Pub Companies - Business, Innovation and Skills Committee Contents

Written evidence submitted by Stephen D. Corbett


1.1  My observations are underpinned by thirty years of professional experience in the pub trade. I write this submission from the view point of someone with both free-of-tie and tied pub experience having operated pubs, bars and restaurants all of my adult life. Most recently I operated a busy tied Enterprise Inns pub with takings of over double the national average. My pub closed its doors for the final time in November 2009. The closure of the pub took with it my entire life savings leaving a financial black hole of over £250,000. I have not operated a tied pub since.

1.2  In 2008, along with five industry colleagues, I founded the Fair Pint Campaign which was borne out of the frustrations of the iniquitous beer tie and immoral actions of the pub companies that operate it. Fair Pint is a coalition of supply-tied lessees and other industry professionals who have come together to ensure fairness for the many thousands of tied tenants who are struggling at the hands of their pubcos and brewers. In particular, the campaign has looked to expose the complete lack of regard that pubcos have paid to the 2004 T&ISC, 2008 BESC and the 2009 BISC inquiries and to persuade the Government to intervene and take regulatory action to ensure all tied tenants are given a genuine option to be released from their beer tie arrangements.

1.3  Both the BESC in 2008 and the BISC in 2009 made some sensible and powerful recommendations designed to secure the future of the British pub and breathe life back into a sector so badly in need of reform. Sadly, almost two years after the last inquiry the situation for tied tenants has worsened. Pubcos, whilst papering over some of the committees low priority concerns, have largely ignored the substantive issues concerning tenant's personal income and business profitability. The tied supply model and the property companies that operate it are the main contributor to pubs systemically going out of business with thousands of tied tenants losing their pubs, their homes and their livelihoods. Even as government observes the practices of the pubcos is this period of self-proclaimed reform it is abundantly clear that the very existence of the model has created a restrictive and anti-competitive market place which has effectively enslaved the tied tenant through rental guidance manipulation and charging excessively for beer.


2.1  The pub industry is seeing an annual decline in beer sales or approximately 10% year on year, but surprisingly the numbers of UK companies brewing beer has increased to almost 1,000. There are over 3,000 brews available in the British market place yet many brewers still find it difficult to gain access to market as they have to conform to a standardised price structures for brand representation of pubco product lists. The Society of Independent Brewers (SIBA) is the only pubco accepted route to market for the majority of British brewers and to become a member of SIBA the brewer must agree to sell beer within a stringent pricing arrangement. Up until 2009 those pricing obligations were available on the SIBA website. They were removed in 2009 just prior to an OFT investigation.

2.2  SIBA offer a Direct Delivery Scheme to the major pubcos as a cover to seek to deter allegations that they are foreclosing the market. The Direct Delivery Scheme does provide access to a market which would otherwise be totally foreclosed, but the scheme is far from ideal and it is difficult and expensive for brewers to engage with it. Fundamentally, the tied tenant remains unable to negotiate prices.

2.3  Although the scheme is a national one, it is far from ideal, it relies on brewers delivering their own products to pubs. This means that the range of beers available to each publican is limited to brewers who are willing to deliver to them.

2.4  It is accepted and understood by the industry as a whole that small independent brewers will be required to standardise their list prices in order to the meet the requirements of the pubcos. Price fixing remains illegal in the UK.

2.5  Levels of discounts offered to publicans on tied products are similar between individual pubs, but there is a pattern in arrangements which mean that beers from small brewers receive either significantly less discount or no discount at all. This means that beers from small brewers either have to be sold at a higher price if the publican is going to make the same margin. This means that the market for beer from small brewers will be restricted as, despite the attractiveness of beer from small brewers, consumers will be reluctant to pay inflated prices.

2.6  Despite claims that the scheme gives smaller brewers access to thousands of pubs throughout the country, the fact that brewers have to deliver their own products means that the advantages to them in terms of expanding their potential customer base is limited. In reality the Direct Delivery Scheme, as orchestrated by the pubcos, is simply a way of small brewers purchasing the right to sell to tied pubs, which raises a number of competition related concerns.


3.1  Strangely, in a declining market place with less demand for a product we have an increase in the number of suppliers. In a normal free and competitive market place with an over-supply of goods you would normally expect the price of those goods to decline. This is not so in the UK beer market.

3.2  Because of the dominance of the pubcos and their collective buying power, (Punch and Enterprise collectively own around 30% of all Britain's pubs) they could command bigger discounts from the brewers. Brewers faced with a problem of a declining market had no choice but to accept the price offered by the dominant pubcos or else risk having their products removed from pubco price lists. In November 2008 Enterprise Inns threatened to remove Carlsberg and Castlemaine XXXX from their price list which would have seem the removal of these products from almost 8,000 pubs across the country. Carlsberg had little choice but to comply.

3.3  The price of beer sold to the entire pub sector is accomplished by a complex discounting arrangement whereby free of tie pubs (FOT) are able to command volume related discounts set against a national brewer's price list. Typically a small independent FOT pub can command around £200 a barrel discount yet a tied pub, which can only buy products from their pubco at a price set by that pubco, is unable to negotiate discounts and is therefore restricted to pay the artificial national brewers list price.

3.4  Put simply, the pubcos acting as a middle man in the supply process colluded with the brewers to collectively force up the wholesale beer price so that they could collectively take the lion's share of tied tenant's profits. This has led to tied beer prices now sitting around double those available to a FOT pub leaving tied tenants unable to compete in a highly restrictive market place. This point alone is the single most important factor in the widespread closure of pubs and the unprecedented number of business failures across the UK.

3.5  Pubcos do offer a small amount of discount to some of their tenants and therefore claim to be sharing the benefits of their purchasing power. However, the brewery list price has become so divorced from the actual open market wholesale price of beer to become meaningless, apart from a way for pub companies to be able to claim that they are selling at a discount whilst considerably overcharging their tenants.

3.6  The significant divergence of list prices from wholesale prices would make no commercial sense if the market were an open and competitive one. I believe that there is prima facie evidence of market distortion which should be further investigated.

3.7  Pubcos demands for higher and higher discounts have led to increases in the list price charged by brewers. We are now faced with a situation where the list price is totally unrelated to the actual open market wholesale price. This is the product of pubcos demands for higher discounts. Rather than acting as a downward pressure on wholesale prices as the OFT suggested in 2004, the pubcos' demands for higher discounts have led to an upward pressure on list prices which is the price, less their small discount, paid by tied tenants.

3.8  Pub companies are motivated by increasing the difference between the prices they buy beer at from brewers and the price they sell it to their tenants. They have no interest in pressing brewers for lower prices if they can make their margins by increasing the list price and therefore the price that their tenants pay.

3.9  There are many instances of small brewers being asked to raise their list price in order to be accepted on a pubco price list. Evidence given to the Trade and Industry Select Committee inquiry into Pub Companies in 2004, explains how this happens:

It was suggested to us that small brewers found it difficult to gain wholesale price "listings" for their products from pubcos because small brewers' price differential, or discount, was considered too low by pubcos. One small brewer told us when they tendered their product to a particular pubco, the pubco "had no interest in the price we would actually sell our beer to them for, or even what the price to the tenant would be. What they were interested in and were very interested in was DISCOUNT". Their tender was rejected due to the low discounts they were quoting. The small brewer re-tendered the following year quoting a higher wholesale price: "our solution was simple for the following year—up went our list prices and up went our discount, the price we quoted was exactly the same but the pubcos' slice goes up".

—  3.9.1  The repercussions of the wholesale anomaly have reached far wider than most educated people could have ever imagined. The industry regulators either chose to ignore price rigging in the sector or effectively didn't fully understand the complex nature of the brewer's barrel discount arrangement as market distortion touched all most every part of the UK beer market.

—  3.9.2  Pubcos offering free of tie pricing (In some cases this can be as mush as £100-160 a barrel) does not solve the problem and equates to nothing more than a temporary discount scheme. A sticking plaster over a gaping wound if you like. As recently as 2001, the price differential between the tied and free of tie sector was marginal but with tied tenants inability to negotiate more competitive prices this gap in price/discount rapidly increased. Relying on pubcos to offer competitive prices to their own tenants is a dangerous game as we have already seen. Once the eyes of government have been removed from the sector, an unregulated an archaic discount system based entirely on trust (price does not form any part of a tenants lease agreement) will still allow the pubcos to manipulate the barrel price and claw back, in a relatively short space of time, any lost profit.

I believe the above supplies sufficient evidence to show that a cartel or concerted pricing practice operates which are contrary to basic Competition principles.


4.1  The pubs should be put back in the hands of the people who care; the people who have a direct interest in not only the welfare of the pub and its customers but the very community in which the pub sits. Before the pubcos emerged from the 1989 Beer Orders, the pubs were the centre of the community, a place that not only the tenant and his staff worked, but a place where they raised their families and cherished the whole experience. They may not have owned the bricks and mortar but the relationships with the brewers were based on honesty, integrity and respect. The Industry has had its differences throughout history, but never has it faced the problems it faces now. The pubcos, aggressive in their methods, have taken the trade down a dead end street. Without government intervention the pubcos and brewers that copy their model will continue to destroy the very backbone of Britain's heritage.

4.2  Our great Industry is at deaths door, thousands and thousands of tied tenants through a combination of high rents and vastly over inflated beer prices have either closed their pub doors or are just waiting for the inevitable. The tied business model was built and operated on an aggressive combination of acquisition and growth and the pubcos have totally abused their power. All along this corporate growth ladder tenants have been falling off the rungs by the bucket load. Who really knows the true cost or damage to society that these sinister and immoral pubco actions may have caused.

4.3  The 2009 BISC committee advised that the OFT could not be trusted to investigate the relationship between pubco, tenant and consumer. This recommendation sadly, turned out to be correct. A Competition Commission referral, as outlined in the BESC 2008 report, remains the only comprehensive option for safeguarding half the nations stock of pubs. At the very least the Business, Innovation and Skills Committee should stand by their previous recommendation that all tied tenants should be given an option to be free of tie and this should be accompanied by an open market rent review. This option alone will redress the imbalance of power and allow tied tenants to police their tieing arrangements with their dominant and abusive landlords.

4.4  I would be very willing to provide further information on any points that might require further clarification, and would be delighted to give oral evidence to the Committee.

June 2011

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Prepared 6 October 2011