The Changing Structure of the UK Brewing and Pub Retailing Industry
In the UK it had long been the tradition that breweries owned the majority of on-licensed premises as tied estates, where most pubs could only serve beers and products supplied by the brewery which owned them. Pubs existed mainly as outlets for breweries to sell their beer, over time this led to the growth of 6 major players, which controlled 42% of on-license trade in the UK. This led to smaller breweries finding it difficult “to realise economies of scale in production, distribution and marketing” Knowles, (2002, p70)
From this the Monopolies and Mergers Commission undertook an investigation that resulted in the publication of The Supply of Beer Report. It was the belief of the MMC that:
The complex monopoly had enabled brewers with tied estates to frustrate the growth of brewers without tied estates…over time; the monopoly has served to keep the bigger breweries big and the smaller breweries small. Knowles, (2002, p65)
The MMC decided, “It was not in the best interest of drinkers for brewers to own pubs” The Economist, (1991 p84), which led to the government introducing the 1992 Beers Order. This meant that brewers had to sell half of all the pubs they owned above a limit of 2000. Brewers with more than 2000 pubs had to allow their pubs to sell a “guest” beer from a rival brewer.
Since this regime was introduced “the brewing and pub retailing industries have undergone significant structural change” Knowles (2002, p65). This has resulted in the British Brewer no longer being the guiding force behind the concept of the British Pub.
Over the past decade the structure of the UK brewing and pub retailing industry have changed dramatically. The industry has embarked upon ” a vigorous round of horizontal integration, with several companies consolidating their operations in either brewing or pub-running” The Economist, (1991, p84) Numerous companies have sold off their brewing divisions to concentrate solely on pub retailing. Whitbread and Bass both sold off their brewing interests to the giant Belgium Company Interbrew. Whitbread then went on to sell it’s entire pub retailing company to the company now known as The Laurel Pub Company and Bass has re-invented itself as an international leisure group under the name of Six Continents.
The market has now become dominated by four major brewers, which have been predicted to shrink to two or three by City analysts. The British brewery industry has moved away from being based purely in the UK and has started to become part of a European and possibly global industry. Mintel (2001) suggests that as the most profitable ventures have been achieved in the UK the remaining breweries are now looking overseas to grow by acquisition. Organic growth is proving to be too difficult.
Some British brewers have even chosen to instead of just exporting their products overseas to go that step further and export the whole pub. For example “Since 1992 Guinness, a British brewer with Irish roots, has set up 800 Irish pubs in 100 cities, from Montreal to Moscow” The Economist (1995 p71). The success of this strategy may be due to just as we Britons long for the culture of foreign countries in our surroundings so do the consumers world-wide long for a bit of our culture in their surroundings. As we romanticise them they romanticise us.
There has now been the emergence of retail pub chains, which have taken control of a large proportion of the market. Mintel suggests that the growth of major pub company’s is having the same affect on independent pubs and bars as the power of the major brewers had over the smaller brewers prior to the Beers Order in 1992.
Independent pubs and bars are finding it very difficult to survive in the highly competitive environment that has been created by the increasing power of the national pub companies. Independents’ buyer power is minimal; they cannot negotiate reduced prices with the remaining main breweries like the major pub companies can. Therefore they are unable to compete in price and only have a chance of survival from being able to compete in other areas. This is becoming significantly more difficult to do resulting in the role of the independent pubs and bars steadily diminishing. In 1993 Schmidt et al observed, “The traditional British Public House could soon be a thing of the past” Schmidt et al, (1993, p35)