That system is still in place, and it may be a major reason pubs are in trouble.
Beer sales are dropping precipitously in the UK--down 22% since 1979. The largest drop is among the "premium lager" segment. Sound familiar? (Cause and effect are not easy to tease apart here. Some blame the drop-off in pub sales as the cause, and cite a recent smoking ban and the rise in prices. But that isn't convincing, either--sales have been dropping for at least a decade. Long before last year's smoking ban and recent spike in taxes on draft pints.) But what to make of the simultaneous, contrasting trend of the boom in English craft breweries, who saw sales increase 11% last year?This is one of those times when regulation may be a problem. Since the tied-house system has been in place, it has stymied competition. In the 1980s, a government commission looked into the situation and unanimously concluded "a monopoly exists in favour of those brewers who own tied houses." Furthermore:
"Brewers are protected from competition in supplying their managed and tenanted estates because other brewers do not have access to them. Even in the free trade many brewers prefer to compete by offering low-interest loans, which then tie the outlet to them, rather than by offering beer at lower prices. Wholesale prices are higher than they would be in the absence of the tie. This inevitably feeds through into high retail prices."In other words, the vicious cycle of high prices and dropping sales is a result of non-competition. The result of the commission was the Supply of Beer law, an apparently successful effort at opening the market. It was subsequently repealed. (Interesting question for follow-up: what effect did the Supply of Beer law have on provoking the rise of small craft-breweries in England, and what has been the result of its repeal on them?)
I am, as you all know, both a foe of the power of US distributors as well as a pinko commie. I am therefore leery of blind boosterism of free markets. In this case, it seems like a no-brainer, however. As long as the UK keeps the tied-house system in place, the market is going to suffer a more violent reckoning as a result of changing consumer tastes that it would if it were more open.
Thanks for the follow up Jeff. I think what I was getting at had less to do with consumer choice and more to do with corporate decision making. Sole proprietors and entrepreneurs have an incentive to make it work; their own money, sweat equity and the spoils of success. I'm guessing a motivated independent publican in Britain could make it work with the same products as a tied house. A large corporation will look at underperforming properties and make a decision about resource allocation that may lead to closure.
ReplyDeleteThe profit motive is what drives both, albeit in different directions here, in my opinion at least.
Thanks for your useful independent site. Our local pub (in Bristol) has recently changed hands and is now tied, I think as a tenancy, to the makers of Marstons and Banks. Our local beer Butcombe is no longer available even as a guest beer. Indeed no guest beer was available last night. No opporunity to taste (eg Cumberland Ale) is now available.
ReplyDeleteQUESTIONS: Do competition rules not require the availability of guest ales?
How can they be fairly promoted without a tasting opportunity?
Hoping for enlightenment from your site
The legislation on this has changed a fair bit (and I'm not fully up to date, nor a lawyer). But, its not really true to say that most pubs are tied to breweries any more.
ReplyDeleteThe changes to the law in the 1990s did force tied houses to sell a guest beer. They also set a limit to the number of pubs a brewery could own (3,000 IIRC).
The brewers sold large numbers of pubs to companies specialising in owning and managing bars and restaurants (or spun off their property owning arms as independent businesses).
These new 'PubCos' quickly developed into a specialist form of real estate inevestment company. They were stock market listed, and attractive to institutional investors. They employed accountants and professional managers to run them.
Back in the day, the deal between the brewery and the tenant was pretty clear: he got a pub, somewhere to live cheap, and was free to run it as he liked, so long as he sold a lot the brewery's beer (and noone elses). As the breweries had built up their chains for more than a hundred years, they weren't particularly interested in whether they were making a return on the capital that had been spent on buying buildings decades before.
Now though, the pubcos aren't interested in selling beer, but in making a return on their investment. If a pub will do better selling only keg lager, they'll do that. If cocktails work better, they'll sell them. If wine and food brings in more money, that's what the pub will sell.
Once the pub stopped specialising in selling well-kept draught beer, the skills of the landlord (confusingly, actually the tenant) weren't needed: if all you sold was wine and tapas that had been cooked on an industrial estate a hundred miles away and reheated in a microwave, it didn't make sense to pay for someone who knew how to keep and serve beer.
That deskilling meant that pubs are now run by managers, with qualifications similar to the managers of a burger bar or corner shop.
At the same time, the 'formats' developed for one pub, if succesful, would be replicated across the country, in every aspect. Music, drinks, food, decor, are all designed centrally, and then matched to locations, on a strictly by numbers basis.
One of the formats is still a 'real ale house', which may account for some of the growth of craft breweries. However, you won't see your local beer, or whatever odd choice the owner of a free house would have made, but the same six bitters in every pub designed to that format.
The manager, and his minimum wage staff, will rarely know how to keep the beer. So, even if the beer is good, it won't necessarily be well kept: it will be too flat, or too fizzy, and generally so cold that you can't tell one beer from another.
Typically, the pubcos have aimed at the young and the affluent. The smoking ban disproportionately effects the sort of working class men who used to make up the bulk of a good pub's regulars.
Instead of adults sitting around in a haze of smoke, sweat and swearing, drinking a well kept local beer after a hard day's manual labour, pubs are now full of health conscious 18-35 year old ABC1s, who wouldn't know a pint from a nip if it was administered as an enema.
So, the pubs are owned by people who don't care about beer, run by people who don't know about beer, and patronised by people who don't like beer.
It's no wonder they're going out of business.