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>Robin Room spotted this on News Unlimited and thought you should see it.
>
>To see this story with its related links on the News Unlimited site, go to
http://www.newsunlimited.co.uk
>
>So much to ail the brewers
>Suddenly everything from fickle drinkers to meddling bureaucrats is
ravaging a once-great industry
>Julia Finch and Lisa Buckingham
>Friday November 12 1999
>The Guardian
>
>
>It is the biggest celebration for 1,000 years. Champagne corks will be
popping. But Britain's biggest breweries are suffering. In the lead-up to
the millennium their shares are going down faster than a pint of cool lager
on a hot day.
>
>Whitbread, Bass and Scottish & Newcastle, the country's three biggest
beer companies, which together account for nearly four out every five pints
sold - are watching the value of their businesses shrink almost daily. Big
investors are shunning their shares, even though analysts rate the sector a
raging buy and their profit figures have provided no grounds for the flight.
>
>Scottish & Newcastle, for instance, has seen its shares fall from 945p
little over 18 months ago to around 550p today, slashing the stock market
valuation of the group by nearly £2.5bn to £3.4bn. Whitbread has
fared even worse. Its shares have fallen by 77% over the same period,
cutting the value of the company from £5.6bn to £3.2bn.
>
>Both companies are teetering on the brink of losing their FTSE 100 status.
Should that happen the shares are guaranteed to slide further as big
investors who track the FTSE bail out.
>
>One insider said: "It is very frustrating. We have got good assets, a good
outlook, the brokers are recommending us but we are simply not in vogue. A
number of the big UK institutional investors are looking at their
weightings, and they prefer banking, technology and pharmaceuticals. That
is why they are selling our sector."
>
>Stuart Forshaw, an analyst at Charterhouse Securities, said: "They have
got good assets, backed with steady earnings streams. But people don't buy
into bricks and mortar and yields any more. They value technology and
telephone stocks and are just not that interested in brewing."
>
>But for at least two of these companies - Whitbread and Bass - brewing is
only a minor part of the portfolio. Even for S&N, Britain's biggest
beer company with more than 30% of the market, brewing accounts for only
40% of profits.
>
>Although beer sales are almost static - lager remains a growth business
while ale is declining at an alarming rate - these three companies are
increasingly dominant. But they are beset with problems, from being forced
to offer big pub chains huge discounts in order to secure supply contracts
to constant government interference. They are losing sales to cross-channel
smuggling, the supermarkets are running them ragged on price and, after
they invested millions to build high-class pub chains, the great Bri
>"There is a general worry of anyone involved in brewing in the UK," Mr
Forshaw said. "Brand strength is not overcoming buying power from the major
pub chains. Even a leading brand like Whitbread's Stella Artois is having
its price driven down. UK brewing is not the place to be."
>
>The pressure on branded beers is expected to intensify with Wal-Mart's
arrival in the UK, which is prompting the big grocers to squeeze suppliers
even more.
>
>A similar squeeze is being felt in the on-trade, where the new breed of
big national pub chains - from the Japanese-backed Grand Pub Company to
Yates' Wine Lodges - is hammering the brewers. The cosy days of the
brewery-dominated pubs business are history. The new players are
profit-driven operations, determined to secure the cheapest deals. This not
only hits beer profits for the big three but also the returns from their
own huge pub estates, which have to compete head-to-head with the
independents.
>
>When the brewers attempt a bold move they are more often than not stymied
by the government. The price of a pint is one of a number of emotive issues
whose headline-grabbing potential means that no government can resist
dabbling.
>
>In the summer Whitbread fought a bloody battle with Hugh Osmond's
independent Punch pub business to buy the 3,500-strong chain of inns owned
by Allied Domecq. Whitbread offered to divest its beer-making business to
offset competition concerns, but to no avail. The office of fair trading
decided the competition commission should investigate and Whitbread was
defeated.
>
>The spectre of government interference always alienates investors, and the
brewing business has more than its fair share of political meddling, which
usually achieves the reverse of what it attempts to do.
>
>"Every time you buy into this industry on a three- to four-year view the
government interferes", Mr Forshaw said. "It means the companies cannot
have long-term strategies. They simply don't know what they are allowed to
do in this country any more."
>
>Although the brewers believe they could challenge the 1989 beer orders,
which were designed to lessen the power of the then six big brewers and
generate more competition, they are reluctant to trigger yet another
paralysing investigation into the industry.
>
>There is speculation that Punch's acquisition of the Allied estate will be
referred to the competition watchdogs when the OFT makes its recommendation
to the government within the next fortnight.
>
>Concern about another inquiry outweighs any worries the industry might
have about the upstart Mr Osmond's plans are running into a brick wall. But
his partner, Bass, would be particularly wounded. Referral also might come
at the same time as the company unveils its financial results during the
first week of December. The good figures expected then, which could help
tempt investors back into the sector, would be eclipsed by yet more
bureaucratic intervention.
>
>There are rumours that Whitbread could be a bid target. Granada is the
predator most often mentioned. But so far there is no sign of it in the
share price. Mr Forshaw said Granada would not be interested in brewing and
pubs, and together these account for three-quarters of the group's profits.
>
>Whitbread is crucial to the industry's immediate future. One analyst
described the group as "paralysed with fear" since its failure to win
control of the Allied estate. But no one believes it can continue in its
present form. The brewing business has to go and that is a huge worry for
the industry. It is too small for effective flotation. That leaves a sale
to a trade buyer. Who will buy it? Its brand strength - with the towering
Stella and Heineken - is also its weakness. Whitbread owns neither name, th
>Copyright Guardian Media Group plc.
>
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