City: Short changed

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The Independent Online
Recession, political pressure, the condemnation of the Monopolies and Mergers Commission, government action, uncle Tom Cobbley and all; nothing it seems can prevent the upward march in beer prices. Admittedly, the latest round of increases, adding up to 10p to the cost of a pint, is not nearly as offensive as last year when prices rose by an average 14 per cent. But it is bad enough at a time when many food prices are deflating. You would have thought that with sales under pressure, brewers and publicans would be engaged in cut-throat price competition to attract custom. That is the case with just about every other consumer product in the land; why is beer so special?

The answer, as we all know, is that brewing is not quite like any other industry. If you believe the brewers, the reason is simply that sales of beer are not so price-sensitive as other products. Whatever else people cut back on in a recession, it is not visits to the pub. Brewers are not in the business of charity. If you can get away with raising prices without unduly damaging demand, why not, the commercial argument goes.

They may have a point, I guess, but somehow I doubt that prices would be rising right now but for the continued monopoly power of the beerage. By hook or by crook the big brewers have managed to maintain their stranglehold on the market. Attempts by the Government to curb the industry's excesses have so far proved worthless. About the best that can be said for them, if you are vindictive, is that at least they have hit the main players where it hurts most. The measures have been enormously costly and highly disruptive. But in terms of improving the lot of the consumer, which after all was the object of the exercise, their effect has been virtually nil.

More than two years ago, the MMC found that a complex monopoly existed in the supply of beer which both restricted consumer choice and drove up prices. The Government's response was a botched series of parliamentary orders forcing the big four to divest themselves of a substantial proportion of their tied estates.

Full compliance with the Beer Orders is not due until November, but already we have a fair idea of how they are working in practice: basically, they are not working at all. If anything, the market share of the big brewers has risen since the MMC report, not shrunk. That process of consolidation looks set to continue. Forcing brewers to divest their pubs has not worked either. In nearly all cases where a pub or group of pubs is sold or leased free of tie, it is done in tandem with a long- term supply contract that maintains the tie in all but name, at least for the next five to seven years. Even where powerful independent pub chains have sprung up their ability to extract favourable wholesale prices from the brewers seems to have been used to the benefit of their own pockets rather than those of the consumer.

David Thompson, managing director of Wolverhampton & Dudley and an astute observer of the industry, thinks I am being too harsh. The fact that beer prices are going up this year by no more than the rate of inflation is evidence that things are getting better, he insists. Furthermore, with so many pubs on the market, the cost of entering the beerage is now lower than at any time in the past. Wait a few years, he says, and you will see clear benefits. Ministers also believe it is still too early to dismiss the Beer Orders as an outright failure.

Sir Bryan Carsberg, Director General of Fair Trading, will nevertheless be taking a long, hard look at the industry when he comes to conduct his formal review of progress, or the lack of it, next year. If the brewers don't watch it, they may force Sir Bryan into considering some form of price control. Where competition is inadequate to safeguard the interests of consumers, that after all is the logical alternative.