Select Committee on Scottish Affairs Minutes of Evidence

Memorandum from Mr Stuart Ross, Chief Executive, The Belhaven Brewery Company Limited

  Belhaven is Scotland's leading regional brewery. Our financial data can be captured from our Annual Report (copy enclosed[11]). We employ approximately 650 people and we operate in the following fields:

  1.  Brewing and packaging of beer. We have brewing and packaging facilities in Dunbar which are small by industry standards with brewing capacity about 100,000 barrels per annum (total UK capacity is circa 40 million barrels per annum).

  2.  Drinks distribution. We have a drinks distribution business which sells our own Belhaven brewed beers as well as a wide range of national and international beer, cider and soft drink products to approximately 1,200 licensed trade customers in Scotland, including our own pubs. We sell mainly to the independent sector in the on-trade and we also deal with the take-home market (mainly the big five supermarkets). We export our products with the principal sales volumes being achieved in the USA.

  Our highest sales volumes are achieved with Belhaven Best, which pioneered the nitrokeg ale market in the UK in the early nineties, and Tennent's Lager which we purchase through a key supply agreement from Bass Plc. These products are sold principally to the on-trade although Belhaven Best is represented in the take-home trade.

  Belhaven has a £30 million free trade loan investment book. We offer a range of flexible financial packages to independent publicans to help them acquire, expand and develop their businesses and, in return, they give a commitment to Belhaven to purchase supplies from us. Many of these contracts involve exclusivity of supply for the aforesaid range of beer, cider and soft drink products.

  3.  Pubs. Belhaven owns an estate of approximately 100 public houses in Scotland, of which around one third are managed by our own staff and two thirds leased to third parties who are tied to Belhaven for the supply of beers, ciders and soft drinks. We do not impose any ties for either wines or spirits or AWP machines.

  Belhaven is highly unusual within the Scottish beer industry in that our business is centred almost entirely north of the border and our profit is derived from trading north of the border. Our prosperity is closely linked with the economic health of Scotland and we are the only regional brewer north of the border also involved in drinks distribution, pub retailing and tenanted estate management.

  Belhaven is a member of BLRAS. We have seen the BLRAS submission to the inquiry and we would not propose to duplicate the content of it.

  The issues which concern Belhaven at present include the following:

    (i)  The number of new licence grants. There is no doubt that the Scottish market is saturated with far too many retail businesses chasing a declining trade and we believe that insufficient attention is being paid by Licensing Authorities to over-provision issues. You don't have to be particularly clever to realise that the value of existing licences is significantly under threat if there is an avalanche of new licence grants and that is precisely what has happened in the past few years, especially in city centres.

    (ii)  The threat of the super pub. As the government will be aware, the grocery corner shop has largely disappeared following the march of the supermarkets. We are presently witnessing a similar trend in the pub trade with the national multiples investing significant sums in new retail developments which are targeted to attract the clientele of the smaller independents. These super pubs tend to be deep discounters and the smaller licensee simply cannot compete. The saturation referred to above is hugely exacerbated by this super pub trend.

    (iii)  Trade barriers. Most of the trade barriers which we encounter are commercial. On the beer side, there is heavy discounting by the national brewers to both the take-home trade and the super pubs and other multiple operators. At our scale of operation, we simply cannot compete on price and we must therefore find niches in the market where price is not the priority factor. As a consequence of the sharp increase in deep discounting which has taken place recently, it is becoming increasingly hard to identify niches which will be attractive to the consumer. The stand-out factor has to be particularly creative as the consumer is increasingly focused on price.

    (iv)  Excise Duty. We are very concerned at the massive burden imposed on Belhaven by Customs and Excise through the imposition of excise duty rates which are hugely ahead of our European counterparts (see BLRAS paper). I would add the comment that the handling of beer duty imposition and collection by Customs and Excise has been, on many occasions, both vague and inconsistent (especially since the start of end product duty). This comment can be supported by Customs' recent unilateral declaration (at very short notice) that the 1 per cent overfill tolerance on keg and cask beers is to be withdrawn. Without the weight of BLRA in the UK, many small companies would have suffered a significant financial blow.

    (v)  Drink driving legislation. Any reduction in the blood alcohol concentration level limit would have a significant impact on Belhaven's business.

    (vi)  The Liquid Pint. The introduction of the liquid pint would have a radically negative impact on our own business.

  We operate in an environment which is increasingly dominated by the bigger players. On the beer side, Scottish & Newcastle, Bass, Whitbread, Carlsberg Tetley and Guinness command more than 90 per cent of the Scottish market. On the retail side, there are many major players in retail licensed pubs who control and command the best sites through their resources which are much superior to those of the regional brewers and independents. Key retail players in Scotland are Scottish & Newcastle, Bass, Whitbread, Punch Taverns, JD Wetherspoon and there are many other national multiple groups now looking to march into Scotland to find new opportunities following the saturation of their markets and potential markets south of the border.

  These comments and issues should not be interpreted as complaints or squeals from Belhaven. We do not expect or want government regulation to resolve the competition issues which we face. Although a small player in our chosen marketplace, we have always realised that we have to stand on our own feet and compete tangentially with the nationals (and internationals). All we ask is that the government thoroughly reviews the plethora of statutory provisions which they are presently contemplating. For example, how can Customs and Excise reconcile their recent withdrawal of the overfill tolerance with Weights and Measures provisions?

  On the subject of regulation, experience has taught me that regulation by any government or authority tends to create market distortions which are self-corrected through commercial adjustments. In the process of the commercial adjustments being made, the weaker players are weeded out.

  May I conclude by stating quite clearly to you that these are my personal thoughts and do not necessarily represent the views of the Board of Belhaven Brewery Group plc of which I am merely one member. There has been no meeting of the Belhaven Board between 6 December 1999 and the present date which would have given me the opportunity to sound out my colleagues.

Mr Stuart Ross,
Chief Executive,
The Belhaven Brewery Company Limited

January 2000

11   Not herewith printed. Back

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