Uncertainty dogs the brewers THE INVESTMENT COLUMN
Friday 14 April 1995
A combination of S&N and Courage would knock Bass off its pedestal at the top of the domestic league, and would inexorably lead to more consolidation further down the table. One of the strongest possibilities is that Whitbread will buy out Allied Domecq's share of its Carlsberg-Tetley joint venture with Carlsberg, the eponymous Danish brewer.
But so much has already happened in the industry that the City is finding it difficult to keep its eye on the ball. The root cause of much of the turmoil can be traced back to the ill-conceived and ill-timed Monopolies and Mergers Commission report that spawned the Beer Orders, which forced the big brewers to dispose of 11,000 pubs between 1989 and 1992.
Government action will also be crucial to another of the main issues causing brewers to weep into their beer, namely the haemorrhage of sales to the booze cruisers crossing to Calais. It is estimated that a million pints a day flood across the Channel, representing 4 per cent share of the UK beer market. While this may be good news for the consumer, the Treasury will sooner or later have to wake up to the fact that the tax take on alcohol is about to fall victim to the laws of diminishing returns.
Excise duty has not been reduced since 1959, but that exercise showed the revenue loss was recouped in three years through higher consumption.
To compensate for these factors and others, such as the decline in the heavy industry that provided a large core of male beer drinkers, brewers and pub companies have dived headlong into other activities.
As a result, lower takings from drinks sold over the bar are, in most cases, being more than recovered through sales of food, leisure facilities, and budget-priced hotel rooms. Greenalls and Boddington, for instance, both abandoned regional brewing after realising they could make more money by selling beer drawn from across an industry awash with surplus capacity.
Both companies remain principally pub operators, but they have been steadily branching out into hotels, off-licences, drinks wholesaling, leisure villages and nursing homes.
Between them and the upper tier come the regional brewers, and below them the pure pub companies hewn largely from the big brewers in the wake of their wholesale sell-off of pubs. Comparing like with like is difficult, and complicated further by regional differences.
But the biggest cloud on the horizon currently is the pending publication of the Office of Fair Trading's investigation into wholesale beer supply prices.
Bass, Whitbread and Scottish & Newcastle are most at threat from the OFT. Consequently, their shares must be regarded as a hold until the outcome of this latest regulatory investigation is clear.
Many of the regional brewers, such as Marston Thompson and Evershed, Vaux Group and Greene King are also on fair stock market ratings.
The market's favourites at the moment are Boddington, Greenalls, and Regent Inns, a pure and highly specialised pub company.
But all of these recommendations must be regarded as provisional until some of the present uncertainty lifts from the sector.
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