Page last updated at 12:20 GMT, Wednesday, 13 May 2009 13:20 UK

Pub shares rattled by probe call

Pint of beer
Pub firms are not passing on beer discounts, MPs said.

Shares in UK pub firms have plunged after MPs called for the pub industry to be investigated over practices that may be forcing up drinks prices.

MPs want the Competition Commission to investigate arrangements that oblige pub tenants to take beer supplies only from their landlords.

Shares in Enterprise Inns fell 26% while Punch Taverns was down 13%.

Both firms said they were disappointed with the report from the Business and Enterprise Select Committee.

The committee said the practice, known as the beer tie, led to an "ever-increasing disparity" between pubs and shop prices.

"There... are strong indications that the existence of the tie pushes up prices for consumers," the MPs said.

They added they were "surprised and disappointed" that the Office of Fair Trading (OFT) had been reluctant look again at the beer tie's impact since a 2004 study.

High rents

There have been claims that firms are using their strong position to impose high rents but are failing to pass on the discounts they get on beer to tenants.

"The failure of the pubcos to pass on the benefit of their discounts to the lessees prevents the lessees from passing on the benefit to the consumer in terms of reduced prices," the report said.

If pubcos push too hard and are too greedy they will fail
Peter Luff
Committee chairman

The wide disparity between beer prices in pubs and off-licences and supermarkets were undermining the viability of many pubs, the MPs added.

Tenants were being forced to hike prices, which encouraged the trend towards drinking at home, they said.

An average of 39 pubs closed every week in 2008, compared with eight in 2004, the report added.

Other pressures on pubs, such as changing consumer preferences and recession, the MPs acknowledged.

But they said: "It is to the overall detriment of the consumer if pubs are forced to close due to uncompetitive practices in the market."

'Disappointment'

Pub firms argue that they need to have some hold over the running of their pubs, so that they can make a profit.

Punch Taverns said it believed the model provided a fair approach to sharing risk between pub companies and their tenants.

"We strongly believe there are good grounds for the government to reject the committee's recommendation," it said.

Enterprise Inn's boss Ted Tuppen said he was disappointed by the report.

"The committee has chosen to focus on a highly emotive, and we believe unsubstantiated, allegation of systematic and widespread abuse by pub companies of their licensees.

Around midday, shares in Punch Taverns were down 17.4%, or 24 pence at 114p, while Enterprise Inns lost 18.3%, or 29.25p, at 130.75p.

Support lessees

FROM THE TODAY PROGRAMME

The MPs also criticised pub firms selling sites with restrictive clauses stating that they should no longer be used as pubs.

"We believe it is for the market to decide whether a pub is unviable and not for a pubco to restrict a building's use," it said.

"Our inquiry found alarming evidence indicating there may be serious problems caused by the dominance of the large pub companies," added committee chairman Peter Luff.

He challenged pub firms to demonstrate the benefits of the tie, by allowing tenants the opportunity to run their pubs without the tie obligation.

Mr Luff said that doing away with the tie completely may give too much power to the brewers and wholesalers, but called for severe restrictions on the practice.

"Some might argue that this can be left to the market. Pubcos which not only benefit themselves but support their lessees are likely to stay in business," he said.

"If pubcos push too hard and are too greedy they will fail.

"But on the way, bad companies will inflict real damage on their direct customers, the lessees, and on their indirect customers, ordinary drinkers."



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