Beer prices to fall as OFT opens inquiry as OFT inquiry start

The price of beer could fall as a result of an Office of Fair Trading investigation launched yesterday into the big brewers' wholesale prices.

With brewing shares under assault after the surprise decision was announced, there were also suggestions that the inquiry could hasten the decline of the tied public house system operated by the beer industry.

The OFT believes brewers are charging free trade customers 15p to 30p a pint less than their own tied tenants - a 20 to 40 per cent difference in the wholesale price of around £200 a barrel.

It wants to know why this is happening and is threatening a new Monopolies Commission investigation if it does not get satisfactory answers from the brewers - or alternatively their agreement to a policy change.

Brewers claim the high prices are offset at least in part by other more favourable terms of their leases, including the rents.

The immediate concern is the price charged to tenants of Inntrepreneur, the chain of 4,300 pubs owned by Grand Metropolitan and Courage.

The inquiry is a victory for the Inntrepreneur tenants, who have been campaigning for a fairer deal from their landlord and have taken it to court.

But the OFT made clear that the inquiry is a much wider one into pricing policies among all the large brewers which operate similar systems.

The probe began at the European Commission, which raised concerns that Intrepreneur tenants are obliged by their leases to buy beer from Courage at significantly higher prices than those charged to free trade customers, with whom they are often in competition.

The differentials were spotted when the commission examined an application by Inntrepreneur for exemption from EC competition law, which would otherwise lead to a ban on the tied house system.

The OFT said it had agreed with the commission that as the UK authority it was better placed to inquire into industry-wide beer differentials. The European exemption application is on ice while the three-month OFT inquiry takes place.

Sir Bryan Carsberg, director general of Fair Trading, said: "My aim will be to identify the effects of the differentials in wholesale prices of beer on the competition between tied and free pubs and decide what, if any, action is needed to ensure that competition and choice develop as effectively as possible.''

The decision led to buckpassing in the industry, with some big firms privately claiming that the real targets were Inntrepreneur and Courage rather than their own operations - and the latter two insisting that it was a genuinely industry-wide investigation into all big brewers with tied houses.

Inntrepreneur said the inquiry focused primarily on pricing policies and it rejected suggestions that it would extend to the UK's tied house system. It was "confident that the structure of the Inntrepreneur lease is lawful and enforceable.''

Sir Bryan made clear that the OFT inquiry would take into account lower rents to tied tenants and the benefit to consumers of price competition among the large brewers.

The OFT acknowledged that the price differential has existed for a long time but has widened sharply in the last couple of years. Analysts blamed this on intense bargaining for discounts on beer by large independent chains of free houses, exploiting the intense competition among brewers as off-sales rise and consumers switch to cheap cross-Channel imports. Scottish & Newcastle has already begun to give wholesale discounts to tied tenants.

John Spicer of SG Warburg, said `'Beer prices will come down. Whether they get passed on to the consumer is another thing altogether.''

Geof Collier of NatWest Markets said that if the tied houses all won the discount now offered to free houses, pre-tax profits of Allied would fall 2 per cent, Bass 3 per cent and Whitbread 5 per cent. But yesterday's share price falls fully reflected this. He believed the inquiry would be the prelude to an eventual removal of the tie for pub tenants.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Client Services Assistant

£18000 - £20000 per annum: Recruitment Genius: A Client Services Assistant is ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor