Monday, 8 February 2010

Illogical CAMRA Says City Analyst

Both The Morning Advertiser and The Publican publish a view from Douglas Jack of Numis (no, I don't know who they are either), who alleges that removing the tie would reduce pub product range, investment, support and supply, driving up prices as a result. He goes on to give a few reasons for this by saying that CAMRA’s claim that the beer tie had inflated price to the consumer by 50p a pint was “fictitious”. He said that the average beer price across Punch and Enterprise pubs at 30 September was £2.62 a pint — 3% above the average of £2.54 a pint. The average free trade price was £2.56. He reckon's that Punch and Enterprise’s average beer price is also below the average in the tenanted sector of £2.73 “reflecting higher purchasing power that is passed on to tenants through investment and support”.

Now I'm always a little suspicious of figures trotted out these days, but I'm sure it will come as somewhat of a shock to most Enterprise and Punch tenants to know they are benefiting in such a way. Maybe Enterprise and Punch do stay competitive on price, but as we've read before, it seems to be at the expense of their licensees who work hugely long hours for little reward. Rather than the commonly held view that the lion's share of the money taken by a pub going to the PubCo, it seems according to Jack that everything in the garden is rosy. He also ignores that whatever changes the PubCos have made have been forced on them by public scrutiny, not by their own heartfelt conversion to the shining path.

I 'm getting to the stage where I no longer know what to believe, but I'll leave you with this thought. I am (reliably) told that The Society of Independent Brewers (SIBA) sell their beers to Enterprise for £55 a nine. They sell them to their tenants for £90 a pop. God knows what discounts they screw out of the bigger brewers. Of course you could choose to believe that the benefit of this "higher purchasing power" goes to "investment and support" as Mr Jack seemingly does, or you could take the view that it services the huge debt created by a dodgy business model. Wonder which it is?

CAMRA may well get it wrong, but City analysts don't always get it right either.


Matt said...

Like you, I have no way of veryifying any of the figures but my gut feeling is that on the issue of the tie CAMRA is both barking up the wrong tree and complaining about a situation partly of their own making.

CAMRA seems to think the free market is the answer to everything, hence its support for breaking up the national breweries' tied estates in the late 80's which were then swallowed up by the even more rapacious pubco's. Now they want to scrap the tie which independent regional breweries depend on to maintain investment in both brewing and pubs. CAMRA seems to have forgotten that there would be no real ale in England without these breweries, it would have disapppeared in the early 70's and with it the expertise on which the current microbrewery boom is based.

Scrapping the tie would not lead to a flourishing of free houses selling beers from local microbrewers but an expansion of the pubcos at the expense of regional independents who would be forced like the nationals in the late 80's to shed estates they could no longer financially support.

Paul Garrard said...

I think I'm going to ignore statistics from now on!

Whilst I wouldn’t want to side with a City analyst I do struggle with the CAMRA argument on the tie. My personal feeling is that the only way Pubcos are going to mend their ways is if the likes of the thriving ‘Freehouse’ sector along with the more progressive perhaps smaller chains and some brewery ties raise the bar so that consumers vote with their feet and ‘the market’ prevails. i.e. pubcos see that their business plan is not sustainable and do things differently. This might be a naive/pie in the sky view but removing the tie will fuck things up good and proper.

Tandleman said...

Matt and Paul, I think you'll find that CAMRA wishes to revise the tie, not abolish it. The relevant part of the super complaint is:

11.0 Beer Tie Remedies
11.1 To encourage tying companies to be more competitive on the beer prices they charge to “tied” pub businesses and to address market foreclosure to small brewers, CAMRA proposes the following remedy:

• Companies that tie 500 or more (around 1%) of the UK’s pubs should be
required to allow those pub businesses which they “tie” to purchase one
draught real ale and one bottled real ale outside of the tie (a guest beer
right) without financial penalty.
The logic in restricting the guest beer to real ale is that extending a guest beer
right to global lager brands would have the unintended impact of further
foreclosing the market to smaller brewers. If there is a concern about
restricting a guest beer right to a single beer style an alternative would be to limit a guest beer right to beers produced by brewers producing fewer than 200,000 hectolitres a year.

It isn't actually going to affect Family Brewers and most small pub companies and only proposes that the big PubCos allow one beer free of tie as specified above.

Also note:

5.7 CAMRA concurs with the view of the European Commission in 1998 that “tied
pub leases of the small and regional UK brewers fall outside the reach of
European competition rules”25. CAMRA, however, disagrees with the OFT’s
view that Article 81 “will not apply to agreements between pub companies and
their tied tenants where the pub-owning companies (be they brewers or pub companies) buy their drinks from a number of sources

So it is clearly aimed at the big PubCos.

I think CAMRA has learned that there is a law of unintended consequences, but of course, we don't yet know what these might be, so there is still room for disaster!

Cooking Lager said...

It is a matter of perspective. If you were trading in either the debt or equity of public companies and a bunch of beardie weirdies were campaigning to make the business model of those companies redundant you would have an opinion on the matter. That is not to credit the analysts opinion but to understand why one is held and why it is expressed.

Tandleman said...

No problem with that, but it wasn't the truth, the whole truth and nothing but the truth. Just opinion. Like mine.

John Clarke said...


I don't think you are quite right about the situation in the 1980s. The infamous Beer Orders, despite popular belief, did not in fact force anyone to sell anything. What they did do was to limit the number of pubs that could be tied - if a brewery owned over 2,000 pubs then only half the excess could be tied. Thus is you owned 3,000 pubs you could tie 2,500 and would have to free 500.

A leap of imagination might have seen the big brewing companies go down this route - even in the free of tie outlets there was certainly a large degree of brand loyalty to the big boys' products. However imagination was sadly lacking. So what happend is that a number of pub companies appeared that just happened to be run by former brewery executives who, quite coincidentally, then negotiated supply agreements with their former employers.

Of course mergers and takeovers followed and we end up where are are today.

Tandleman said...

Good point John. It is easy to overlook the vested and self interests that led us to the position we are in now. A lack of imagination by the big brewers sealed their own fates.

Of course that was an example of the law of unintended consequences!

Cooking Lager said...

Repeat a lie often enough it becomes the truth Tandy. There are even people that believe pure delicious fizzy and natural cooking lager is chemical piss.

Barm said...

I am told that Spoons pay even less than £55, somewhere in the high 40s. Not that I want to see brewers screwed on price, but how do Spoons manage to get a cheaper price than Punch and Enterprise who are ten times their size?

Curmudgeon said...

Spoons pubs are much bigger on average, though. Apparently Spoons now sell more cask beer than either Punch or Enterprise, so they are the biggest buyers of it in the country.

Tandleman said...

Barm - As I understand it, Spoons don't use SIBA DDS - the Direct Delivery Scheme - and that's what I was referring to though I should have said. If they do, they pay the same, but are likely to get bigger discounts for volume and repeat business if going to the brewer direct.

Tyson said...

I have to say that, on this issue, I feel that Camra have got it spot on. As you point out, it’s about reform of the tie, not abolition and that’s why the figure of 500 is so important. It’s about putting the non-brewing pubcos in order, not punishing the likes of family brewers.

As for the Beer Orders, I’d only say that hindsight is always 20/2. At the time, nearly everyone thought they were the best thing since sliced bread. The MMC conducted an exhaustive three year investigation and came to the almost unanimous conclusion that they were the solution to the inequalities present in the brewing sector.

I say almost unanimous because, although it’s often reported by the Publican and others as having been so, there was one famous lone dissenter. L.A.Mills dissented on the issue of forcing the sale of brewery owned pubs and eerily forecast the creation of the non-brewing pubco. However, his foresight aside, there were few indications then that we would be in the situation we find ourselves in now.

Tyson said...


There seems to be an urban myth-like the one about them buying out of date beer-that JDW somehow manage to pay less than anyone else. As the biggest retailer of cask beer in the industry, as TM says, they get discount for volume buying. That’s it. There is no evidence to support claims that they are “screwing” brewers in the way, say, that supermarkets do with dairy farmers. Indeed, they actually have a reputation for being fair and (very importantly) prompt payers

Neville Grundy said...

I'm afraid the Pollyanna statements of Douglas Jack of Numis bear absolutely no relation the reality faced by the licensee of a heaving pub in Lancashire that I was drinking in last Friday. He told me at great length about how, despite getting sales up and doing very well, both in terms of real ale and other drinks, he had made £1000s loss last year. He said the PubCos boasted to the media how much they helped licensees, then he told me what discount he had received as "help"; the amount was a joke. Other licensees have told me similar stories, although perhaps not in such detail. I offered to write an article about his situation for our local CAMRA free magazine if he wanted, which he did.

If there is contradictory information doing the rounds, I know who I believe.

Unknown said...

Talking to real brewers Wetherspoons do have a price above which they will not buy beer. Screwing breweries is not really the case. There is no requirement to sell if the price is too low.

However, some brewers do feel it is better to shift excess stock at any price rather than throw it away because it's gone past it's best before date. This probably does result in some beer being taken by Tim Martin's places that is short dated.

But, is there anything wrong with that if it works for everybody? I probably wouldn't sell to Wetherspoons, but I can see why some brewers might. It's their choice and nobody is screwing anybody in that situation.

However, some tied licensees I do think are being screwed, in my opinion. I get invites all the time to take on tied leases. The wording of the junk mail is very misleading. The real problem is that prospective licensees are believing what they are told and nobody is putting them off.

Paul Garrard said...

What CAMRA campaign for and any change in the law will probably be two different things. My fear is that stiring things up will just make matters worse.

Matt said...

That's my feeling too Paul. Despite the comforting words about CAMRA setting out a 500 pub limit in their super-complaint to the OFT and the EU not being interested in the regional independents' estates, I just have a suspicion that now they've set the ball rolling the law of unintended consequences will again come into play and see the whole tie potentially declared restrictive and anti-competitive. And then where will we be? Not, as I said above, in a utopia of free houses selling local microbrewed beers. It would be pubcos who would expand to fill the gap, as they did twenty years ago.

Tandleman said...

I have to say it is my worry too. Tinkering with the actual tie, rather than reforming inequitable practice, may open a Pandora's box.