Brewers cleared of price bias
Wednesday 17 May 1995
Sir Bryan Carsberg, the OFT director general, said there was no need to refer the issue to the Monopolies and Mergers Commission, a decision which wascondemned by managers of tied pubs.
Shares in brewing companies rose as the air of uncertainty lifted and analysts speculated that the decision would spur on two long-awaited bids. Scottish & Newcastle is tipped to take over Courage, and Whitbread is rumoured to be planning a buy-out of Allied Domecq's share of its Carlsberg- Tetley joint venture.
The OFT launched its inquiry into breweries' wholesale pricing policies in February after complaints that companies charged higher prices to tied houses than to free houses.
The report found that on average free houses were paying 19 per cent a barrel less for lager and 13 per cent a barrel less for bitter from big brewers. However, Sir Bryan said these higher charges were offset by other factors benefiting tenants - cheaper rents, insurance and training, and discounts on non-beer items.
He said: "While I acknowledge that a minority of tied tenants on long leases have experienced some hardship, I do not believe that the differential wholesale pricing policy of brewers has in general placed the tied trade at a disadvantage to free houses.
"While the exact trade-off between the value of discounts on the price of beer and other benefits cannot be a subject for precision, I do not believe that price differentials have, in general, operated to the detriment of the tied trade."
The dispute over wholesale beer prices emerged as competition in brewing intensified and brewers began granting big discounts to independent pub owners to persuade them to stock their products.
Thousands of tied tenants have complained at being locked into long leases, at a time when they face the additional pressures of rising home drinking and cross-Channel shopping.
Sir Bryan acknowledged that some tied tenants had found obligations imposed by their leases difficult to meet. Some tenants were not aware of the responsibilities imposed on them relating to repairs, insurance, or rent reviews.
"While I recognise that a tied tenancy enables a publican to enter the industry without a large personal financial commitment, I am calling on landlords to ensure that prospective tenants are fully aware of their future financial obligations before they enter into pub leases."
Brewers welcomed the news, with Whitbread and Scottish & Newcastle saying it vindicated their tenancy arrangements. Michael Foster, executive chairman of Courage, said: "The major brewers, including Courage, have played a substantial part in ensuring that all customers receive the best value possible."
However, Martin Moore, chairman of the Inntrepreneur Lessees Action Group, said his members were stunned by the decision. "It is rubbish of Sir Bryan to suggest that tied tenants do not operate at a disadvantage.'' He said the group would continue its fight through the European Commission.
Investment column, page 34
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