Memorandum submitted by the Society of
Independent Brewers
1. SUMMARY AND
PROPOSED REMEDY
1.1 The 2004 T&ISC inquiry found that
the ability of public houses to offer a broader range of products
is important in the interests of extending consumer choice, and
in the absence of the legislative option, recommended that pubcos
allow their tenants more flexibility in the choice of products
they sell.
1.2 Since 2004 there has been a strong increase
in general consumer demand for local produce. The number of local
or small breweries has greatly increased to enable this demand
to be met.
1.3 Small brewers are overwhelmingly dedicated
to cask conditioned ale which is uniquely brewed for on-trade
consumption.
1.4 The benefits of a wider availability
of craft beers from small brewers are increased market competition
resulting from wider consumer choice of quality, innovative products
and general improved business performance for relevant stockists.
1.5 Barriers to the availability of local
beer remain, however, most notably through pubcos logistics demands.
1.6 SIBA operates a Direct Delivery Scheme
(DDS) adapted to the preference for centralised logistics operated
by pubcos to thus widen the availability of local beer to consumers
and retailers.
1.7 Despite acclaim for DDS, growing consumer
demand for local produce and the demonstrable success of local
beer the availability of local beer and the acceptance of DDS
by pubcos has been restricted. By the end of 2007:
— only 15% of tenancies and 31% of
leased pubs stocked a local brewery's beer, compared to 56% of
freehouses; and
— DDS had only been embraced by 3 pubcos
representing just over a quarter (26%) of the tenanted, leased
and managed pub universe.
1.8 SIBA proposes that:
— DDS is a proven commercial solution
to improving market competitiveness, meeting consumer demand for
local produce and allowing tenants more flexibility in product
range while acknowledging pubcos' logistical practices;
— Pubcos should be strongly encouraged
to embrace DDS with greater commitment; and
— in the absence of such commitment
there is no alternative but to seek a legislative solution. As
cask conditioned ale is the only product available to pubs that
is produced locally throughout the country the remedy is to therefore
exclude cask conditioned ale from the tie.
2. INTRODUCTION
2.1 This paper details the submission by
the Society of Independent Brewers (SIBA) to the Business &
Enterprise Committee's follow up inquiry into pubcos.
2.2 SIBA is a trade organisation founded
in 1980 to represent the interests of the UK's independent brewers
which number approximately 650; approximately two-thirds of them
are SIBA members. SIBA is consequently the UK's most representative
member based brewing organisation.
2.3 SIBA notes that in the course of the
investigation "the Business and Enterprise Committee, in
re-visiting this subject, is interested in whether the conclusions
of their predecessor still stand and how its recommendations have
been applied".[44]
2.4 SIBA proposes that the conclusions and
recommendations of the 2004 T&ISC pubco inquiry which are
relevant to its members are as follows:
2.4.1 That small brewers may be disadvantaged
by the requirements set by pubcos.[45]
2.4.2 "...The ability of public houses
to offer a broader range of products, for example to satisfy demand
for local products, is important in the interests of extending
consumer choice. In the absence of the legislative option we would
recommend that pubcos allow their tenants more flexibility in
the choice of products they sell. The early adoption of such practices
should afford more opportunity for small brewers to participate
in the market." (para 61).[46]
2.4.3 "Pubcos' centralised distribution
facilities enable small brewers who are `willing and able' to
deliver to regional depots to have access to a far wider geographical
market that ever before. However, we are concerned that alternative
beer distribution arrangements for those small brewers which are
not `willing' or `able' are dwindling, with the [then] recent
acquisition of Beer Seller by one of the big three centralised
logistics companies, Scottish Courage. For those small brewers
for whom barriers still exist, [the] Society of Independent Brewers'
Direct Delivery Scheme' suggests one possible way forward, especially
if operated on a regional basis." (para 66).[47]
3. THE SMALL
BREWING INDUSTRY
3.1 While brewing membership of SIBA is
open to all breweries the vast majority of SIBA's full brewing
members are small brewers classified by HM Revenue & Customs
as either micro brewers (output of less than 5,000 HL pa) or local
brewers (output of between 5,000HL and 30,000HL pa)
3.2 The 2004 T&ISC inquiry reported that
pubco operating practices are responsible for market barriers
to the participation and development of small brewers, most notably:
— the onus of proving market demand
for local beer;
— the ability to fulfil potential orders
from pubcos;
— the agreement to supply at the price
demanded by the pubco; and
— the ability of brewers to comply
with the logistics demands of the pubco.
3.3 SIBA operates a Direct Delivery Scheme
(DDS) adapted to the preference for centralised logistics operated
by pubcos to thus widen the availability of local beer to consumers
and retailers.
The scheme enables multiple retailers to trade
more simply with local brewers while maintaining the administrative
and logistical simplicity of dealing with a single contact point.
An internet-based administration system developed by SIBA effectively
provides multiple retailers a portal to a wide choice of suppliers
without a need to contact them. Order placement, billing and payment
is centralised so that the retailer deals with a single contact
point operated by SIBA DDS who then have responsibility for communication
with local brewers. This similarly enables local brewers to sell
and deliver directly into the local outlet of a multiple retailer
without the need for the brewer's communication with the multiple's
head office.
3.4 The benefits of a wider availability
of craft beers from small brewers are increased market competition
resulting from wider consumer choice of quality, innovative products
and general improved business performance for relevant stockists.
3.4.1 The quality and consumer appreciation
of micro and local brewers' beers can be demonstrated by SIBA
members' overwhelming success in industry awards.[48]
3.4.2 Small brewers are highly innovative
and responsible, for example, for the introduction of new beer
types such as golden ales and catering to niche markets such as
diet intolerance through the first British-brewed gluten-free
beers.
3.4.3 In a 2006 survey of 200 pubco-owned
pubs SIBA found a very positive trade response to its Direct Delivery
Scheme among existing stockists, the majority of whom judged that
it had contributed to growing not just beer sales but total pub
business with the most common reasons mentioned being a greater
choice and availability of local ales.
3.4.4 The benefits of trading with small
brewers are thus consistent with the general benefits of trading
with small and medium sized enterprises including: greater competition
reducing costs from all suppliers; ability to tailor products
to meet customer needs; innovation through exploitation of new
technology or providing products in new or underdeveloped markets
(source: Small Business Service).[49]
4. PROGRESS MADE
SINCE 2004
4.1 Local breweries have grown output typically
by 10% p.a. since 2004, partly on the back of continued growing
demand for local food and drink, usually defined as food and drink
that has been produced and marketed within a 30 mile radius. Local
beer is one of the few growth areas of the British beer market
and local breweries can thus demonstrate the ability of consumer
demand for local beer to grow sales for appropriate retailers
if allowed the opportunity to stock it.
4.2 This growth has, however, been from
a low base and small brewers are still estimated to only comprise
1.6% of the beer market which remains dominated by large brewers.
The only remaining British brewer was recently acquired by a multi-national
and the largest regional breweries have continued an acquisition
programme which has ensured their re-classification as super-regionals.
4.3 The effectiveness & efficiency of
DDS was recognised in the BBC 2007 Food & Farming Awards where
it won the "Best National or Regional Retailer Initiative"
category.
4.4 DDS has been actively marketed to pubcos
through advertising in trade press, direct marketing and selling
efforts, press coverage and a significant trade show presence
since the 2004 inquiry.
4.5 There have been improvements in the
incidence of small breweries trading with pubcos, due in large
part to the growth of beers supplied through DDS, but the availability
of local beer is still greatly restricted:
4.5.1 In SIBA's 2007 member survey:
— two out of every 10 small breweries
did not trade with a single pubco;
— more than half (55%) of local breweries
did not count a pub-owning brewer among their customer base;
— local brewers lose on average 6-8
customers each year to their acquisition by a multiple pub operator;
— four out of five local brewers did
not deal with any of the big three outsourced logistics operators;
and
— one in three local brewers had lost
a customer because of trading difficulties with these big logistics
companies.
4.5.2 Despite the success of DDS among a
few customers, national recognition of its efficacy and heavyweight
marketing activity, by the end of 2007 DDS had only been embraced
by three pubcos representing just over a quarter (26%) of the
tenanted, leased and managed pub universe.[50]
Furthermore, nearly 70% of the value sales of local beer to the
on-trade through DDS are to a single customer.
4.5.3 The consequent restricted availability
of local beer is further underlined by recent pub trade press
surveys:
4.5.3.1 Of the 650 pubs surveyed by The
Publican[51]
only 15% of tenancies and 31% of leased pubs stocked a local brewery's
beer, compared to 56% of freehouses. 9% of pubs were using DDS.
4.5.3.2 Two-thirds of licensees are aware
of the demand for local beer but just over a third have yet to
offer it to their customers.[52]
September 2008
44 Business & Enterprise Committee PN46, 25 June
2008. Back
45
Ibid. Back
46
House of Commons Trade & Industry Committee Pub Companies,
2nd report of session 2004-05. Back
47
House of Commons Trade & Industry Committee Pub Companies,
2nd report of session 2004-05. Back
48
CAMRA 2008 Champion Beer of Britain was won by a SIBA member for
the 8th consecutive year; in the CAMRA 2007 Champion Beer of Britain
SIBA members won gold in all seven categories; in the International
Beer Challenge 2007 SIBA members won five of the 12 categories
in this competition open to breweries from around the world and
in the Tesco Drinks Awards 2007 SIBA members were the only British
winners in the beer style categories. Back
49
Small But Making Big Leaps, The Grocer, 15 July 2006. Back
50
AC Nielsen, The UK Drinks Market 2007. Back
51
The Publican Beer Report, November 2007. Back
52
Ibid. Back
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