the answer to all my problems and it would mean
I could sell beer to every pub in Stoke-on-Trent and I would never
have to go out of Staffordshire. That was not the case. It was
completely taken over by the big boys and any guest beer provision
has to be written in such a way that it creates the market for
small brewers, for regional brewers and not just moves things
around at the top.
Mr Stafford: A lot of the problems
with the removal of the tie is that we have to recognise that
capital for buying the assets of the pub has got to come from
somewhere and the pubcos are providing obviously millions of pounds
worth of cash to buy these pubs. They obviously have to have their
return on the capital employed and how they get that return is
obviously part of the debate. If you remove the tie then you are
looking at a very tricky situation whereby if that cash is not
going to be earning the capital then that cash is going to walk
elsewhere. I am not an expert on it but I dare say there would
be a property crash in pub prices and we could see all sorts of
things going on. We are calling for an investigation by the Office
of Fair Trading into this complex monopoly, this restrictive practice
whereby retailers are being restricted in their ability to access
the supply market. That is where we really see the future. Not
necessarily in the removal of the tie per se; it is not
the panacea that we all would wish for.
Q602 Chairman: There has been an
argument advanced that perhaps the tie could be maintained for
small breweries that have pubs but it is the bigger fish that
we really want to catch, so in principle the tie may be appropriate
in certain circumstances but would you say that there could be
an upper limit which could perhaps be accommodated? I imagine
some of you chaps have several pubs of your own and getting rid
of the tie would sever your link with your outlets at the moment
but do you think there is a question of balance here?
Mr Bott: There is a question of
balance. What we need to look at from the brewers' point of view
is how we allow them to access the market. If any part of that
market remains closed then that is creating a barrier to trade.
I agree that it seems quite simple on first thought that retaining
a level of tie, probably declaring it on the number of pubs that
were owned, is a reasonable way forward and it is certainly better
than what we have got now. The problem, and what we saw with the
Beer Orders and what we saw with the creation of the pubcos, is
the way that big business will move around any legislation which
is brought in. They will find a way round the problem so that
they can retain their profitability. Believe me, I am not suggesting
that that is wrong, I think it is a very sensible way of trading,
but we have to look at this. This is why we really feel there
should be an inquiry to look and see quite what the effects of
the trade are currently and quite how they can be improved for
everybody in the trade.
Mr Stafford: The problem with
setting a limit is that you are interfering with the market. There
will always be people above and below the limit. We had this with
small brewers' relief when the limit was 30,000 hectolitres and
just recently the Government increased that to 60,000 hectolitres
so whenever you set a limit you are always going to have problems
below and above that particular limit. If you get rid of the tie
completely we must not lose sight of the fact that most businesses,
if not all businesses, some way along the line are tied. A contract
with anybody, with a supplier or with a customer, is a tie, it
is a contract. So we are saying you can formally get rid of the
tie but there will be another tie that will be created that happens
to be legal. That is the nature of business. We are going to say
it anyway although it is not strictly our business—well,
it is our business in the sense of as a small brewer we do have
a small estate. What we are saying is that the licensees, the
retailers need to be given a greater variety of lease agreements.
They need to be given something that they can actually work themselves
into or indeed modify and change as they go through their business
life. It is about taking on board a business, getting used to
it and then finding your whole lifestyle is sucked into this business.
It is a residential job. You live and breathe that business. Your
family grows up in it. Where do your kids play at night while
you are working? Families mould, people change and I think you
need to have multi-leases, a greater variety of leases, so that
people can take on the business that they want, and we need to
move down those lines rather than necessarily getting rid of tie
per se.
Mr Bott: The biggest barrier to
that of course is back to what you said earlier that the pubcos
are not willing to let us know how much they are making in terms
of wet rent. If they declared what they needed to make out of
a property based on their investment then it could be up to the
individual licensee to pay a rent of a level that allows them
to purchase products from wherever they want or they could appreciate
the advantages of having a lower rent and buying from the list
that pubcos offer, but whilst the pubcos refuse to let you know
how much they are making out of that, they are never going to
admit it to the licensees and entrepreneurs either.
Q603 Mr Berry: I have a final question
which may not be unrelated to that comment. Earlier, Mr Stafford,
your phrase was that pubcos are operating a complex monopoly.
What is the basis for that allegation?
Mr Stafford: Pubcos have created
a monopoly in the distribution network. They contract out their
supply to the pubs through other agents such as the three distributors
that I mentioned earlier. Those distributors are inflexible. I
have worked with Scottish Courage for example whilst we were delivering
beer to the Unique Pub Company in a Glasgow club. It failed basically.
Somehow the retailer got his beer but ultimately it failed because
it did not work, it was not flexible enough. Then their systems
are not geared up for it. They are national distributors and they
have to get benefits of economies of scale. It is a total misfit.
If the national distributors have a stranglehold on the distribution
of beer to most of the pubs in the UK and that stranglehold excludes
the majority of British brewers in the UK, then I believe that
that is a monopoly.
Q604 Mr Berry: That is possibly debatable.
Mr Stafford: Yes.
Mr Berry: I understand exactly why you
use that phrase and what you meant by it. Mr Bott and Mr Stafford,
thank you very much indeed. We are very grateful for the evidence
you have given this afternoon and for your written submission.
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