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19-12-2016, 13:52
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Last week a giant claw unexpectedly reached out from the 1980s and grabbed control of a substantial chunk of the British pub trade, in the form of Heineken’s agreed takeover bid (https://www.theguardian.com/business/2016/dec/15/punch-taverns-heineken-pubs-patron-capital) for the greater part of Punch Taverns.
Back then, the British pub market was dominated by the “Big Six” national brewers, who owned getting on for half of all the pubs and controlled many local monopolies or near-monopolies. To address this situation, the government of the day brought in the notorious Beer Orders which have resulted in a situation where getting on for half of all the pubs in the country now sell Doom Bar.
While this legislation was well-intentioned, it is clear with hindsight that nobody really had a clear idea what the results would be. In practice, what happened is that the “Big Six” sold their brewing interests to the giant international brewers, while most of their pub estates ended up in the hands of pub companies such as Punch Taverns and Enterprise Inns. Their prime raison d’etre was to replicate the tied house model that the big brewers had enjoyed, and it is hard to argue that, over the years, they haven’t had a negative effect on the pub trade.
They took on large quantities of debt in order to expand their estates, and were then caught out by the double whammy of the smoking ban and the worldwide recession and left teetering on the verge of bankruptcy. Both Punch and Enterprise have only been able to survive through emergency debt restructuring. This left them woefully short of money to invest in their estates, and they have been forced to sell off many of their best properties to family brewers or managed house operators.
The Beer Orders were revoked in 2003, so since then there was been nothing to prevent the major international brewers rebuilding tied estates in the UK. However, the dire state of pub company finances has probably put them off until now. Heineken retained the rump of the former Scottish & Newcastle pub operation under the banner of Star Pubs and Bars, and so were always the best placed to make a move. Selling out to a brewer with deep pockets is probably going to be the best exit strategy for long-suffering pubco investors.
One inevitable result, though, is that the old issues about restricting supply of certain products will reappear, with the Sunday Times reporting that the move may threaten the availability of Carling (http://www.thetimes.co.uk/article/punch-sell-off-threat-to-carling-8v3skvgws), the UK’s best-selling beer, in the former Punch estate. This could prompt the brand owners Molson Coors (who also own Doom Bar) to take steps to protect their own position. I would expect pub operators to recognise, though, that restricting the range of products too far doesn’t help business.
On balance, I would say it is preferable for breweries to be running pubs than pubcos, as they will have more of an interest in actually growing trade rather than just looking at the estate as a property portfolio, and will also have more money to invest. Many pubco leased pubs are now looking distinctly shabby compared with those owned by the family brewers. However, it will be important for the competition authorities to keep a close eye on the market to ensure that the old problems of oligopoly of supply and local dominance do not resurface. It would certainly not be good news if we saw one of the international brewers bidding for Marston’s or Greene King, or indeed for Wetherspoon’s.
But, within a few years, will we have seen the end of the large non-brewing leased pub company, something that only sprang into being in the first place as a response to the Beer Orders?

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