Appendix 2: OFT Response
In the Report the Committee recommended that the
OFT:
— reconsider the definition of the retail
market for beer and establish mechanisms for monitoring it; and
— keep the distribution market under close
and regular scrutiny.
MARKET DEFINITION
The OFT welcomes the Committee's comments on market
definition in the beer sector. As a general matter the OFT approaches
market definition on a case-by-case basis using precedent as a
guide but not as a substitute for rigorous analysis of the facts
of the case in hand and in light of prevailing economic and legislative
circumstances. As John Vickers explained in Oral Evidence, "It
is not an issue of doctrine here that there is [a] unique way
of doing it […] You have got to look at all the evidence
in the round." (Q610)
The OFT's consideration of the complaint submitted
to it by the FSB reflects this approach. In assessing at a very
preliminary stage whether the OFT had reasonable grounds to suspect
an infringement of the Competition Act 1998, the OFT considered
a number of possible market definitions. These included all "on-trade
outlets" and "pubs only".[2]
Current evidence suggests to the OFT that the on-trade
sector is reasonably competitive and that no one pub company holds
a dominant position in the wholesale market for beer (conclusions
confirmed by the Committee).[3]
In keeping with a case-by-case approach, the OFT has to date left
open the question of whether all on-trade premises are in the
same market or whether pubs might comprise a separate market.
However, the OFT has kept and continues to keep market definition
in the beer sector under review.
The OFT fully concurs with the Committee's observation
that, from a consumer's viewpoint, there is a difference between
going out for a drink at a pub and going out for a meal at premises
where alcohol may be consumed. As noted in the OFT Report on the
Supply of Beer (2000), the retail on-trade market has become increasingly
differentiated and subject to changing fashions.[4]
Likewise we agree that there is no simple distinction between
pubs and other on-trade premises.[5]
As the Committee identifies, the changing licensing
laws could have an impact on the issue of market definition in
this sector.[6] For this
reason, the OFT last autumn approved the commissioning of an independent
study in relation to market definition in the beer retail market
for the purposes primarily of merger review. The study, which
has now commenced on a feasibility basis, is specifically considering
the increasing differentiation of the retail on-trade market in
addition to addressing the implications of the forthcoming licensing
changes. Although the emphasis of the study is on merger analysis
its findings will also inform the OFT's consideration of allegations
of anti-competitive behaviour.
DISTRIBUTION
The Report concludes that in the distribution market
for beer there is the strong possibility of anti-competitive consequences.[7]
The OFT has reviewed with interest the Committee's concerns in
relation to this market. As discussed with the Committee, the
OFT has not received any complaints relating to the distributors
and has no evidence that the distributors may be party to agreements
or be abusing a position of dominance in a manner which infringes
competition law.[8] If
such were the case, we reiterate our statements in Oral Evidence
that we would very much welcome evidence of it. The evidence the
OFT has does not suggest that any of the distributors is dominant
and we refer in particular to the two recent mergers reviewed
by the OFT and the European Commission respectively cited below.
As the Committee confirms, the OFT has examined relevant
mergers which have affected this market in the UK. In 2002, the
OFT investigated the acquisition by TradeTeam of the distribution
business of Interbrew.[9]
The acquisition by Scottish & Newcastle of Bulmers (which
owned The Beer Seller) in 2003 triggered the thresholds in the
EC Merger Regulation and therefore fell under the jurisdiction
of the European Commission rather than the OFT (although the OFT
submitted comments to the European Commission onit). In its Decision,
the European Commission considers the Beer Seller's role as an
independent wholesaler but concludes that no competition concern
arises.[10]
In conclusion, the OFT is grateful to the Committee
for highlighting the potential for anti-competitive consequences
in the distribution market and the difficulties faced by small
brewers in gaining access to retail outlets. The OFT stands ready
to consider any allegations of anti-competitive agreements or
conduct in this market, in addition to reviewing any further mergers
in this sector.
FURTHER COMMENTS
More generally, the OFT agrees with the Committee's
finding that no one company holds a dominant position in the supply
of beer nationally and that the brewing and on-trade sectors are
reasonably competitive. That being so, the difficulties faced
by tenants and small brewers—in particular relating to contractual
matters—do not constitute grounds upon which the OFT can
exercise its competition enforcement powers. The OFT's powers
of investigation are circumscribed by law. As the Committee is
aware, the OFT can only exercise its investigatory powers under
the Competition Act 1998 if it has reasonable grounds for suspecting
that the Act has been infringed[11]
or under the Enterprise Act 2002 if it has reasonable grounds
for suspecting that the structure of the market or conduct of
suppliers, purchasers, or customers is harming competition.[12]
Nevertheless, the OFT recognises that some tenants
and small brewers are facing real and serious difficulties and
we welcome the Committee's work in highlighting them and its recommendations
to industry to address them. In particular we support the Committee's
comments on the importance to tenants of obtaining full information
and professional advice before entering into a lease agreement.
2 OFT letter to FSB, 27 March 2003. Back
3
Pub Companies Report, paragraphs 19 and 46. Back
4
OFT 317, paragraphs 2.15 and E13-E20. Back
5
OFT submission to the Committee, 02 June 2004, paragraph 4. Back
6
Pub Companies Report, paragraph 37. Back
7
Pub Companies Report, paragraph 71. Back
8
OFT letter to the Committee, 27 September 2004, question 6. Back
9
This Decision is not public, but background information on it
was provided to the Committee. OFT letter to the Committee, 27
September 2004, question 6. Back
10
Case No COMP/M.3182, 30 June 2002, paragraphs 27 - 38. Back
11
OFT letter to the Committee, 27 September 2004, question 6. Back
12
OFT submission to the Committee, 02 June 2004, paragraph 26. Back
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