Re-Bottling of an Industry
William Kay and John Shepherd, The Independent (London, England)
FIVE years after Lord Young, the then Secretary of State for Trade and Industry, attempted to break up the market dominance of the brewers with the Beer Orders, the brewery industry is in ferment again. But this time a chain of events appears about to unfold that will be considerably more far-reaching than before. It will affect nearly every pub in the land and may cut the present big six national brewers to a choice of just three.
On Friday, Grand Metropolitan and Courage, the UK subsidiary of Foster's Brewing Group, announced a revamp of their jointly owned pub company, Inntrepreneur Estates - which was a direct creation of the Beer Orders and controls 6,500 pubs.
At the end of January, while Grand Met and Courage will remain 50/50 shareholders, management of Inntrepreneur will switch from Grand Met Estates to its own independent management teams.
By the end of this month, the 320 Chef & Brewer pubs owned by Inntrepreneur and leased to Scottish & Newcastle will be transferred to a subsidiary of Morgan Grenfell, the merchant bank, in a pounds 203m deal.
Lord Sheppard, Grand Met's chairman, said: "The immediate impact will be to reduce significantly our management involvement in Inntrepreneur, allowing us to focus on our international food and drinks businesses."
With those words, Lord Sheppard almost certainly bowed out of pubs, having sold Grand Met's Watneys breweries to Courage in the deal that set up Inntrepreneur. Industry insiders are convinced that Courage and Inntrepreneur are being tidied up either for a stock market flotation or a trade sale. The likeliest buyers are Whitbread and Scottish & Newcastle, the two groups fighting it out neck-and-neck with market shares of 13.5 per cent and 13 per cent respectively.
The Inntrepreneur revamp is believed likely to be followed by an unscrambling of Allied Domecq's 50 per cent stake in Britain's third-biggest brewer, Carlsberg-Tetley: the other half is owned by the Danish Carlsberg group. An announcement could accompany Allied's interim results on Thursday. Allied's chief executive, Tony Hales, has made little secret of his wish to emulate Lord Sheppard and get out of brewing. Again, Whitbread and S&N will probably be at the head of the queue for any assets that go under the hammer.
These are only two of the deals in the pipeline as the beer industry takes a long, hard look at itself after living with the once-hated Beer Orders since 1989. Despite the recession, most beer groups have emerged from those five years fitter than they were, and are now ready to redesign the industry for the 21st century.
By the end of the decade, there will be thousands fewer pubs, and far fewer pub companies, than today. The big six brewers could shrink to just three or four.
In the process, many more town pubs could be turned into restaurants or leisure centres, while their rural counterparts face the threat of a new breed of mega-pub.
The word "pub" may even become a misnomer as the traditional boozer is relentlessly erased from the system, with companies such as Whitbread starting to buy farm buildings to open "superpubs" some three times bigger than the normal sized hostelry. The potential economies of scale are all too obvious: a quiet pint is likely to become more elusive.
The Beer Orders stemmed from a 500-page review of the industry by the Monopolies and Mergers Commission published in March 1989. That concluded that a "complex monopoly" existed in favour of brewers who made, wholesaled and retailed beer through the long-standing system of tied houses.
Lord Young was vilified a few months later for ordaining a watered-down version of the report's recommendations. This still enraged the industry while prompting consumer groups and political opponents to accuse Young of being in the brewers' pockets. The so-called "beerage" have traditionally been large contributors to Conservative Party funds, even though in recent years there have been fewer of the peerages that gave rise to the epithet. …