Market competition in supplying beer to pubs

Readers of this magazine should be aware of CAMRA’s stated policy that no pub owning business should have the right to impose on a tenant supply ties relating to any product which it does not itself manufacture.

Just as, say, the owners of a shopping precinct would not be entitled to restrict the goods a grocery business in one of its units could buy in from which suppliers and at what cost, we see no reason why pub owning businesses should have such powers. However, historical anomaly has allowed the ‘wet rent’ rake off from anti-competitive supply ties to form the basis of several pub companies’ leased or tenanted business operations for the last 30 years.

There is now a welcome possibility that this anomaly will come under official scrutiny as the Competition and Markets Authority (CMA) is ‘reviewing the retained Vertical Block Exemption Regulation to inform its recommendation to government on replacing it when it expires in May 2022’. Details are published on the CMA website of an initial open consultation, closing on 6 July 2021, to which CAMRA will be among those responding.

Implementing corresponding EU legislation, the Competition Act 1998 prohibits agreements between businesses that restrict competition in the UK (unless they meet the conditions for exemption in section 9(1) of the Competition Act or are otherwise excluded). This is known as the Chapter I prohibition. CMA explains: “An agreement is exempt from the Chapter I prohibition if it creates sufficient benefits to outweigh any anti-competitive effects. A ‘block exemption’ regulation automatically exempts agreements of a certain type from the Chapter I prohibition if the agreement satisfies the conditions set out in the block exemption regulation.

This consultation relates to the block exemption regulation for ‘vertical agreements’ – referred to here as the retained VBER. Vertical agreements are agreements for the sale and purchase of goods or services that are entered into between businesses operating at different levels of the production or distribution chain, for example, between manufacturers and wholesalers or retailers.

Most vertical agreements do not generally give rise to competition concerns and may have positive effects, for instance, by helping a manufacturer enter a new market or avoid a distributor ‘free-riding’ on the efforts of another distributor. However, some vertical agreements may negatively affect competition if the agreement restricts the supplier or buyer in such a way that, for example, it denies access to markets for other businesses, or otherwise reduces competition. This may lead to harm for consumers by increasing prices, limiting choice, lowering the quality of goods and services, or reducing innovation. Such harm may be more likely where one or more of the parties to the agreement possesses market power or where the agreement forms part of a network of similar agreements.”

Those last three sentences seem wholly applicable to those onerous beer ties. As I wrote here last April, just as we now feel free to advocate taxing draught beer less, let us also advocate removal of the exemption of ‘vertical agreements’ from the application of competition law. Pub companies’ restrictive supply ties should be open to scrutiny. Unless they can be shown to confer consumer benefits, I believe they should be unenforceable.

Competition law is complex and the CMA consultation exercise is carefully structured. Interested pub campaigners and small brewers should visit the CMA website.

Geoff Strawbridge
Greater London CAMRA Regional Director