Memorandum submitted by The Campaign for
Real Ale (CAMRA)
1.1 CAMRA, The Campaign for Real Ale is
a consumer organisation that seeks to promote real ale, well run
pubs and the interests of consumers. CAMRA has over 95,000 individual
members and is wholly independent from the brewing and pub industry.
1.2 CAMRA believes that competition law
needs to be more rigorously enforced in the beer and pub market
to ensure that the consumer benefits from greater choice and improved
value for money when visiting the pub. Market dominance of the
pub companies through the beer tie has resulted in:
a substantial section of the UK's
pub market being foreclosed to the products of small and medium
the closure of valued community pubs
made unviable by high rents and beer pricesfigures for
the first half of 2008 reveal that closures have accelerated to
36 pubs a week;
the price of beer sold in pubs increasing
at above the rate of inflation.
2. THE UK PUB
2.1 The three biggest pub companies tie
just over 30% of the UK's pubs.
||2008 Number of Pubs|
| Enterprise Inns|| 7,756
|Punch Taverns|| 7,575 (excluding managed pubs)
|Admiral Taverns|| 2,400
|Total UK Pubs||57,000
2.2 In addition to pubs tied by the largest three pub
companies a further 6,700 pubs are tied by brewers and a further
5,869 pubs tied by smaller pub companies. In total therefore about
30,300 pubs in the UK are tied, which is just over 53% of the
total UK pub stock of 57,000.
3. A GUEST BEER
3.1 The "beer tie" is an exclusive purchasing
obligation which forces pub lessees and tenants to buy beer and
other products from a nominated supplier(s) at prices substantially
higher than those available in the free market. This practice
means higher pub beer prices for consumers and reduced consumer
3.2 The introduction of Small Breweries' Relief
in 2002, growing consumer preference for local products and the
enthusiasm and the commitment of dozens of entrepreneurs has seen
a huge increase in the number of UK small brewers. There are now
over 660 independent brewers in the UK compared to just over 440
3.3 Despite the growth in the number of small brewers
the pub market is substantially foreclosed to them because they
are unable to supply the minimum volumes, discounts and logistics
demanded by large wholesale and pub owning companies.
3.4 The Society of Independent Brewers' Direct Delivery
Scheme (DDS) has had some success in enabling local brewers to
deliver direct to pub company pubs. The growth of this scheme
however is hampered by the margin demanded by pub companies, which
reduces the profitability of small brewers and means that the
prices charged to consumers for these beers can be comparatively
3.5 Both small and regional brewers lack the negotiating
power and economies of scale enjoyed by the Global Brewers. A
guest beer right that would apply to all companies with more than
500 tied pubs would resolve these problems by allowing small and
regional brewers to deal direct with local lessees.
3.6 The 2004 DTI Select Committee report concurred with
the view that introducing a guest beer right "of a particular
type, for example cask ales and regional or national specialities,
would run contrary to EU competition law and could lead to the
UK Government being challenged in the European Courts." CAMRA
disagrees with this view for the following reasons:
as the function of a guest beer law would be to
remove barriers to market access not impose them there could be
no conflict with competition laws; and
a guest beer right would be open to brewers regardless
of location. Cask conditioned beers are brewed worldwide by smaller
3.7 While a guest beer right for cask conditioned beers
is CAMRA's preferred option consideration could be given to another
type of guest beer law that would avoid any perceived complications
with EU competition law. A guest beer could be defined as a beer
brewed by a brewer anywhere in the world with an annual production
below 200,000 hectolitres. This reflects the maximum production
limit allowed through the EU's small breweries relief scheme.
3.8 A guest beer right would be a simple and straightforward
measure which would address the problem of the UK pub market being
substantially foreclosed to small and medium sized brewers. Introducing
a guest beer right would be popular among regular pub goers and
pub lesees as well as being in the long term interests of pub
companies by supporting the long term viability of their pubs.
4. PUB BEER
4.1 The current pub company model depends on money generated
from the rent charged to lessees, sometimes referred to as a dry
rent, and money generated from profit the pub company makes from
supplying beer, sometimes referred to as wet rent. Enterprise
Inns generate 47% of their total profits from beer sales and 47%
from pub rents. Punch
Taverns generate 47% of their total profits from beer sales and
43% from pub rents.
Their remaining profits are generated from machine income and
other drink sales.
4.2 Morgan Stanley estimates that a lessee may typically
be charged a wholesale price of £1.10 per pint of lager,
compared to 80p charged to a free trader and 60p to licensee of
a managed pub. These
price differences mean that pub lessees struggle to compete on
price with both managed and free trade public houses, which is
contrary to fair competition and detrimental to the interests
4.3 The UK real ale market is highly competitive and
as a result free of tie licensees are able to benefit from large
discounts. During August this year real ales from Brakspears,
Greene King, Highgate, Batemans and Wadworths were available via
a nationwide wholesaler for between 63p and 72p a pint.
In contrast one of the very cheapest real ales available to a
Punch lessee during August was priced at 96p a pint.
Assuming a gross profit target of 50%, a beer purchased by a licensee
at 72p a pint would need to be sold for £1.69, whereas a
beer purchased at 96p would need to be sold for £2.25 a pint.
4.4 The price of beer in pubs has increased faster than
brewery beer prices over the last 10 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%. This trend indicates a lack of competition and further
investigation is required to establish the degree to which the
existence of the beer tie is inflating the cost of beer in pubs
by restricting competition on beer prices.
4.5 The Interim Results Presentation 2008 for Enterprise
Inns show that they make a 50% gross margin (excluding discounts)
on the beer and cider that they supply to their lessees. Punch
Taverns 2007 Preliminary Results Presentation 2007 shows that
they make a 52% gross margin on the beer and cider that they supply
to their lessees. This level of gross margin appears excessive
when compared to the 25% gross margin made by Enterprise on wines,
minerals and spirits for which the majority of lessees are not
4.6 There are few restraints to prevent pub companies
earning excessive profits from the sale of tied products, primarily
beer and cider. If lessees buy outside of the tie they are liable
to a substantial fine, losing their jobs and being evicted from
their homes. Lessees are able to challenge rent increases but
they are unable to challenge increases in the cost of tied products.
4.7 A column by pub operator, Peter Linacre, in the Morning
Advertiser Trade Newspaper claims that it is the pub companies
not lessees who have benefited from the increased gap between
the price that Brewers sell beer and the price which the consumer
ultimately pays in the pub. According to Peter Linacre at the
start of the pub company leasehold model the average discount
received by pub companies was £120 per barrel, which was
shared equally between lessee and pub company with £20 going
in other costs. This compares unfavourably to the current situation
where a pub company can achieve a discount of £230 per barrel
of which they retain £160, £20 goes in other costs and
the lessee still receives only £50.
4.8 CAMRA believes that a mechanism needs to be established
to ensure that beer price rises in long-term pub company lease
agreements are proportionate to the increases in the producer
price index for beer. It is both unjust and damaging that a pub
company can increase beer prices without effective restraint.
The large margin that pub companies achieve on beer sales is not
adequately counterbalanced by benefits provided to lessees in
terms of investment, business support or rental concessions.
4.9 CAMRA urges this committee to request a study by
the Office of Fair Trading to clearly establish whether the existence
of the "beer tie" has led to tied lessees being worse
off than they would be in the absence of the beer tie. If necessary,
the OFT should then take action to regulate the price that pub
companies can charge lessees for tied products.
5. PUB RENTS
5.1 The introduction of the new British Beer and Pub
Association's Codes of Practice Framework in addition to new company
Codes of Practice is a welcome result of the 2004 Trade and Industry
Select Committee Report. These codes however have not led to an
end to lessees faced with rents at an unsustainable level.
5.2 According to a report from Morgan Stanley pub rents
have increased faster than pub sales and faster than inflation.
An analysis of rent per barrel sold shows a 11% increase per year
at Enterprise Inns and a 4% increase per year at Punch Taverns
since 2002. This
level of increase is considerably higher than rents achieved in
the wider commercial sector. Falling beer sales and a shift to
consumption of beer at home are two reasons why pub rents should
be falling not increasing. The Morgan Stanley report concludes
that 20%30% of tied pubs could be uneconomic due to high
5.3 Rent is generally calculated by deducting overheads
and the proposed new rent from the level of trade that a hypothetical
competent licensee could be expected to achieve and dividing the
remainder equally between lessee and the pub company. The current
rent calculation however takes no account of the revenue lost
to lessees as a result of being unable to buy beer in the free
market. One option to ensure the "beer tie" is fair
and not anti competitive would be to reduce pub rents to take
into account the higher beer prices that lessees are forced to
5.4 The existence of upward only rent reviews and annual
rpi increases regardless of worsening trading conditions can lead
to pubs becoming unviable regardless of the merits of the lessee
and the potential of the pub. Upward only rent clauses should
be made unlawful and annual rpi rent increase should not apply
where lessees have suffered a fall in trade as a result of external
factors. Given the closure of 36 pubs a week these changes need
to be made urgently.
5.5 CAMRA urges the committee to recommend:
an end to upward only rent agreements; and
an end to annual rpi rent increase regardless
of trading conditions experienced by lessees.
6. PUB DISPOSALS
6.1 A pub company will often choose to dispose of a struggling
pub rather than work in partnership with a lessee to improve the
business fortunes. Where a pub company chooses to go down this
route the lessee should be given first refusal to buy the pub.
At the moment it is possible for a pub to be sold without the
knowledge of the existing lessee.
6.2 A particularly deplorable practice is the use of
restrictive covenants to prevent future purchasers from continuing
to use the premises as a pub. The result of this is to restrict
competition and to strengthen the market dominance of an individual
company in a locality. The use of restrictive covenants should
therefore be outlawed.
6.3 The ease with which pub companies are able to dispose
of struggling pubs, usually for alternative development, reduces
the financial incentive they have to work with a lessee to turn
around a struggling pub.
7. RETENTION OF
7.1 CAMRA supports the retention of the beer tie and
opposes efforts to secure its abolition. If operated on a fair
basis the "beer tie" is in the interests of both lessees
7.2 The four largest global brewers operating in the
UK brew nearly 8 in 10 pints sold in the UK.
7.3 The abolition of the "beer tie" could result
in substantially strengthening the market power of these four
global brewers to the detriment of market access for small and
medium sized brewers and consequently consumer choice.
7.4 In summary the beer tie is important in:
providing a low cost entry into pub ownership;
ensuring the survival of the medium sized family
ensuring that the financial loss associated with
any fall in beer sales is shared by the pub company; and
preventing domination of the UK pub market by
the four global brewers.
8. CONCLUSIONS AND
8.1 CAMRA supports the retention of the beer tie but
believes action is necessary to ensure that the tie acts in the
best interests of consumers.
8.2 The consumer has been faced with above inflation
increases in the price of beer sold in pubs partly as a result
of pub companies earning a large margin on their beer sales. The
consumer has also lost out on greater consumer choice as the beer
tie restricts the choice of products available to lessees.
8.3 CAMRA recommends the following:
The introduction of a guest beer right to address
the foreclosure of the pub market to smaller brewers and lack
of consumer choice.
That the the Office of Fair Trading conducts a
study to clearly establish whether the existence of the "beer
tie" has led to tied lessees being worse off than they would
be in the absence of the beer tie. If necessary, action should
then be taken to ensure lessees and consumers are no longer disadvantaged.
That where a pub company chooses to sell a pub
they must first offer it for sale to the existing lessee.
That it should be unlawful for a pub to be sold
with a restrictive covenant in place preventing any purchaser
from continuing to run the pub.
An end to upward only rent agreements.
An end to annual rpi rent increase regardless
of trading conditions experienced by lessees.
29 September 2008
British Beer and Pub Association-Press release-Pub closure rate
accelerates to five a day-08/09/08 Back
Small Breweries Relief means small brewers benefit a reduction
in excise duty of up to 50%. Back
Totals taken from CAMRA's Good Beer Guide 2004 and 2009. Back
Interim Results Presentation 2008-Enterprise Inn. Back
Preliminary Results Presentation 2007-Punch Taverns. Back
Morgan Stanley Research-Leisure and Hotels, Leased Pubcos: Avoid-September
Available during August through WaverleyTBS who have a UK wide
distribution network. Back
Figure taken from Punch Taverns' price list dated 7 July 2008. Back
British Beer and Pub Association-Statistical Handbook 2008. Back
Peter Linacre-Demand down, price up-please explain. Morning
Advertiser-18 September 2008. Back
Morgan Stanley Research-Leisure and Hotels, Leased Pubcos: Avoid-September