Will Heineken’s Punch Tavern takeover damage competition in UK pubs?
Heineken’s £305m deal to take control of 1,900 Punch Tavern pubs has stirred up quite a bit of controversy. Elliot Gardner looks into claims that the acquisition will damage sales of competitor drinks in Heineken pubs.
The world’s second-largest beer brewer, Heineken, recently announced it would be taking over Punch Taverns alongside investment firm Patron Capital. As part of the £400m deal, Heineken will control around 1,900 UK pubs. Heineken UK managing director David Forde has said the transaction is a “huge vote of confidence in the ‘Great British pub’”, portraying the image that the company is investing in an uncertain post-Brexit Britain.
However, critics of the deal are claiming that the takeover will have a negative impact on the sector, and that Heineken products will naturally take the place of local and craft beers in the procured pubs. Industry watchdogs have recently been drafted to scrutinise the beer brewer’s procurement deal, and will look into whether or not a formal investigation is needed to establish if competition within the drinks market will be affected.
The UK’s biggest beer business
Heineken recently released their 2016 numbers, reporting a 5% boost to organic sales. While the company is slightly hesitant to sing its own praises in light of potential economic upset in 2017, with CEO Jean-François van Boxmeer highlighting that major unforeseen macro economic and political upsets have been excluded from their 2017 predictions, the company looks set to hold on to its title of the leading UK cider and beer business. The company also announced a near 10% rise in operating profits, to around £3bn.
The business initially entered the UK pub sector in 2008, when it purchased brewers Scottish and Newcastle. Heineken now runs 1,049 British pubs under its Star Bars and Pubs banner. If the Punch deal does go through, the company will be the third largest pub owner in the country.
All part of the process
Having such an illustrious beer manufacturer in charge of this quantity of UK pubs is a cause for concern according to some critics and publicans, because of the potential to reduce competition choice for customers. The Competition and Markets Authority (CMA) is due to review the deal, and will launch an in-depth review if it finds that competition in the market could be jeopardised.
Scottish Licensed Trade Association chief executive Paul Waterson was quoted in the Guardian as saying: “Heineken is a global brewer, with very different priorities to their customers, who often rely on hard-earned local relationships to make their businesses work. We know from both Heineken’s words and actions that they will give preference to their own products across their estate, and this is simply not fair for brewers, publicans or consumers.”
Heineken have dismissed the claims however, claiming that they “fully expected” the announcement from the CMA, and that it’s all just part of the process. They also reassured publicans that they will still have a say over the beer they sell, despite some claims that the company aims for 85% of products sold in pubs to be Heineken drinks.
The controversy surrounding the announcement is curious, as it contradicts the previous upset in the industry since the EU referendum. The expectation from analysts soon after the vote was that craft goods would benefit from the push for local entrepreneurial businesses expected after the triggering of Article 50, and from the weaker pound, which was projected to create a void in the market left by damage to larger brewers.
Heineken at the time downplayed the negative projections, claiming that it is “working carefully to understand the full implications of the vote”. It appears as though the tables have now turned, with craft labels taking the brunt of the potential hit from Heineken’s “investment” in the UK’s pub sector.
It is, admittedly, too soon to make long-term projections in the drinks market, as any potential investigation is still pending. The only certainty appears to be a continuation of scaremongering within the market following the Brexit vote, and as upset from preparatory measures and counter-measures continues, it doesn’t seem to be a matter that will be resolved any time soon.