The Tied House Pub System in England
As a follow-up to the post below about the dying English pubs, it's worth expanding on a point Joe made in comments. English pubs compete in a dramatically different regulatory environment than those in the US. Our system, as you know, ensures that pubs are wholly independent--US law mandates that a distributor act as a middle-man between the brewery and the pub. These rules were created as a protection against the English system, where breweries directly owned pubs--a system known as "tied house."
That system is still in place, and it may be a major reason pubs are in trouble.
Beer sales are dropping precipitously in the UK--down 22% since 1979. The largest drop is among the "premium lager" segment. Sound familiar? (Cause and effect are not easy to tease apart here. Some blame the drop-off in pub sales as the cause, and cite a recent smoking ban and the rise in prices. But that isn't convincing, either--sales have been dropping for at least a decade. Long before last year's smoking ban and recent spike in taxes on draft pints.) But what to make of the simultaneous, contrasting trend of the boom in English craft breweries, who saw sales increase 11% last year?
This is one of those times when regulation may be a problem. Since the tied-house system has been in place, it has stymied competition. In the 1980s, a government commission looked into the situation and unanimously concluded "a monopoly exists in favour of those brewers who own tied houses." Furthermore:
I am, as you all know, both a foe of the power of US distributors as well as a pinko commie. I am therefore leery of blind boosterism of free markets. In this case, it seems like a no-brainer, however. As long as the UK keeps the tied-house system in place, the market is going to suffer a more violent reckoning as a result of changing consumer tastes that it would if it were more open.
That system is still in place, and it may be a major reason pubs are in trouble.
Beer sales are dropping precipitously in the UK--down 22% since 1979. The largest drop is among the "premium lager" segment. Sound familiar? (Cause and effect are not easy to tease apart here. Some blame the drop-off in pub sales as the cause, and cite a recent smoking ban and the rise in prices. But that isn't convincing, either--sales have been dropping for at least a decade. Long before last year's smoking ban and recent spike in taxes on draft pints.) But what to make of the simultaneous, contrasting trend of the boom in English craft breweries, who saw sales increase 11% last year?This is one of those times when regulation may be a problem. Since the tied-house system has been in place, it has stymied competition. In the 1980s, a government commission looked into the situation and unanimously concluded "a monopoly exists in favour of those brewers who own tied houses." Furthermore:
"Brewers are protected from competition in supplying their managed and tenanted estates because other brewers do not have access to them. Even in the free trade many brewers prefer to compete by offering low-interest loans, which then tie the outlet to them, rather than by offering beer at lower prices. Wholesale prices are higher than they would be in the absence of the tie. This inevitably feeds through into high retail prices."In other words, the vicious cycle of high prices and dropping sales is a result of non-competition. The result of the commission was the Supply of Beer law, an apparently successful effort at opening the market. It was subsequently repealed. (Interesting question for follow-up: what effect did the Supply of Beer law have on provoking the rise of small craft-breweries in England, and what has been the result of its repeal on them?)
I am, as you all know, both a foe of the power of US distributors as well as a pinko commie. I am therefore leery of blind boosterism of free markets. In this case, it seems like a no-brainer, however. As long as the UK keeps the tied-house system in place, the market is going to suffer a more violent reckoning as a result of changing consumer tastes that it would if it were more open.