THE DRINKS INDUSTRY IN SCOTLAND
3. The beer industry
31. Scotland is home to 33 of the UK's 478 breweries.
In the financial year 2000-2001 they contributed £407 million
in excise duty, which forms about 14 per cent of total UK beer
Many of the same issues we have considered in connection with
Scottish spirits production also exercised the beer companies.
32. Globalisation of markets creates challenges for
the smaller Scottish brewers. Globalisation is also related to
a more general change in tastes, particularly to a broader increase
in consumer sophistication. Rising incomes and increased foreign
travel also support greater experimentation by consumers. Advertising
leads to increased penetration of global brands. People are now
less parochial in their eating and drinking habits, and are more
exposed to new products. Scottish and Newcastle plc, for example,
said that international brands are now taking a greater share
of beer markets the world over, and Scotland was not immune to
One witness was frank about the pressures this can create for
small companies. Referring to advertising, he said that:
"In beer, if you do
not have a brand that ... can command its price, then you are
out of business".
33. Small companies also found it expensive to implement
the large-scale logistics systems necessary to service volume
customers. A shift towards drinking at home, as opposed to in
pubs or clubs, has also created further pressure for the smaller
It was said that, as in the whisky industry, even the large companies
feel pressure to drop smaller brands.
Both large and small companies believed that competition was likely
to cause employment to decline further in the future.
34. We were pleased that the 2001 Budget statement
proposed to cut tax rates for smaller brewers, leading to a progressive
system of excise duty based on annual output. This idea had been
suggested in evidence from the Belhaven Brewery Company Limited.
35. Evidence from Scottish and Newcastle plc showed
that Scotland has the capacity to sustain the headquarters of
a major global drinks company. Scottish and Newcastle is now the
second-largest European brewer, employing 4,700 people in Scotland
and around 60,000 worldwide. It has recently made several large
foreign acquisitions, including the French and Belgian beer interests
of the French company Danone. The example of Scottish and Newcastle
appears to suggest that there is no reason why Scotland could
not support the headquarters of global drinks companies, the reverse
of the situation in the whisky industry where the ownership of
the large companies has largely been lost to Scotland. We were
disappointed that we did not see more evidence of big Scottish
companies acting in this fashion.
36. While the overall advantage may have shifted
in favour of large companies, several of those who gave evidence
pointed out that small Scottish companies can flourish. This issue
was discussed directly with two of Scotland's most successful
small brewers, Belhaven and Caledonian. Both emphasised that small
companies can continue to thrive if they are able to produce high
quality "niche" products. Mr Ross of Belhaven noted
that, while companies like his could not achieve market dominance,
they could successfully "play to niches where we have an
opportunity to compete on price and add value in other ways".
The increase in consumer sophistication noted earlier will, in
part, also create opportunities for smaller companies.
37. Mr Sharp of Caledonian said that one way in which
his company emphasised its distinctiveness was by stressing that
it was produced in Scotland.
Scottish and Newcastle also felt that competitive advantages could
be gained from being a Scottish company. In connection with both
whisky and bottled water, Scotland has unique image advantages,
which can be used to support the sales of high value products
in foreign markets. While it may be fanciful to suggest that Scottish
beer could ever achieve the unique status of Scotch whisky, or,
indeed, Scottish water, we believe that more policy support could
be given to assist the efforts of small Scottish brewers who wish
to use Scotland's reputation for quality as a catalyst to increase
foreign sales. We comment on this further below, when we discuss
the evidence presented by Scottish Enterprise.
38. Small brewers differed on the impact of the growth
in Scotland of the so-called super pubs, whose commercial clout
was forcing discounted prices beyond the reach of the smaller
producers. While we recognise that there has been notable growth
in the market penetration of super-pubs, which tend to be located
in the more profitable city-centre areas, this is not yet sufficient
to create substantial concern. Figures supplied by the Brewers'
and Licensed Retailers' Association of Scotland (BLRAS) showed
that these accounted for only 500 or so of the 18,500 licensed
premises in Scotland.
39. Neither we nor our predecessors included in our
remit a detailed review of the circumstances surrounding the proposed
acquisition by Interbrew of Bass Brewers. But some reference is
necessary. Following the purchase of Bass Brewers by the Belgium-based
company Interbrew, the then Secretary of State for Trade and Industry
considered that the consequence would be the creation of an effective
duopoly in the UK beer market involving Interbrew and Scottish
and Newcastle. He therefore instructed Interbrew to dispose of
Bass Brewers, including that company's Tennent Caledonian operation
with a large brewery in Glasgow. Interbrew successfully appealed
against the decision. The Office of Fair Trading reopened its
investigation into the sale, eventually outlining four options
which would allow matters to proceed. A consultation exercise
40. In its response to the consultation the Belhaven
Brewery Company Limited said it preferred that the original order
for Interbrew to dispense with Bass Brewers should stand. Belhaven
was particularly concerned that one of the proposed options seemed
to suggest that Scotland could be identified as a separate beer
It believed that such an assessment would create a marked difference
between the approach in Scotland and that pertaining in England
and Wales. Belhaven said:
"The Consultation Document
and the proposed remedy are therefore quite hot political topics
and could effectively set a precedent for the future regulation
of other industries in Scotland".
Similarly, Tennent Caledonian Breweries said that
"The supply of beer in Scotland should be viewed as part
of the overall UK market".
41. In oral evidence the Director of Mergers at the
Office of Fair Trading denied that a separate market had been
identified during the Interbrew saga. The matter had been avoided.
Furthermore any designation concerning markets would need to be
re-examined whenever relevant mergers are proposed. As the Director
said: "These things are fluid and can change".
However, we acknowledge the reservations expressed by Belhaven,
and would caution against any improper, pragmatic or idiosyncratic
discrimination between markets in the various parts of the UK.
This issue is likely to arise in future mergers involving Scottish-based
companies, and may have to be looked at again.
42. In September 2001, the Department of Trade and
Industry ordered Interbrew to sell either its holding of Carling
Brewers or Bass Brewers. Interbrew opted to dispose of Carling
Brewers. This would allow Interbrew to retain an important part
of the Bass Brewers business, including the Scottish operation.
43. We welcome the latest development with regard
to Interbrew. Tennent Caledonian had said that its future "would
be more certain as part of Interbrew, which is a major international
brewing group totally committed to brewing as its core activity".
We feel that allowing Interbrew to retain Bass Brewers is the
outcome most likely to secure employment at Tennent Caledonian,
and the one which offers the best long-term prospects for the
Scottish beer industry.
30 HC 324-i, Session 2001-2002, p.294, para 16. Back
31 Ibid. Back
114-i, Session 2000-01, pp.78-79, Q.215. Back
114-ii, Session 2000-01, Q.376. Back
114-i, Session 2000-01, pp.78-79. Scottish and Newcastle estimated
that around 30 per cent of their sales are now of beer consumed
at home, compared to about 20 per cent in 1990. Back
114-i, Session 2000-01, p.80. Back
36 Ibid. Back
114-ii, Session 2000-01, Q.395. Back
114-ii, Session 2000-01, Q.371. Back
114-i, Session 2000-01, p.79. Back
114-i, Q.215 and pp.81-82. Back
printed. Available from the Department of Trade and Industry. Back
42 Ibid. Back
114-v, Session 2000-01, p.234, para 3. Back
324-i, Session 2001-2002, Q.729. See Qq.724 to 731. Back
114-v, Session 2000-01, p.235, para 5. Back