Beer tie row rumbles on
Despite MPs' concerns about the beer tie, the Office of Fair Trading has turned down a complaint from Camra because the tie does not affect competition. Daniel Thomas reports.
The beer tie - the exclusive purchasing obligation for pub tenants - has become perhaps the most visible symptom of the fracturing relationship between pub companies and their tenants.
Tenants, backed by vocal campaign groups such as Fair Pint and trade unions including the GMB, complain that they are paying way above market price for their beer. The pubcos such as Punch Taverns and Enterprise Inns retort that the beer tie provides a low-cost route to market for licensees.
The matter came to a head in the summer when MPs on the Business & Enterprise Committee (BEC) concluded that the tie should be "severely restricted". The Campaign for Real Ale (Camra) followed this up with a "super-complaint" to the Office of Fair Trading (OFT), warning that the beer tie was protecting pubcos from competition, and that it led to higher beer prices and less choice for consumers.
However, the OFT last week rejected the complaint, saying it had found no evidence that supply ties were having an adverse impact on consumers, concluding that there was "generally effective competition between pubs".
Camra reacted angrily, calling on the Government to reject the OFT's ruling and refer the tied business model to the Competition Commission.
Mike Benner, Camra chief executive, said: "It is difficult to see how the OFT can argue that competition is working well in the pubs sector when demand is falling, yet prices are rising."
Liberal Democrat MP Greg Mulholland, chair of the All Party Parliamentary Save the Pub Group, agreed, labelling the OFT's decision as "phenomenally poor".
"Once again they have completely missed the point and have justified taking no action on the grounds that there is no lack of competition. But what we have is a few large companies who have a stranglehold on pub ownership and are all operating a business model that is unbalanced and makes it difficult for many tenants," Mulholland said.
But Brigid Simmonds, chief executive of the British Beer & Pub Association (BBPA), insisted that the decision was tantamount to the announcement of "a clean bill of health for the pub sector".
"We will now continue to press ahead with implementing our agreed reform package to improve transparency and openness between licensees and pub owning companies," she said.
At the centre of the BBPA's proposed reforms is a new code of practice for pubcos, launched after the collapse of mediation talks that were initiated following the BEC inquiry. The code calls on pubcos to: show transparency regarding beer prices; clarify their policy for setting rent; and establish levels of competence for business development managers.
Although the code has the backing of the BII and the Federation of Licensed Victuallers Associations, it was rejected by Fair Pint, the Association of Licensed Multiple Retailers, Camra and Justice for Licensees, which formed their own lobby group, the Independent Pub Confederation.
Simmonds this week insisted that the industry, regulators and MPs were "responding positively" to the agreement.
"I would urge everyone in the industry to take time to consider our code agreement and get on board," she added. "It's far more important to work together on what we agree on, than try to find differences."
But the BBPA's ability to act as a unified voice for the industry was called into question last week when Greene King announced that it would quit its membership of the association next September.
The brewer and pub operator said the decision was "based on our analysis of the advantages and disadvantages of membership" and said it would now focus its efforts and resources on "Greene King-related lobbying and communications".
The company stressed that the move "does not signal a desire on our part to reduce our collaboration with other members of the industry where appropriate, far from it".
It is also clear that the OFT verdict will not spell an end to the controversy over the beer tie. It emerged last weekend that thousands of angry publicans were threatening a rent strike against Punch and Enterprise.
The Pub Revolutionary Group, led by a Punch licensee from Southampton, claims to represent 2,000 disgruntled publicans who are planning to withhold payments for delivered beer and rent within the next few weeks. The group believes their protest will cost the pubcos £50m in the first three months.
The pubcos dismissed the action as "irrelevant" and warned that licensees who refused to pay rent would be in breach of their contract and risked losing their pubs.
Hopes that the warring factions of the industry will set aside their differences any time soon look rather forlorn.