Bars now offer drinks all round

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The Beer Orders proposed greater competition in the brewing industry. The results surprised them, but competition sometimes benefits customers in unexpected ways.

It is a mile from my London office to my London home, and when I first walked that distance ten years ago I passed seven pubs. As the Office of Fair Trading will find when it yet again investigates competition in the beer industry, much has changed. One pub has closed, but a shop has been transformed into All Bar One. The Quintin Hogg has become the Street Caf, with bottled lager on the tables and widescreen television on the walls. One bar now specialises in what it describes as gourmet pizza. Another is a European-style all-day café. Three remain traditional English pubs. The ambience of the Duke of Wellington is as unchanging as the iron features of the Duke himself.

This is typical of most British towns. There is now a much wider variety of outlets serving alcoholic drinks. Not all these changes are to everyone’s taste. I sometimes enjoyed a quiet drink in the Quintin Hogg. But I have not visited the Street Caf, and wild horses would not drag me across the threshold of the Wacky Warehouse opposite the Hoover Building on the A40 out of London.

But you don’t need to find seven bars that suit you on your way home, and it’s better if you don’t. The seven bars available now cater for many tastes The Street Café is not for me but it is always full of other people. How much better that is than the dull uniformity of one size fits all: the Stalinist world in which every outlet is modelled on some planner’s conception of what constitutes a nice pub.

Once all pubs were the same. Dirty towels absorbed the spilled beer on the bar and greasy sausage rolls rotated uninvitingly in a cabinet nearby. This was the early 1970’s, soon after a wave of consolidation and acquisition had brought most pubs into the ownership of six national brewers. Now you can have All Bar One, or the Wacky Warehouse; the Street Caf, or the Duke of Wellington.

Many factors have contributed to this transformation. Customers have become more demanding and standards have risen throughout the industry. Deregulation and more liberal licensing laws have helped. But the most important element in the change has been the emergence of dozens of independent pub companies.

These so-called pubcos now own almost half of the pubs in Britain. Some of them have a recognisable format for their activities. J.D. Wetherspoon operates its pubs in imitation of the ones you imagine your grandfather frequented, while Wacky Warehouses are among the many brands within Punch Taverns. Other pub companies provide management support and buying power to traditional locals. This is the general policy of Britain’s largest pub owner. Not many people would guess that this is Nomura, the Japanese bank. The major brewers have responded to the pubco by developing their own retail chains, such as All Bar One from Bass or the Rat and Parrot from Scottish and Newcastle.

Variety is the essence of free and competitive markets. The rise of the pubco is a direct result of the highly critical report on the British beer industry delivered by the Monopolies and Mergers Commission a decade ago. That report marked the end of a system in which most pubs were owned by, and almost all exclusively tied to, a brewing company.

The Beer Orders which followed were the subject of hostility from the industry, which famously compared their likely effect on English pubs with that of the Luftwaffe. The unpopularity of the Beer Orders among Conservative brewers and publicans helped end Lord Young’s political career. And politicians and landlords alike have criticised them ever since.

Strong claims were made about the likely effects of the MMC recommendations. Supporters hoped for cheaper beer and greater opportunity for small brewers of authentic ales. Opponents forecast fewer pubs and less investment in upgrading. All of these assertions proved wrong. There were 60,000 pubs then and 60,000 pubs now. The six national brewers of 1989 accounted for more than three-quarters of beer sales. The four national brewers of 1999 account for more than three-quarters of beer sales.

Investment in pubs did not fall. After some initial uncertainty capital expenditure in the sector by the pubcos is much higher than it was when the industry was under brewery domination. But the price of beer in pubs has risen faster than the rate of inflation. Not surprising, perhaps, since beer consumption has been falling and much has been spent on refurbishing pubs, but disappointing for those who hoped to see the benefits of competition in their wallet.

Predictions about how an industry will evolve, whether from companies themselves or from outside observers, should always be viewed sceptically. We rarely know exactly how markets will change and nor do they. But we do know that competition accelerates the process of change and monopoly holds it back, and that should be the central consideration as the Competition Commission reports on cars and the OFT on beer. The competitive revolution of the last decade has given Britain one of the most diverse and vibrant drinks retailing sector to be found anywhere in the world. Despite all the criticism that the Monopolies Commission and Lord Young received, their insight a decade ago that the British drinks industry needed an injection of fresh competition and the British public would gain from it proved absolutely right.

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