ALE November 1999 No. 296

Industry Watch 1 - the Major Players

Industry Watch : the Major Players - the Smaller Players (ALE 297 follow-up)

Whitbread

Responding to the spring 1999 European Commission decision on the brewery tie, Whitbread Pub Partnerships (the tenanted division of 1714 pubs) asked for a ruling from the Commission about their tied house policy and got an "individual exemption", giving them peace of mind - freedom from the sort of challenge Greene King recently suffered as to the legality of the tie for their tenants.

This paved the way for Whitbread's 2.3B bid for Allied Domecq's 3,500+ pubs and restaurants. If it had succeeded and then they had sold off their remaining breweries, they should have escaped any regulatory complications and overtaken Nomura as the no. 1 pub operator, with over 5,000 (over 10% of pubs). The Government referred the bid to the Competition Commission after complaints from CAMRA and Punch Taverns.

In September Whitbread seemed to be interested in the Swallow Group (formerly Vaux) to complement their Marriott hotel chain and in November they bought it for 578M. They will integrate the hotels and probably sell off the 199 pubs. This is partly to restore their credibility with financiers after their Allied Domecq failure. This completes the asset-stripping of the thriving Vaux business.

After many years they've abandoned their open-hand logo, associated with brewing, in favour of "Enjoy!" - deemed to be more relevant to their leisure retailing ethos.

In mid-October they announced job losses of around 150 in office workers and a restructuring, creating a single pubs division from the managed and leased ones and a single restaurants division for Bella Pasta, Pizza Express, Beefeater, Brewers Fayre, TGI Fridays and so on.

The brewing company under MD Miles Templeman was untouched by all this and seems to be increasingly independent, ready for a possible sale. It recently opened a 12M bottling plant near Preston.

Chilled Boddingtons Draughtflow is being promoted with an 11M series of bizarre cartoon TV ads - still pushing "the cream of Manchester" and "chilled cream". Graham the male cow is pursued by the voluptuous Claudia for his "cream" from his udders. Seventy complaints went to the Independent Television Commission but they ruled the ad wouldn't be taken seriously.

They're investing 1.5M in TV sponsorship to promote Wadworth's 6X. Unique among the big 1960s industry groups, Whitbread have worked with smaller breweries like Wadworth's for many years - in this case to make a national brand - rather than always taking them over for their brands.

Whitbread commissioned a study of women drinkers which came up with these categories:

Punch Taverns

They acquired Allied Domecq's 3,500 pubs & restaurants for 2.75B (including 741M in Bass shares) in August. It's said that City advisors charged Punch around 140M during the sale, as Punch has little track record.

550 of the AD pubs are being sold on to Bass, including about 110 Firkins and all Festival Ale Houses (e.g. The Mitre, Cambridge). This leaves Punch with about 60 Firkins, which they'll develop. The other AD themes they'll probably keep are Mr Q's and Big Steak.

Punch has closed the 24 Firkin breweries (sacking around 30 staff) to avoid any problems with the Beer Orders - these restrict the tied-pub ownership of breweries. However they have introduced "new ales", to much hype, supposedly responding to consumer demand for national brands - the likes of Tetleys but also Ind Coope Burton Ale.

Whilst the deal was in progress, Punch bought Inn Business for 69M. Their previous major purchase was of Bass tenanted pubs and they made the tenants give up their guest beer rights under the Beer Orders (as tenants of a big brewer).

Punch's chairman, Hugh Osmond, says pub retailing is about buying beer cheaply from big brewers and selling it at premium prices. It seems likely that Punch will do a supply deal with Bass for all their pubs, displacing Carlsberg-Tetley as suppliers to the formerly Allied Domecq ones and excluding any significant opportunities for smaller breweries.

The Punch takeover and the sell-on to Bass have been referred by the Secretary of State, Stephen Byers, to the Competition Commission. The actual deals have been approved subject to Punch selling or freeing from tie 31 pubs and Bass 30. Concerns involve the combination of Punch and Bass:

Punch carried out research into what students want and concluded there's a new breed of them, wanting good local pubs with community spirit. For 300,000 they're trialling a "student's local" concept pub, the Three Horseshoes in Headingley, Leeds, for this academic year, based on their experience of "chameleon city centre pubs" - ones changing emphasis during different parts of the day. Apparently it's for "grown-up students". They seem to have missed the point that students get bored with campus bars and many prefer to move off-campus - that's why they appear in community pubs.

Bass

Mark Hunter, Bass Brewers Marketing Director, was quoted in the Licensee & Morning Advertiser:

Well, he certainly hasn't been investing any of his company's lately. In a subsequent edition he appeared to retract somewhat, saying it's up to the landlord to go no-cask and that no cask beer is better than bad. He pointed out that they brew 370,000 barrels of cask beer per year and will spend 1M on marketing Draught Bass [compared to 8M on Caffrey's, an out-of-date style of fizz]. Bass also said he was quoted out of context and was referring to wine bars.

To them the future is less about choice than about a smaller selection of well-supported, readily available brands [i.e. national blands]. Whilst they have now decided to advertise real ale a bit, the trend is to push the new smoothflow ales at the expense of unfashionable plain nitrokeg.

The pubs being acquired from Allied Domecq via the Punch Taverns deal for 880M are likely to be converted to Bass themes: Toby, Harvester, All Bar One, O'Neill's, Tavern, Vintage Inns and so on.

As part of the deal, Bass also took a 25% share of Britvic.

Bass are proud of an innovation at the Cardiff Millennium Stadium and Norwich's Carrow Road ground: twelve glasses of beer in a row can be filled simultaneously at the press of a button, taking 30 seconds.

Scottish & Newcastle

Surprisingly, they're spending 750,000 on a Courage Best campaign.

In September they paid 1.135B for Greenalls 531 managed pubs, 234 pub-restaurants (e.g. Henry's, Millers Kitchen, Squares) plus 61 cheap "lodge" hotels. The pubs and restaurants will be integrated with S&N's themes Barras & Co. and Chef & Brewer.

Like Whitbread, S&N now have an exemption from the European Commission until 2002 but may be forced to dispose of tied pubs then. [EC Notice re S&N] This is why they are thinking of giving up their tenanted pubs within three years whilst still operating other companies' tenancies free of tie under management contracts. For instance they sold 172 pubs to the Royal Bank of Scotland earlier in the year but still manage them this way.

Another reason for a sell-off or a free-from-the-tie of pubs is to comply with the Beer Orders. The current limit for S&N is 2,739 tied pubs - raised by the Government earlier in the year. As of November the Office of Fair Trading and the DTI have said to S&N they're happy with the Greenalls deal provided S&N dispose of 700 tied pubs.

Already they have been experimenting with freeing pubs from the tie and this has proved a success. They are also buying pubs from individual freeholders (presumably having difficulties) and then leasing them back free of tie. Yet another initiative is franchising, which involves copious training and on-going support, aimed at industry newcomers.

A Heritage Bar is to open on the site of the Fountainbridge Brewery in Edinburgh, which they closed in 1990. In the Fountainpark "edutainment" complex there's a Virgin 12-screen cinema, a 15-lane Allied bowling alley, a S&N Old Orleans restaurant and so on.

There's more news of S&N in Brewery News.

Wolverhampton & Dudley

Fresh from their takeover of Marston's and failed bid for Morland, in September they launched a bid of 230-240M, later upped to 253M, for Mansfield Brewery (Notts).

The newly-acquired Pedigree Bitter is being promoted via a challenge: identify a pint of it correctly and you get a free one; if you fail you get a free one as practice! However in November there are rumours that they're going to contract out Pedigree to Bass as a cost-cutting measure, ending the last use of the famous Burton Union cask system (which in any case hasn't been used for some time for the majority of Pedigree production).

W&D are now brewing their Heineken, Kronenbourg 1664 and Harp Irish at the former Cameron's Brewery in Hartlepool.

They had planned to open a "Varsity" student venue of 4,000 sq.ft drinking space in Northampton but are now selling the site.

W&D sold 63 managed houses and 102 tenancies to Greene King for 71M and announced plans to sell 290 in all. In October they announced three-way talks with pub operator Paramount (Chester) and an unnamed party. Under the proposed deal, the latter will buy 285 W&D pubs for around 45M and Paramount will run them under a management contract. This would leave W&D with 1,463 pubs, with 5,000 more allowed under the Beer Orders.

Greene King

Greene King managed to buy Morland for 182M (original bid 145M), beating off W&D's bid at 174M. This included 400 pubs, making a total for GK of around 1,800.

Some of the ex-Marston pubs bought by GK from W&D have been sold on to Wadworth's - their landlords must have been wondering what was going on!

Morland's attempts to brew Ruddles County faithfully in Abingdon had failed. Meanwhile a complaint to the Advertising Standards Authority over the "country born & brewed" tag, as being fake when applied to the Abingdon version, failed as Abingdon is a market town in a rural area. They carried the slogan over from when Ruddles was brewed in Oakham.

In any case GK are closing the Abingdon brewery (with the loss of about 100 jobs), brewing any remaining Morland and Ruddles beers in Bury St Edmunds. The Abingdon site will become a distribution depot. The only one of those brands they seem to really care about is Old Speckled Hen, being a nationally-available beer already. They're pushing Abbot Ale sales to join it. Ruddles may only survive in supermarket plastic bottle form.

JD Wetherspoon

Chairman Tim Martin plans to grow his estate to over 1500 pubs, spending 110M this year to create 95 new outlets. Many will be on smaller suburban sites.

JDW have launched a national price list for the big-brand drinks they buy in vast quantities via heavily-discounted national agreements. For instance,

Yates Wine Lodges responded with a national price list to undercut these, applying between 3pm and 8pm: e.g. Boddingtons 1.10, Carlsberg, Murphys & Carling 1.35.

After all the battles with locals, JDW had to abandon their plans for Frinton's first ever pub as the site owner kept putting up the price. A developer is now hoping to open his own "First Pub".

Mansfield

Over 30 years ago two trusts were set up by the Chadburn family who had helped build the business up from the one created in the 1850s by the Baily family. The FB Baily Charitable Fund was for a mentally ill relative who died three years ago. The FB Baily Thomas Provident Fund is for looking after the interests of the 4,350 brewery employees. Both trusts have as a principal object the securing of the independence of the brewery. Sales of shares are only supposed to happen in special circumstances.

As widely reported in the Press, these Trusts put their 48% of the shares on the market and said they were only following advice [shades of "only obeying orders"?] from an Ernst & Young report. The press reports went on to explain that Joss Nangle was the chairman of the trusts, a non-executive director of Mansfield and a partner in Ernst & Young, who were commissioned to sell the shares. Apparently the media interest pushed the share value from about 44M to around 210M straight away. Since then he and another trustee-cum-director have stepped down.

The brewery's management have tried bidding against W&D but seem likely to fail. Unless there's a legal hitch, the sale probably will go through. It would become W&D's fourth brewery (the others being Banks', Cameron's and Marston's) and thus be almost certain to close, unless some new need appears.

Nomura

The first of the giant pubcos, this now has the operating companies Inn Partnership, Unique Pub Co., Inntrepreneur Pub Co. and Phoenix Inns.

They've sold some pubs off but still have around 5,000 (1 in 10).

Martin Grant, the person who pushed big Vaux share holders to sell out and become the Swallow hotel group, has joined Nomura.


Sources

Licensee & Morning Advertiser 10-Jun-1999, 17-Jun, 12-Jul, 15-Jul, 22-Jul, 26-Aug, 30-Aug, 9-Sep, 16-Sep, 23-Sep, 27-Sep, 30-Sep; Roger Protz, writing in the L&MA 26-Aug-1999, 16-Sep; Ceefax 18-Aug, 14-Sep, 17-Sep, 20-Oct; Publican 12-Jul, 7-Aug, 6-Sep, 13-Sep, 20-Sep, 15-Nov


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