Scottish & Newcastle supply monopoly blow cheers beer drinkers

Scottish & Newcastle has lost an exclusive contract to provide beer to the Grand Pub Company, the largest independent inns group in the country. Andrew Yates reports on a deal that should herald a transformation of the pub industry, giving customers a wider choice of beers but causing more hardship for brewers.

Regulars at Grand Pub's 4,300 hostelries will be able to choose from an array of new beer brands as well as their traditional tipples such as Foster's and John Smiths. The pub group yesterday sealed a new supply deal with a host of big brewers such as Whitbread and Bass which could see the introduction of best-selling lagers such as Carling Black Label and Budweiser and popular bitters such as Tetley and Boddingtons bitters.

But the news is a blow to Scottish & Newcastle (S&N) who have lost their monopoly over one of the biggest supply deals in the industry which they have held since 1991. The contract is for 1.3 million barrels, equivalent to 290 million pints, and is worth about pounds 250m pounds to the brewing industry. The new agreement is likely to cost S&N more than pounds 20m in lost profits according to industry analysts.

S&N has been forced to increase beer discounts by about pounds 15 a barrel. The brewer is also likely to lose a third of its sales over the next few years as drinkers switch to other brands. S&N shares rose 10p to 750p in early trading but fell back to 742p as the market digested the introduction of new rivals.

Nomura, the Japanese investment bank, created Grand Pub last year after it bought the Inntrepreneur and Spring Inns pub chains from Grand Metropolitan and Fosters. The deal will secure higher discounts for tenants which have taken legal action against the chains, accusing the pub chains of forcing them to pay extortionate beer prices in the past. It will also underpin the pub group's profits and increase the chances of an eventual stock market flotation.

The innovative deal allows pub tenants to choose from a shopping list of beers. "This is a ground-breaking move and should lead to a big shake- up in the beer industry with a wider choice of beers on offer but smaller, regional groups with weaker brands risk being squeezed out," said one drinks analyst.

S&N admitted that the announcement was bad news but was not unexpected. "There will be some erosion of our brand position. However, more large independent estates are turning to multi-sourcing and we could pick up volume elsewhere," said an S&N spokesman.

A spokesman for Camra, the real ale lobby group, said: "We welcome the wider choice it offers customers and that pub tenants still have the right to provide guest ales. But this is only the first step."