The Tied House System began when British commercial brewers began to dominate the production and sale of beer in the UK and they inevitably started to vie with each other for trade in specific areas. The more successful breweries readily gained more business and were obliged to expand. Expansion required capital expenditure and, unless newly acquired business could be made permanent and guaranteed, this could involve considerable risk.
Accordingly, long ago these brewers decided that the best way to consolidate the retail outlets for their beer was to purchase them, or control them in some way, and thus create what is called a “tied estate.” The “tied house” would sell only the owning brewery’s beer, guaranteeing the brewery a loyal retail “customer.” An independent pub that was not beholden to any brewery became known as a “free house.” The tied house system was always more prevalent among urban brewers, where competition was more intense and, even then, was adopted with varying degrees of enthusiasm.
Tied public houses are a peculiarly British phenomenon; indeed, in many other parts of the world (the United States, for example) the brewery and the bar or restaurant must be independent entities. It was also more a characteristic of England, rather than other parts of the UK. Even as far back as the 17th century, certain English brewers were more interested in controlling business than expanding it. Brewers appreciated the economies of brewing on a large scale but did not want to produce volumes that they could not sell. In those early days, not all beers in any particular pub might be subject to a tie, and a London porter brewer might tie its customers for that product alone, whereas lighter ales could be purchased from anyone.
It quickly became evident that tying oneself to a brewer was not all that it seemed, and many urban publicans became so indebted that they were forced to cede assets and/or to deposit the deeds (or leasehold agreement) with a brewer. Many publicans were forced to sell their pubs to a brewery and then lease the property back. The situation became so dire that, in 1686, the Commissioners of Excise, commenting on the poverty of London publicans, found “most of them in debt to the Brewers and living on their stocks.” Many pubs fell into the hands of brewers by accident of bankruptcy and tended to stay in the brewery’s estate thereafter.
Rising land and property values (especially in cities), license fees, and the rising cost of equipping a pub made it much more difficult for intending publicans to take up public houses without external financial assistance. Brewers were more than ready to oblige with “loans” in return for guaranteed trade.
Throughout the 19th century, the larger brewers gradually increased their tied estates, mainly by purchasing smaller breweries and their pubs. From 1880 onward, brewery ownership of licensed outlets grew rapidly, and by the mid-1890s, some 90% of the on-trade (the sale of beer to be consumed on the premises) of beer in the larger British cities (Manchester, Liverpool, Birmingham, etc.) was tied.
Throughout the 20th century, British brewers sought to enlarge their tied estates, mainly by buying smaller breweries purely for their outlets. This situation reached a climax during the 1960s, when a “takeover/merger mania” developed (known as “rationalization”), which would ultimately alter the infrastructure of the British brewing industry. From the mayhem, a handful of huge brewing companies, the “Big Six,” emerged, and these controlled an unhealthy percentage of the trade in beer. The catalyst for this mania was the merger of Watneys and Mann, Crossman & Paulin to form Watney Mann in 1958. The number of brewery sites in Britain fell from 567 in 1950 to 177 just 20 years later.
Merger mania was followed, in the 1980s, by a “mini merger mania” that involved some larger regional brewers, and this resulted in a far greater reduction of consumer choice. By the late 1980s, the Monopolies and Merger Commission (MMC) was getting involved, and just prior to MMC’s March 1989 Report, the Financial Times revealed that the Big Six were responsible for 75% of UK beer output and owned 75% of its tied houses. Bass possessed the largest estate with some 7,300 houses, with Whitbread owning 6,500 and Courage 5,100.
The eagerly awaited MMC Report, The Supply of Beer, unanimously concluded that a monopoly existed in favor of those brewers who owned tied houses or had tying agreements with free houses in return for loans at favorable interest rates. The Commission remarked upon the differing size of brewery companies, but noted that most of them “brewed beer and wholesaled it and retailed it.”
The MMC concluded that “the complex monopoly has enabled brewers with tied estates to frustrate the growth of brewers without tied estates…and that, over time, the monopoly has served to keep the bigger brewers big and the smaller brewers small.” The MMC felt that all this was not in the public interest and, among other things, they recommended the following: Not the complete abolition of the tie, but a ceiling of 2,000 on the number of on-licensed premises, whether public houses, hotels, or any other type of on-licensed outlet, which any brewing company or group may own.
Brewers affected by the MMC recommendations, which were implemented and widely referred to as the “Beer Orders,” immediately sought to find ways of circumventing them. In 1990, Grand Metropolitan and the Fosters Brewing Group of Elders IXL (who owned Courage) with 6,100 and 5,100 pubs, respectively, announced what they described as a “merger” of their breweries and their tied estates. There was one difference, however. Fosters (Courage) would run the breweries, and Grand Met would administer the tied estate, which was run under the name Inntrepreneur Inns. Inntrepreneur was 50% owned by Grand Met and 50% by Elders IXL. Courage was now solely a brewer, because, in effect, this was a pubs-for-breweries swap. Cynics might suggest that this was an ingenious way of circumventing the Beer Orders. The proposal was referred to the Office of Fair Trading, who finally approved it at the end of March 1991. The maneuver meant that Courage then became the UK’s second largest brewer, with 20% of the market.
Some (usually poorly performing) pubs were sold off, but after various other maneuvers, the Big Six (or their derivatives) basically divorced themselves from their pub estates. Pub-owning companies were set up (often financed by large brewers), which effectively tied the pubs again. As well as restricting the number of tied houses large breweries could own, their tenants were given the right to buy a beer outside of the tie (a “guest beer”). This provision was partly responsible for the rapid expansion of microbreweries starting in the 1990s. Another effect was that many underperforming pubs were sold off as either characterful family houses or shops, and the number of pubs in the UK fell sharply as a result.
The 1989 Act was revoked in January 2003, by which time the industry had been transformed from one dominated by brewer-owned chains to one dominated by large independent pub-owning groups—the so-called pubcos. For smaller breweries, however, life goes on much as it had in the past, and slowly but surely, enterprising small breweries are enthusiastically building estates of their own pubs.
Bibliography
Monopolies and Mergers Commission. The supply of beer: A report on the supply of beer for retail sale in the United Kingdom. London: HMSO, 1989.