Select Committee on Scottish Affairs Appendices to the Minutes of Evidence


Memorandum from Tennent Caledonian Breweries

  Tennent Caledonian Breweries welcomes the opportunity to contribute its views to the inquiry into the drinks industry in Scotland being undertaken by the Scottish Affairs Committee.

  1.  Tennent Caledonian Breweries was founded in Glasgow in 1556 and is the Scottish trading subsidiary of Bass Brewers Ltd which in turn is part of Interbrew SA. The Company brews and packages beers, and supplies beers, wines, spirits, soft drinks, ciders etc to a large number of licensed trade premises in Scotland. The Company's Wellpark Brewery in Glasgow is the only significant beer manufacturing employer in the West of Scotland with 305 employees at Wellpark and 430 in Scotland overall. The Company owns Scotland's No 1 alcoholic drink brand, Tennent's lager, and for many years has been and continues to be a major contributor to the arts, sport, charities and community life in Scotland.

  2.  We have received a copy of the written evidence submitted by the Brewers' and Licensed Retailers' Association of Scotland of which we are members, and concur with all points made in that submission. There is nothing we would like to add by way of supplement to the submission.

  As you may be aware though, one of the most important issues for us at the moment is the Competition Commission inquiry into the acquisition by Interbrew of the brewing activities of Bass PLC (ie Bass Brewers), and I hope you will not mind if I take the opportunity to draw your attention to a number of aspects relating to that inquiry.

  3.  The supply of beer in Scotland should be viewed as part of the overall UK market.

  3.1  Although Scottish consumers are seen as favouring drinking what they perceive as "Scottish" beers, seven of the top 10 brands in the Off licence trade and three in the On licence trade in Scotland are not Scottish.

  3.2  Negotiations are frequently and increasingly with (UK) national trade customers (eg pub and hotel groups, supermarkets, etc) and involve the same selling price for a given brand regardless of where the beer is actually delivered or sold. The structure and dynamics of the supply of beer in both the on and off licence trades in Scotland are essentially the same as in the rest of the UK, with the same competitive pressures existing.

  3.3  Less than 5 per cent of Off trade sales in Scotland are to Scottish-only trade customers and penetration by large independent UK On trade pub and hotel retailers is growing fast.

  4.  The acquisition of Bass Brewers by Interbrew will not materially affect the competitive position in Scotland.

  4.1  Although Bass Brewers has a 38 per cent share of beer supply in Scotland, Interbrew's share, arising from its ownership of the former brewing division (Interbrew (UK) "IUK") of Whitbread PLC excluding Heineken and Murphy's not acquired, is less than 3 per cent.

  4.2  Furthermore in the On trade IUK's share is only 1.5 per cent which is concentrated in the Whitbread PLC pub estate. Following the breaking of the vertical integration link as a consequence of Whitbread PLC's sale of its brewing division to Interbrew, there is no long term security for this volume.

  4.3  Tennents is an equity of brands not a single brand and as such the business cannot be subdivided into separate ownerships. Any enforced disposal of Tennents would therefore result in the purchaser having essentially the same share of the Scottish market as Interbrew, or potentially greater if sold to a brewer who already has a presence in Scotland.

  5.  Tennent Caledonian Breweries' future, and that of Bass Brewers, will be more certain as part of Interbrew, which is a major international brewing group totally committed to brewing as its core activity. This will ensure the necessary resources and focus to succeed in the increasingly global and consolidating beer industry.

  5.1  The UK brewing industry is being adversely impacted by (a) declining beer consumption, (b) increasing imports (including cross Channel imports exploiting the significant duty differential), (c) production over-capacity and (d) severe pressure on brewers' margins as the increasingly powerful retailers exploit their negotiating strength. This deal is the best opportunity to maintain brands, UK and Scottish brewed beers and jobs in a stronger brewing business.

  5.2  Ownership by Interbrew will ensure greater access to resources for investment in brands, new product development, and customer services, which is essential if local choice and variety is to be nurtured and developed.

  5.3  The acquisition will result in significantly greater export opportunities, particularly for Tennents' brand equities, utilising Interbrew's extensive international network.

  5.4  Interbrew has a proven track record of commitment to the heritage and traditions of local brands in the countries where it operates. Its commitment to brand variety at the local level distinguishes it from other global brewers including the other major European brewers who were bidders for Bass Brewers (namely Carlsberg and Heineken).

  6.  The strength of the UK brewing industry has weakened appreciably in recent years, particularly the last three, resulting in the decisions of both Bass PLC and Whitbread PLC to forsake their heritage and exit brewing. The considerable market power of retailers, combined with declining beer consumption and increasing imports is seriously weakening the UK beer manufacturing industry.

  6.1  Although net (of discount) wholesale prices have declined in real terms in recent years, On trade retail prices have increased in real terms. Some of the independent national pub chains rely on the discounts they receive for their own profit stream and do not pass them straight through to their tenants or lessees. An increase in discounts negotiated is not subsequently reflected in a reduction in price to the consumer.

  6.2  A weak UK brewing industry will result in reduced investment leading to fewer brands, a disadvantaged market position relative to global imported brands and UK and Scottish job losses.

  7.  The combined UK share of the merged entities (32 per cent) will be less than that (35 per cent) of the proposed Bass/Carlsberg-Tetley merger for which the Monopolies and Mergers Commission recommended approval in 1997 subject to Bass divesting of tied pubs in excess of 2500 in order to remedy the adverse competitive effect of the merger.

  7.1  Since that time the strength of the brewing industry has declined appreciably with the balance of power having moved significantly away from brewers to retailers as evidenced by the decline in net wholesale prices.

  7.2  The MMC in 1997 believed that adverse effects of the proposed merger would be counteracted by a reduction in Bass owned tied houses to a maximum of 2500. There is now no ownership link at all between Bass Brewers and pubs following separation of ownership between Bass Brewers and Bass Leisure Retail.

  8.  Should you want any further information please contact me at the address above.

Tennent Caledonian Breweries

September 2000

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