What’s brewing at Whitbread?
Below is summary of macro factors that influenced Whitbread’s decision makers to exit the brewing industry.
Prior to 2000, the UK market for beer peaked in 1979 of approximately 41.2 million barrels (BBPA, 2008) in combined on-trade and off-trade, sales. Since then there has been a decline due to sociocultural & socioeconomic factors.
Up until the 1980’s, socialising in a local pub or working man’s club was largely male oriented with the consumption of beer common. However, a slow socio-cultural change began to gather pace as the British population began a shift from viewing the pub purely as a place to drink beer as pubs also started become a place to dine, especially for families. Wine increased in popularity as a consequence of increased exposure of UK residents to mainland European culture through tourism. This lead to a move from the pub to the ‘wine bar’ as a result of being perceived to be more female friendly during a period of women’s social emancipation. (The Economist, 1996).
The introduction of the European Single Market in 1993 along with lower duty, VAT and other taxes in Europe on alcoholic beverages much lower than in the UK was another socio-economic effect. The advent of the “Booze Cruise” had a major effect on beer sales, with individuals being able to bring home significant quantities of not only beer but wine and spirits for “personal consumption.” Many British mainland residents, especially in the south east were able to take advantage as significant savings could be made, even with the cost of the fuel and ferry taken into account. This has also escalated beyond personal imports into the criminal realm of bootlegging (Economist, 1999). HM Customs and Excise officials tried to impose guidelines as limits, but were prevented from doing so by the European Commission (Jones, 2001) allowing UK citizens to effectively import whatever quantities they could transport allowing smugglers break the law with little chance of being caught. (Osborn and Treanor, 2001)
In addition in 1989 there was new political factors in the form of the publication of "The Supply of Beer: a report on the supply of beer for retail sale in the United Kingdom", an investigation by the Monopolies and Mergers Commission (1989). The Report contained a number of adverse findings related to the vertical links between brewing and pub retailing, in so much as most brewers not only brew beer, but were wholesalers and retailers. The Commission made recommendations aimed at loosening the tie between pub retailing and brewing to facilitate easier entry and increase competition between, brewers, wholesalers and pub retailers. This lead to the enactment of The Supply of Beer (Tied Estate) order and The Supply of Beer (Loan Ties, Licensed Premises and Wholesale Prices) Order. Known as “The Beer Orders,” the act restricted the number of tied pubs that could be owned by large brewery groups in the United Kingdom to 2000. The industry responded by creating purely pub-owning companies or chains often referred to as Pubco’s, avoiding the spirit of the legislation. In Whitbread’s case it created a separate Strategic Business unit (S.B.U.) known as Pub Partnerships to maintain its position in the market (Whitbread, 1998/9).
In summary, declining beer sales in pubs coupled with a movement to buying beer in shops squeezing margins on the price of beer (Economist, 1996) created extreme pricing pressure (Clark, 2000). At the same time there was a trend towards global consolidation amongst brewers driven by a need for international brands (Economist, 2001). A social change from male orientated beer consumption to female and family friendly drinking and dining. An adverse UK tax regime and increased foreign travel eroding the domestic beer sales market but not necessarily the total alcohol consumption market (Morgan, 2011). Political measures tackling Whitbread's (and other brewers) monopoly making other...
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