The duty rise is a disaster, says Wells and Young's boss

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Nigel McNally is looking vexed. This might surprise some. After all, here is a managing director who has steered a company through a tricky merger...

Nigel McNally is looking vexed. This might surprise some. After all, here is a managing director who has steered a company through a tricky merger and come through the other side.

Back in September 2006, there was a large contingent of cynics in the industry who didn't believe it could be done; a merger of two large regional brewers - one based in Bedford, the other moving from its traditional home of Wandsworth, London.

But almost two years on and any concerns Young's fans may have had about the consistency of Young's ales have been alleviated. The quality of the Wells speciality beer portfolio continues to go from strength to strength, too.

But there is no doubt McNally, sitting in the Wells & Young's boardroom under the gaze of portraits of men who have managed brewing in Bedford over the last 130 years, is peeved.

Duty regime

His ire is squarely focused on the government and its taxation of the industry. The 4p-a-pint duty hike in this year's Budget has, in his opinion, done serious damage to the whole industry - beer and pubs together.

"There is just something fundamentally wrong with the current duty regime," he says. "This blanket approach has got to stop. There is real hypocrisy here. They say the increase in duty is to stop binge-drinking - but it's about collecting more taxes."

He adds his voice to arguments that have been made by other brewers involved in this debate, such as Jonathan Neame at Shepherd Neame, that the attempt to gorge on beer duty to swell the government coffers has actually backfired.

"If beer sales volumes are down eight per cent in the on-trade then the Treasury has to be losing out on the money it thinks it is making," he points out.

"The government needs to rethink its strategy. Because we will see more closures. If pubs close, breweries will close and how is that benefiting government revenues?"

He is so concerned by the issue that he says he has lined up a meeting with Labour MP Andrew Slaughter to go through questions that the MP says he is willing to put to the Treasury.

McNally is deeply worried about the effect the combination of this and rising costs will have on brewers. His vision for the future if this set of circumstances continues isn't far away from an industry doomsday.

"This year you will see more cost increases and, if brewers and pubcos pass these increases on, the rate of decline of beer sales in pubs will increase," he says.

"The big question over the next two years is whether brewers will pass on the costs and exacerbate the problems in the on-trade or absorb them and potentially go into a loss-making situation themselves."

But McNally insists he is ready to rise to the current challenges. "We will look to support our brands strongly - look at our recent spend and the national ad campaign with Corona Extra," he says. "Our view has always been to spend our way out of tough times."

Vital move

And what is his view of the success, or not, of the Wells & Young's merger, nearly two years on?

No matter what the difficulties of the process, he believes very strongly that the move was vital if the two brewers were to continue to succeed in an evolving market.

"It was an important strategic move for us," he says. "Our analysis of the market pre-merger was that cask was a very good sector to invest in.

"If you looked at socio-economic developments, people who were drinking it were older, ABC1s and the population as a whole was moving towards that demographic. They

have higher disposable income - that suggested we could move towards a higher retail selling price and therefore greater margins.

"The deal balanced our portfolio - and it gives us fantastic sell-in to national freetrade."

You sense that the men in the portraits would approve of the ambition being shown by the brewer. All that now remains is to come through the tough times. And any other spanners that the government throws in the works. If it does start throwing tools around, you might find a certain brewery boss marching on Westminster.

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