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Until 1989 many pubs were owned by breweries, but leased to tenants who were ‘tied’ to selling the breweries’ products. This system was broken up because of concerns that the vertical relations leading to brewery dominance was anti-competitive.
The legislation that brought this about is known as the ‘Beer Orders’. This consequently meant that large breweries were restricted to ownership of 2,000 tied pubs and now required to allow tenants to source a guest ale externally. A new business model then emerged known as the ‘pubco’ model whereby a company controls a series of pubs, either managed by itself or leased to tenants.
Many, although not all, pubco pubs are tied. Those tied are obliged to buy products, usually beer, supplied by the pubco itself (some pubcos are also breweries and include their own products as part of the tie). Like the brewery pub ownership model, the pubco model and the pubco tie have generated a great deal of criticism.
In particular, there have been concerns that pubcos are distorting the market, and that the beer tie constituted unfair competition similar to those prior to the beer orders. Following these concerns (an independent body) proposed a super–complaint to the OFT.
Intervention or investigation?
It has been noted that interventions can have unexpected consequences. Displacing pubcos without considering the market as a whole may put too much power into the hands of brewers and wholesalers (House of Commons, 2009).
For these reasons Camra called for an urgent investigation rather than promoting intervention with a policy recommendation.
Summary of the case brought by Camra
Camra submitted a super-complaint to the OFT in July 2009. Camra's allegations included that:
Supply ties were protecting pub-owning companies from competition, so that they are able to inflate the prices and rents to tied pubs, leading to higher prices for consumers (Camra, 2009).
The existence of supply ties was leading to the foreclosure of suppliers who are unable to access tied pubs directly (Camra, 2009).
In its super-complaint, Camra stated that the OFT should carry out a market study into the pub sector.
Summary of the response by the OFT
The OFT responded to Camra's super-complaint in October 2009. The OFT's response stated that it had found no evidence that beer supply ties were resulting in competition problems that were having an adverse impact on consumers, and that it would therefore be taking no further action (Office of Fair Trading, 2009).
The market definition
The market definition proposed by Camra was limited to: Bars, Taverns, Cocktail lounges, Discotheques licences to sell alcohol (with beverage serving predominant) and Beer parlours.
The key statement from Camra is that the public house market is separate from other licenced on-trade premises. The market definition was however was never defined by the Oft, which resulted in heavy criticism of their overall response. For this reason this report will focus specifically on the argument of the market definition.
The main players in the market
The pub market is split into three distinct categories being: leased pubs, brewer-owned pubs and managed pub operators.
The largest leased pub estates in the UK are owned by Enterprise Inns plc ('Enterprise Inns') and Punch Taverns plc ('Punch Taverns') (both non-brewing pub companies), each owning over 7,500 pubs, or 14-15 per cent of the total number of pubs in the UK in 2009 (Office of Fair Trading, 2009).
The largest brewer-owned leased pub estates are operated by Marston's Pub Company plc ('Marston's'), Greene King plc ('Greene King') Scottish & Newcastle UK Limited (S&N UK Limited), which each own around 4-5 per cent of pubs in the UK in 2009 (Office of Fair Trading, 2009).
The largest managed pub operator is Mitchells and Butler’s plc which owns approximately…