Courage, Carlsberg-Tetley and Whitbread would have no option but to fight back to defend their slices of the market, and industry insiders say the struggle could leave one company with an overwhelming market share in the UK, just as Anheuser Busch controls 45 per cent of beer sales in the US.
The fight would be starkly different from the noisy one that ensued when thousands of pubs were wrested from the industry's leaders in the name of the Government's beer reforms. Few drinkers will even realise what is happening this time - until their local starts selling a different range of beers.
Bass, Allied-Lyons, Whitbread and Courage have all been stung by the ending of cosy trading arrangements with the pubs that they were forced to free. There are already reports of sales representatives offering publicans substantial sweeteners to switch allegiance from one brewer to another. These include discounts of more than pounds 60 on a barrel of beer, low-interest loans, and neatly packaged back-up services.
Again, the catalyst is the Beer Orders, the child of an industry investigation by the Government and the Monopolies and Mergers Commission between 1986 and 1989. The MMC, with the exception of commissioner Leif Mills, failed to predict the after-effects of forcing brewers to sell their pubs. And the Government has postponed indefinitely an expected review of the industry following the shake-out - indicating that it will not interfere in attempts by any brewer to carve out a commanding position.
The industry has also started to realise that profit growth in the low- inflation 1990s will have to be achieved through cutting costs, improving the product mix and gaining market share. The depressing background is a shrinking market - UK beer consumption fell last year by 800,000 pints a day.
Courage, the country's second- largest brewer, already knows how intense the competition is. It has battled to retain sole-supply agreements with the 1,200 pubs it had to free last October, just days before the Beer Orders became law. 'It accelerated competition for us. Once they were free from tie, they were able to be targeted by any brewer,' a company spokesman said. More than 100 have switched to other brewers - maybe for good.
Industry analysts believe Courage will face the toughest test as the big four brewers go at each other. They believe it is crucially weakened by its arrangement with Grand Metropolitan, under which both jointly own the 6,800-strong estate of Inntrepreneur pubs.
Courage faces two huge hurdles in the near future. In two years' time, its exclusive supply contract to Grand Met's own managed house estate, about 9 per cent of its business, expires. Three years later, so does its supply agreement with Inntrepreneur, reckoned to represent 30 per cent of its sales. Grand Met and Inntrepreneur, the observers said, will then be able to cherry-pick from a raft of ridiculously low tenders from the other brewers.
Courage's industrial strategy is also out of kilter with most of its competitors. In the main, it would like to see the tie system ended and will be lobbying hard when the European Commission reviews the issue in 1997. The cynical view is that Courage recognises its predicament of a lonely future without tied pubs, feeling threatened by competitors that have guaranteed sales outlets through managed-house estates.
Bass is viewed by many in the City as the main threat to Courage - and to Whitbread and Allied-Lyons. Bass is the largest, most efficient brewer with 22 per cent of the market. And unlike its rivals, it owns all its leading UK beer brands, including the best- selling lagers, Carling Black Label and Tennent's, and the draught ale, Bass IPA.
The signs are ominous. A report on wholesale beer prices by SG Warburg, the merchant bank, said: 'Bass would appear to be aggressively chasing market share. Its strong financial position has allowed it to increase its number of free-trade loans and be in a position to offer discounts if necessary.' Warburg expects Bass to continue to gain market share this year. NatWest Securities agrees with Warburg's diagnosis that Bass is on the attack. 'We do believe Bass will emerge as a winner,' its analysts wrote recently.
But despite its inherent strengths, Bass is not strong enough simply to steamroller the opposition. Courage remains a powerful brewer, Whitbread has started to emerge from retrenchment, and Allied-Lyons has teamed up with Carlsberg of Denmark. In a significant move, the joint venture, Carslberg-Tetley, revised trading agreements with Courage last Monday. From tomorrow, Carlsberg-Tetley will assume sole responsibility for take-home sales in the UK of Carlsberg Special Brew, Carlsberg Export and the imported Elephant Beer.
While Courage will continue to distribute those beers in the on-trade - pubs, clubs and restaurants - the revised agreement shows that Carlsberg-Tetley has its eye on the growing off-trade, taking in off-licences, general stores and supermarkets.
The take-home business has grown remarkably in recent years. Accounting for less than 20 per cent of beer sales in 1989, the figure is now around 23 per cent and should be close to 33 per cent by the turn of the century.
It is a comforting trend, but one that cannot hide the fact that beer consumption in the UK is declining and that there are still too many breweries. Whitbread, Allied, and Bass have all recently closed production capacity, and the squeeze is now being felt in the middle order of the industry.
There is simply too much brewing capacity. Warburg says that output of 34.2 million barrels of beer in 1992 will fall to 32.4 million by 2001 and that excess capacity will continue to exceed the current 20 per cent.
Since 1991, nearly 7 million barrels of capacity has disappeared. The casualty list includes the Runcorn, Wolverhampton, Edinburgh and Sheffield (Hope) breweries of Bass; the Blackburn brewery of Scottish & Newcastle; and the withdrawals from brewing by Devenish and Greenalls. More are sure to follow.
The need to improve returns for investors will test the brewers as they fight for market share. Sacrificing profit margins, as holiday companies did in their price wars from 1986 to 1989, is out of the question.
To win new business, though, profit margins will have to be lower than normal, and be cut on existing business in some instances. As the title of Warburg's research says, it is 'tough, and getting tougher'.
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