'The industry needs a price adjustment''
OVER THE past few years the pub industry has lost some great, traditional, family-owned regional brewers. Hardys & Hansons, Burtonwood, Jennings, Ridleys and George Gale & Co have all disappeared as independents, swallowed up by the big pubcos and super-regional brewers.
Brewing beer, once an old-fashioned, typically British manufacturing giant of an activity, where free trade and price-led competition were encouraged, is now in the hands of a few. Scottish & Newcastle (S&N), Coors, Carlsberg and SABMiller dominate the global economy, while Marston's and Greene King dominate in the UK.
These are followed by some high- quality regional operators such as Fuller's, Young's, Shepherd Neame, SA Brain and Everards. Add to that a plethora of other regionals and small, local breweries and the oligopoly that the big producers strive for is perhaps not quite there, yet. Indeed, it was suggested to me quite recently that there are still several hundred brewers at large in the UK.
S&N's recent results, which showed a 6.7 per cent growth in revenue, some excellent global growth and strong lager and cider sales, have highlighted a couple of salient points to me, namely the decline of ale sales in the UK and competition from the off-trade (S&N's on-trade sales are expected to fall by 5.7 per cent in 2007).
Ale sales have been tumbling for a few years now - the dripping tap syndrome perhaps - and been replaced by increased sales in lager, bottled beers, cider and alcopops. More recently we have seen a growth in wine sales and soft drinks which will surely be enhanced by the July smoking ban and a further shift in the sales mix, as the customer profile of most pubs changes. With S&N predicting a £10m cost impact of the smoking ban in 2007 there is perhaps some gloomy news ahead.
Perhaps the biggest threat to the industry, however, and a real challenge to the government in its drive to promote responsible drinking, is the availability of cut-price supermarket beer.
Tesco On-Line is currently offering 18 cans of Guinness for £14.99. You do the maths. You can have it delivered to your door for less than £1 a pint and drink it at home or you can visit your local and pay about £2.75 a pint for the same drink. It's hardly a level playing field, although I don't subscribe to the view that pub visits in England will fall after July 1 as more smokers stay at home. What the industry needs is a price adjustment to bring off-trade and on-trade pricing more in line with one another.
Brewers are clearly having a tough time. Their investment in quality brands, better, more efficient delivery systems and closer control of overheads is to be applauded. The cost cutting drive announced by S&N will perhaps alert would-be suitors who have been casting their eyes over the sector of late for investment and acquisition opportunities.
Consolidation of the UK brewing sector is certainly not out of the question and is likely to be an interesting issue during 2007 and beyond.
Geoff Newton is relationship director for the UK licensed trade at Barclays
