View from City Road: Weary, stale, flat and unprofitable Beer Orders

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The Independent Online
Parliamentary condemnation of the Beer Orders could not have been more perfectly timed, coming on a day when Bass, the biggest brewer in the UK, released interim figures bearing yet more scars of the almighty clash between competitive theory and industrial reality.

Both the Government and the Monopolies and Mergers Commission, with the exception of commissioner Leif Mills, failed to grasp the mechanics of the market place.

It could have been a great deal worse had the Government not backed down from the most extreme of the MMC recommendations in the face of a threatened mutiny by the powerful beerage.

In essence, the Government ploughed into the industry, forcing change where it was not needed, without thinking enough about the consequences.

Competition has not increased, the price of a pint of beer has risen sharply and consumers have been left with the smallest of consolation prizes - the greater availability of guest beers.

Lord Young, who was Secretary of State for Trade and Industry in 1989 when the MMC's findings were transferred to the statute books, has left behind an unhappy legacy. The shake-up has led to a greater concentration of market share among the big brewers - not that this has helped their profits.

The legacy also includes a decline in rural pub numbers, a persistence of local monopolies and a fall in the number of national beers. It could all have been so different had the Government merely tinkered with the system - liberalising, among other aspects, the licensing laws, as the select committee pointed out.

Further criticism should also be levelled at the Government for failing to recognise the difficulties the brewers had in complying with last November's deadline. It should have taken account of the collapse in property prices and extended the period of compliance.

Besides the effects at home, the Beer Orders have also weakened the brewers' standing on the international stage. Untold management hours have been wasted on implementing the Government's policy and powerful asset bases in the UK have been eroded.

Yesterday's interim results from Bass highlighted the problems quite clearly. The company, which has incurred about one-third of the pounds 500m asset writedowns suffered by the industry as a result of compliance, is one of the main aggressors in the current winner takes all fight for market share.

The fragile climate for the brewers is shown by a fall of 2 percentage points on pub retailing and brewing profits at Bass in the six months to 10 April. Margins are likely to be squeezed further as the big brewers continue to scrap at the wholesale end of the market, attempting to increase volumes in a market hammered by the recession and vulnerable to changes in demographic and consumer trends. In these conditions investors would be well advised to steer clear of the UK brewers' shares.

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