BREWING INDUSTRY: MMC REPORT (Hansard, 21 March 1989)

§ The Secretary of State for Trade and Industry (Lord Young of Graffham)

The Government have today published and laid in both Houses copies of the Monopolies and Mergers Commission report on the supply of beer. The MMC's examination, conducted over two and a half years, has been thorough and comprehensive. I welcome it. The MMC have found that there is a complex monopoly situation in the supply of beer. This relates to the brewers' relationship with the on-licensed, "tied" premises they own—both managed and tenanted—and the offering of low interest loans to the "free" trade. The MMC conclude that this complex monopoly restricts competition at all levels, against the public interest.

Currently the brewers restrict competition in two main ways. First, they restrict the supply of drinks by competing brewers and wholesalers to the on-licensed premises they own. The six big brewers produce three-quarters of all beer brewed in the UK and own 74 per cent. of all tied houses. Secondly, the brewers have effectively captured about half of the "free houses" by offering preferential and low interest loans, which then tie those outlets to selling the brewer's products. The present system severely limits the opportunities for an independent wholesaling sector to prosper. The result is that both wholesale and retail prices are higher than they need to be.

The MMC believe that lack of competition has resulted in a number of detriments. The main ones are:

—the price of a pint of beer in a public house has risen too fast in the last few years;
—the high price of lager is not justified by the cost of producing it;
—the variation in wholesale prices between regions of the country is excessive;
—consumer choice is restricted because one brewer does not usually allow another brewer's beer to be sold in the outlets which he owns: this restriction often happens in loan-tied outlets as well;
—consumer choice is further restricted because of brewers' efforts to ensure that their own brands of cider and soft drinks are sold in their outlets;
—tenants are unable to play a full part in meeting consumer preferences, both because of the tie and because the tenant's bargaining position is so much weaker than his landlord's; and
—independent manufacturers and wholesalers of beer and other drinks are allowed only limited access to the on-licensed market.

675WA The MMC believe that structural changes are needed to secure a more competitive regime. Their recommendations include:

—a ceiling of 2000 on the number of on-licensed premises which any brewer may own;
—no new tied loans;
—no restrictions on future use, or product ties, when on-licensed premises are sold;
—tied tenants to be brought within the protection of the Landlord and Tenant Act 1954;
—tied tenants to be free to sell at least one "guest" draught beer;
—tied tenants to be free to buy non-alcohol or low alcohol beers, wines, spirits, ciders, soft drinks and mineral waters from the most competitive suppliers;
—brewers to publish and adhere to wholesale price lists.

These recommendations point very much in the right direction. They will preserve the good features of the present system. They should create more opportunities for small brewers. They should allow much stronger development of an independent wholesaling sector. They should provide more choice for publicans in the way they finance and run their businesses. And not least they should provide a much wider choice for consumers in the range of licensed premises available, and in the range of drinks on sale. This extra competition should benefit prices.

I have considered the report in full and I am minded to implement these recommendations. My first step will be to hold discussions with the EC and I have written to Sir Leon Brittan today. I very much welcomed the European Commission review, announced last week, into the competitive situation in the EC wide market for beer. The MMC's findings and conclusions will clearly serve as a major input into the review.