The Monopolies and Mergers Commission
investigation
160. In 1989 the Monopolies and Mergers Commission
(MMC) (now the Competition Commission) issued a report on the
retail market for beer following a detailed investigation.[245]
The Report found that a complex monopoly situation existed by
virtue of the fact that over half of all public houses were owned
by six national brewers who accounted for three quarters of UK
beer production. The MMC concluded that this complex monopoly
operated against the public interest in the following ways:
a) the price of a pint of beer in a public house
had risen too fast in the previous few years;
b) the high price of lager was not justified
by the cost of producing it;
c) the variation in wholesale prices between
regions of the country was excessive;
d) consumer choice was restricted because one
brewer did not usually allow another brewer's beer to be sold
in the outlets which he owned. The same restriction was also
often applied in loan-tied outlets;
e) consumer choice was further restricted because
of brewers' efforts to ensure that their own brands of cider and
soft drinks were sold in their outlets;
f) tenants were unable to play a full part in
meeting consumer preferences, both because of the tie and because
the tenant's bargaining position was so much weaker than his landlord's;
and
g) independent manufacturers and wholesalers
of beer and other drinks were allowed only limited access to the
on-licensed market.
We believe that many of these conditions can be found
in the market today.
(a) and (b) Price of beer and lager
161. CAMRA have found that the price of beer
in pubs has increased faster than brewery beer prices over the
last ten years. Between April 1998 and April 2008 the UK producer
price index (including excise duty rises) for beer increased by
31.8%, whereas the retail price index for beer on-sales increased
by 39.4%.[246] CAMRA
have also analysed, from surveys they have carried out in the
last year, the difference in the price of beer between the on-trade
and the off-trade. Their data shows that in August 2008 the off-trade
price of a standard lager was as low as 81p a pint. Surveys carried
out pre and post the March 2008 Budget found standard lager selling
in the on-trade at between 265p (March 2008) and 282p (June 2008).
On this basis, the on-trade price of a pint of beer can be estimated
to be about 3.3 to 3.5 times more than the off-trade price.
162. This graph from Morgan Stanley demonstrates
the divergence in price between the on and off trade since a couple
of years before the Beer Orders in 1989:
Fig.6
In addition the following chart from Morgan Stanley
shows the price difference of beer between managed pubs, leased
pubs and supermarkets with recent price increase differences:
Fig. 7
Source: Morgan Stanley
163. The evidence relating to the tie's effect
on prices overall is not altogether straightforward. There is
some indication that the differential between tied and managed
pubs has reduced recently, and managed and free of tie pubs can,
of course, charge lower prices and frequently do so, for example
Wetherspoon's much promoted 99p pint. However, it is possible
that the large market share held by the pubcos may result in their
prices setting a norm which is followed by the rest of the market,
subject to occasional discounting. The Good Pub Guide told us
"Our impression is that both the higher-than-inflation increases
in pub beer prices shown year after year by our annual surveys
and the significant regional variations in pub drinks prices owe
much to the influence of the biggest pubcos."[247]
We believe this needs to be investigated.
(d) and (e) Consumer choice
164. The fact that tied pubs are restricted to
the pubco's list of approved products restricts the lessee's ability
to respond to the market. This is detrimental to the consumer.
To give one example, the supply of locally brewed beers may be
affected. A report in 2007 found that two thirds of licensees
were aware of the demand for local beer but only a third were
actually offering it to their customers.[248]
In addition the Society of Independent Brewers (SIBA)'s figures
showed that only 15% of tenancies and 31% of leased pubs stocked
a local brewery's beer, compared to 56% of freehouses. The reasons
for this are explored more fully in paragraphs 166-168 below.
(f) Tenants' bargaining position
165. This has not improved since 1989. As we
have seen lessees are still in a much weaker bargaining position
than their pubco. This means that they are unable to negotiate
discounts, guest ale provision or lower rents, all of which benefit
the consumer through lower prices and wider choice. As one lessee
told us "Yes we signed a legally binding contract but I didn't
sign up to massive price increases year on year."[249]
Fair Pint Campaign gave the following table showing the increase
in Enterprise's prices:
Table 13: Enterprise Price Increases
