Price problems

With beer prices on the rise once again, licensees are being forced to foot the bill. However, both the brewers and pub companies insist it is not their fault. Adam Withrington reports.

The problem of beer prices is an old one for the trade. Brewer increases price, so pub company increases price, leaving poor old Joe Publican to foot the bill, complaining that the pub company has absorbed none of the increase.

"Hang on," says the pub company, "we did absorb some of the increase and our hands are tied by the brewers who keep upping the price."

"Hold it," says the brewer, "we struggle to get any income at all from the pubs, because licensees fix the retail price at a high level and keep the profit."

"Rubbish," says the licensee... and so it goes on. It is a confusing culture of blame.

In January Coors and Carlsberg announced price increases of 4.9 and five per cent respectively. Several pub companies followed suit a month later and licensees were, predictably, up in arms.

However, a picture has begun to emerge over the last few years that alleges brewers and licensees have become junior partners. The brewers are charging lower prices for beer and licensees are paying inflated prices for the same product, with pub companies making a tidy profit in the meantime. Pub companies deny these allegations but there is so little transparency that it's hard to tell who is right.

Brewers have refuted claims that they are to blame. Many believe that brewers are becoming more desperate for market share and with the over-capacity in the brewing market they are forced to give pub companies major discounts.

Paul Hegarty, communications director at Coors, said: "Brewers are getting squeezed particularly as they are looking to invest so that people have the best possible product. The reality is that the beer market has changed dramatically, tied estates are a thing of the past now and the on- and off-trades are enormous.

"But the industry should stop beating itself up over this issue over who gets what for a pint. The fact is that compared to a price of coffee or a beer in Europe a pint in the UK is relatively cheap."

Licensees feel they are suffering because they are getting a fraction of the beer discounts that their pub companies are - something that is hitting them financially.

John Madden, chief executive of the Guild of Master Victuallers, believes the failure to pass down discounts is putting many licensees out of business.

"Pub companies get good discounts [from the brewers] but they are not passed down to the licensee," he said. "I am not against people making a profit but we've lost a lot of pubs already because they cannot cope price-wise. Discounts should filter down to pubs. It is the one way of keeping pubs viable."

Robert Watson, licensee of Henry's in Taunton, Somerset, said: "The difference between what brewers charge pub companies and what we pay for the same beer is exorbitant. Pub companies claim the difference is to cover our subsidised rents, but that is untrue. My rent is similar to other premises in town centres that are not tied."

Keith Gowthorpe, licensee of the Woolpack Inn in Peterborough, said: "The biggest mistake was allowing pub companies to have bigger estates than the old brewers' estates. I don't think the pub companies need to be as greedy as they are being."

However, pub companies deny these claims. They argue they are simply absorbing the price increases from the brewers.

Francis Patton, customer services director for Punch Pub Company, said: "I totally reject the accusation that a price increase from a brewer means total profit to us. We want to help our retailers. When we negotiate contracts with big brewers like Carlsberg and Coors, we make allowances for annual price increases for growing distribution costs. But we think that is only fair."

Graham Turner, chief executive of Unique Pub Company, said: "You'd be mad to think that the prices we pay the brewers don't go up - they do. It would be hard to find any industry where price increases from suppliers don't exist - it's a fact of life."

However, if the pub companies really are suffering from the brewers' price rises, why aren't they shouting bloody murder and threatening action? For a section of the trade that is usually so vocal in industry matters, they are surprisingly quiet.

Stephen McConnell, licensee of the White Hart Tap in St Albans, says he is puzzled with the way the price rises are readily accepted by pub companies. "Generally speaking pub companies hand over any price increase to us," he said.

"But when the price rises are announced by the brewers, there seems to be no complaint from them at all. It is a very odd arrangement."

Mr Patton claims there is good reason for this. "We are concerned with the consistent price rises from the brewers but we raise these concerns in private - we don't like to raise these problems publicly as we have to have a working relationship with these people," he said.

With tenancy agreements the way they are currently, licensees will always pay more for beer than the pub company. It is the only way pub companies can cover overheads and in many cases the lower non-commercial rents they tend to charge. But the fact remains that some licensees receive little or no discount on beer from their bosses - the relationship is not transparent and this creates bitterness among licensees.

The tie on beer and beer pricing is the single issue that compels licensees to call The Publican office more than any other. It is time for the pub companies to realise that this will not go away.

A solution?​

There should be more transparency, with higher rents and larger discounts on beer given to tenants.

We need to move to more commercial rents. Tenants are not paying the full market price on a property. Their rent is performance related in most cases. So pub companies have to subsidise this with the money they make from beer.

So I have no sympathy for tenants who complain that their rent is too high. However, I do feel for those tenants who receive no discount at all on their beer. When brewers increase their discounts to the pub companies, tenants tend to get further behind the pace.

We went tit for tat with the brewers when they raised their prices this year - we had to. We have a "premium discounted lease" - which is £110 a barrel - this is an effective free of tie discount.

Alan Bowes, executive chairman, London and Edinburgh​