1999/230/EC: Commission Decision of 24 February 1999 relating to a proceeding pursuant to Article 85 of the EC Treaty (Case No IV/35.079/F3 - Whitbread) (notified under document number C(1999) 346) (Only the English text is authentic)
Date: 1999-02-24
Institutions: European Commission
Subjects: United Kingdom, beer, beverage industry, business lease, exclusive distribution agreement, restriction on competition

L 88/26

EN

Official Journal of the European Communities

31.3.1999

COMMISSION DECISION

of 24 February 1999

relating to a proceeding pursuant to Article 85 of the EC Treaty

(Case No IV/35.079/F3 — Whitbread)

(notified under document number C(1999) 346)

(Only the English text is authentic)

(1999/230/EC)

THE COMMISSION OF THE EUROPEAN
COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to Council Regulation No 17 of
6 February 1962, First Regulation implementing
Articles 85 and 86 of the Treaty (1), as last amended
by the Act of Accession of Austria, Finland and
Sweden, and in particular Articles 4, 6 and 8 thereof,

regard to the

Having
application for negative
clearance and the notification for exemption submitted
on 24 May 1994 by Whitbread PLC pursuant
to
Articles 2 and 4 of Regulation No 17,

Having published a summary of the application and
notification pursuant to Article 19(3) of Regulation
No 17 (2),

After consultation with the Advisory Committee for
restrictive practices and dominant positions,

I. THE FACTS

A.

INTRODUCTION

leases (hereinafter (cid:28)the Leases’), the subject of
the Leases being a fully fitted-out,
each of
on-licensed (3) public house
in the United
Kingdom with a tie for beer as described below.
The three standard forms are the 20-year lease,
the pre-retirement lease and the five-year lease.
Whitbread requested negative
clearance or
confirmation that the Leases qualified for the
application of Commission Regulation (EEC)
No 1984/83 of 22 June 1983 on the application
of Article 85(3) of the Treaty to categories of
exclusive purchasing agreements (4) (hereinafter
exemption
(cid:28)the Regulation’)
pursuant to Article 85(3) of the EC Treaty, to
take effect as from the date on which the
agreements were entered into. The Regulation
contains in its Title II special provisions for
beer-supply agreements.

individual

or

(2) In February 1995, the Office of Fair Trading
(hereinafter (cid:28)OFT’) started, upon the request of
the Commission, an enquiry into the UK
brewers’ wholesale pricing policy. This enquiry,
resulted in the
which included Whitbread,
(cid:28)enquiry into
internal OFT report on their
brewers’ wholesale pricing policy’ (hereinafter
(cid:28)the OFT report’); it was adopted in May 1995
and a press release on the report was issued by
the OFT on 16 May 1995.

(3) In addition to the OFT report, the information
in the notification has been supplemented by
way of a verification pursuant to Article 14(2)
of Regulation No 17 at
the premises of
Whitbread and several requests for information.

(4) Following the publication in the Official Journal
the notice

the European Communities of

of

(1) On 24 May 1994 Whitbread PLC (hereinafter
(cid:28)Whitbread’) notified three standard forms of

(1) OJ 13, 21.2.1962, p. 204/62.
(2) OJ C 294, 27.9.1997, p. 2.

(3) On-licensed premises are those which are licensed to sell
the
alcoholic beverages for consumption on and off
premises as opposed to off-licensed premises such as
supermarkets which are
licensed for off-premises
consumption only.

(4) OJ L 173, 30.6.1983, p. 5.

31.3.1999

EN

Official Journal of the European Communities

L 88/27

of

third

in which

(cid:28)the Notice’),

parties. Twenty

pursuant to Article 19(3) of Regulation No 17
(hereinafter
the
Commission announced its intention to grant a
retroactive exemption pursuant to Article 85(3),
the Commission received 135 observations from
interested
these
observations were individually drafted replies
from Whitbread lessees or their representatives
arguing against the exemption; two lessees were
exemption; 79 replies were
in favour of
submitted by Whitbread lessees
following a
model prepared by Group Action Limited, an
Inntrepreneur)
action group for
received
also
Commission
lessees.
observations from the Bavarian Lager Company,
and 23 lessees, of which nine indicated that they
were Whitbread lessees, signed a standard reply
put at their disposition by that company (with
one lessee adding some personal comments to
this reply). Furthermore, the Campaign for Real
Ale (a UK beer consumers interest group), two
accountants, three lessees’ action groups, three
lessees of other companies than Whitbread, and
a law professor submitted observations.

(originally

The

the 67 remaining

(5) The information in these observations will be
dealt with in the remainder of this Decision. 92
of
the interested third parties requested the
Commission to register their submission also as
a formal complaint against Whitbread. Some of
these complainants withdrew their complaint,
but
complainants were
informed in July 1998, pursuant to Article 6 of
Commission Regulation (EEC) No 99/63 of
25 July 1963 on the hearings provided for in
Article 19(1) and (2) of Regulation No 17 (5), of
the Commission’s
their
complaint. 11 of them presented some further
comments on this letter. These comments are
also integrated in this Decision.

intention to reject

(6) The Commission services have supplemented the
observations given by Whitbread lessees by
visiting three of them at their premises.

B. THE PARTIES

(7) Whitbread is a UK food, drinks and leisure
the brewing,

Its business

company.

includes

marketing and distribution of beer and the
wholesaling of other drinks, the ownership of
leased public houses and management of public
houses,
restaurants, hotels, off-licences and
leisure clubs. The activities of the Whitbread
through a divisional
Group are carried out
structure
eight
division
separate
responsible
the
is
Whitbread Pub Partnership (hereinafter (cid:28)WPP’).

involving management
trading
for

divisions.
leased

The
estate

the

by

(8) In the

approximately

fiscal year
owned

ending February 1997,
4 490
Whitbread
on-licences, of which 2 170 were managed
(meaning that the operator is an employee of the
company), 2 130 were leased with a beer tie to
individual
leased to
lessees and 190 were
multiple operators free of the tie. Of the leased
estate, 1 970 outlets were let on permanent
agreements and 160 by way of
temporary
tenancy agreements. Of the 1 970 permanently
let outlets, 1 938 were let out according to one
of the notified agreements (1 643 20-year leases;
276 five-year
leases and 19 pre-retirement
leases). Whitbread’s total turnover in the 1997
fiscal year was approximately GBP 3 billion. In
that year Whitbread accounted for 13 % of the
UK beer market in volume production terms.

(9) In 1990/1991, Whitbread owned 6 162 houses,
of which 1 871 were managed and 4 291 were
leased to individuals.

(10) Details of the actual number of barrels (6) sold
by Whitbread to and the relevant market shares
(a) all
on the UK on-trade beer market of
tenanted/leased
on
pubs,
temporary tenancy agreements,
(b) managed
houses, (c) pubs with a loan tie to Whitbread,
(d) total of Whitbread’s sales to property tied
pubs, managed houses and loan ties,
(e)
Whitbread’s total sales to the on-trade and (f)
the total UK on-trade market are given in
Table 1 below:

including

those

(5) OJ 127, 20.8.1963, p. 2268/63.

0,611026 barrels.

(6) 1 barrel equals 1,63659 hectolitre; 1 hectolitre equals

L 88/28

EN

Official Journal of the European Communities

31.3.1999

Table 1

Whitbread’s position in the UK on-trade beer market

1990/1991

(a)

949

1996/1997

[…] (1)

(1) Business secret.

(b)

857

[…]

(c)

611

[…]

(thousand barrels)

(d)

(e)

(f)

2 417

3 953

31 863

[…]

[…]

[…]

(a)

1990/1991

2,98

(b)

2,69

(c)

1,92

(d)

7,59

(e)

(f)

12,41

100,00

(%)

1996/1997

[…]

[…]

[…]

[…]

[…]

[…]

(11) The average length of Whitbread’s

re-negotiation is

loan tie
agreements has been, since 1990, about eight
years. The average duration of these agreements
before repayment or
three
years. Whitbread estimates that it retains the
business with the outlet after
the loan is
terminated in only 15 % to 20 % of instances
following re-negotiation. Whitbread has no
records of the prior arrangements of accounts
entering a new loan agreement with the
company. Whitbread’s outstanding loan books
has fallen from a figure of some GBP 180
million in 1990 to GBP 30 million in 1998.

(cid:28)tying’

(12) The Commission has only limited information
on the barrelage/percentage of beer sold by
Whitbread to other operators on the (cid:28)wholesale’
level of the UK on-trade beer market, subject to
some form of
such as a minimum
purchasing obligations, a must stock obligation
or a (limited) non-compete clause. These other
operators
traditional
include other brewers,
wholesalers or non-brewing pub companies.
This limited information tends to indicate that
the volume accounted for by agreements with
minimum purchasing obligations accompanied
by penalties is decreasing compared to the early
nineties, as more recent agreements are more
discount-driven, providing for discounts linked
to certain volume or distribution targets.

Stocking obligations (for the managed part of
the estate) and listing obligations (for the leased
part of the estate) still seem to be included in
such agreements, although no estimate has been
presented as to the volume that
this might
represent.

(13) The other party to the actual agreements, that
are based upon the notified standard Leases, are
individuals or their companies who, in general,
have an interest in only one on-licensed site.

C. THE MARKET

(14) Since 1990,

the date of

introduction of

the
20-year lease, significant changes have occurred
in the structure and conduct of the UK on-trade
beer market. These are for the most part the
result of the Beer Orders made following the
Monopolies
Commission’s
and Mergers
(hereinafter (cid:28)MMC’) report on the supply of
beer, together with a fall in both overall demand
and particularly on-trade beer sales, shifts in
consumer demand towards pubs offering a
wider choice of drinks and food, the withdrawal
of several companies from brewing and the
redefinition of relationships between brewers

31.3.1999

EN

Official Journal of the European Communities

L 88/29

and pub retail chains on the one hand and
tenants on the other.

Demand factors

The 1989 MMC report and the subsequent Beer
Orders

relaxing

aimed at

obligation)

non-competition

and pubs. Most of

(15) The 1989 MMC report into the supply of beer
led to a number of recommendations being
made which were
the
traditional tie (exclusive purchasing obligation
between
and
brewers
the MMC’s
recommendations were implemented, mainly by
the Supply of Beer (Tied Estate) Order 1989 and
the Supply of Beer (Loan Ties, Licensed Premises
and Wholesale Prices) Order 1989 (hereinafter
(cid:28)the Orders’). The Tied Estate Order imposed
(cid:28)national
the
brewers’, namely brewers having an estate of
more than 2 000 on-licensed premises:

changes upon the

following

— their tenants/lessees would be free of tie for

non-beer drinks and low-alcohol beers,

(16) Beer can be sold through the on-trade, such as
pubs, hotels and restaurants, or through the
off-trade, such as supermarkets and off-licences.
In addition,
imports brought into the UK by
private individuals on which duty has been paid,
mainly from Calais, are estimated to account for
almost 5 % of total beer consumption in the UK
in 1997. Volume sales of all beer in the UK fell
by some 4 % between 1989 and 1997 and
volume sales of beer in the on-trade fell by some
20 % in the same period. The proportion of
sales volume accounted for by the on-trade has
thus fallen (from 79,3 % in 1989 to around
68 % in 1997) but, with the exception of
Ireland, remains the highest proportion in the
Community.

(17) Falling beer sales volume in the on-trade has

been offset by:

(a) a rise, in real terms, in on-trade beer prices
of 21 % between 1989 and 1996, only a
negligible
of which was
accounted for by tax increases

proportion

and

— their tenants/lessees would have the right to
buy one cask-conditioned ale (a beer with
fermentation in the cask) (7) from a source
other than the brewer/landlord (hereinafter
(cid:28)the guest beer clause’)

(b) a rise in the proportion of non-beer sales in
pubs to 37 % of total revenues in 1996,
largely as a result of the increase in catering
sales.

and

— they were only allowed to tie a certain
number of pubs. This forced them to sell or
free of
then
tie about 11 000 of
estimated 60 000 UK pubs. Whitbread is
allowed to tie a maximum of 4 311 pubs.

the

(18) Consumption of draught beer accounted in 1996
for 63 % of total consumption. This is also, with
the exception of Ireland, the highest figure in
the Community.
the figure for
In contrast,
Belgium, which has the third largest draught
consumption in the Community, was 39 %. UK
pubs also offer a bigger choice of draught beers
than elsewhere in the Community, with an
average of 6,5 brands per pub.

a

company

(7) The UK Government extended the scope by also
allowing for one bottle-conditioned beer from 1 April
1998.
that
The Bavarian Lager Company,
complained to the European Commission that
the
(cid:28)cask-conditioned’ guest beer clause was in breach of
Article 30 of the Treaty, commented in its observations
to the notice on this footnote. The company requested
that
the
(cid:28)bottle-conditioned’ change was the result of procedure
against the UK for breach of Article 30. With regard to
the Whitbread notice,
company requested the
the
Commission to publish an addendum to the above effect,
containing a new deadline for observations.

should mention

footnote

that

the

Supply factors

Brewing

(19) The main change since 1989 is that the brewing
market has become more concentrated. The
increased concentration has been caused by
leaving the brewing market and
companies

L 88/30

EN

Official Journal of the European Communities

31.3.1999

the

four

In 1996,

to existing
selling their brewing operations
competitors.
remaining
national brewers, Scottish & Newcastle, Bass,
Carlsberg Tetley Brewing
and Whitbread,
commanded 78 % of the UK beer market in
terms of supply. The Herfindahl-Hirschmann
index (hereinafter (cid:28)HHI’), used to help describe
market concentration, for the UK beer market
increased, on the basis of the market shares of
the national brewers, from 1 350 in 1991 to
1 678 (8)
in 1996. With an HHI of between
1 000 and 1 800, the market is described as
(cid:28)moderately
regional
brewers (9) left the market between 1989 and
1996, reducing the number of regional brewers
from 11 to eight.

concentrated’.

Some

Wholesaling

for

only

some

accounted

(20) The result of the Orders was the sale of some of
the national brewers’
tied estates. This was
expected to lead to an increase in the free trade
and to a greater role for traditional wholesalers.
However in 1995/1996 traditional wholesalers
still
6 % of
distribution, compared to 5 % in 1985. The
national brewers still dominate the wholesale
sector, with a share of distribution similar to
their share of production. As regional brewers
do not
traditional
wholesalers either,
this, combined with the
general decline in sales of beer and the increased
efficiency of national brewer-wholesalers, has
resulted in marginal growth in the traditional
wholesale sector.

services of

require

the

(21) The pubs that were sold by the national brewers
were purchased mainly by retail pub chains or
In general, pub chains
by regional brewers.

(8) The Commission does not have precise information on
the market shares of the other UK brewers. Nevertheless,
it does not estimate that the HHI for all brewers would
reach the 1 800 mark, above which a market
is
considered to be (cid:28)highly concentrated’.

(9) Defined in the MMC report as brewers which (cid:28)have a
business which is mainly, but not necessarily wholly,
concentrated in a single region of the UK’. The number
of regionals in 1996 is defined taking the number of
owned pubs and production volume for the smallest
regional in the MMC report as a benchmark.

either have their own wholesaling operations or
are supplied directly by the brewers.

Retailing

(22) In the UK, the retail sale of beer and other
consumption on the
for
alcoholic drinks
premises requires a justice’s (local law-court’s)
licence. Three distinct classes of
licences are
currently in operation (10):

— full on-licences: where a person can buy an
alcoholic drink without being a resident or
having a meal. There are approximately
83 100 full on-licences in issue, of which
around 57 000 (11) are pubs. The remainder
include hotels and wine bars,

— restricted on-licences: where it is a condition
on buying a drink that the customer is either
a resident or having a meal. Covers some
32 300 private hotels and restaurants,

— clubs: a person has to be a member before
buying a drink. Covers some 31 500 outlets,
mainly jointly owned by their members.

estate

(23) By forcing changes in the ownership of pubs, the
also had an effect on the
Orders have
proportion of beer sold through the different
retail channels: (a) the tied estate of the brewers,
(b) the managed estate of the brewers, (c) the
tied estate of non-brewing pub companies, (d)
pub
the managed
companies, (e) loan-tied premises and (f) untied
or free premises. This can be seen from the
following overview on beer sales (volume). The
1985 data come from the MMC report and can
be considered as representative for the years
1985—1989;
from the
Brewers and Licensed Retailers Association
(hereinafter
for
non-members.

the 1997 data are

including estimates

non-brewing

(cid:28)BLRA’),

of

(10) The licensing system is slightly different in Scotland.
(11) Other publications have estimated the number of pubs at

61 000.

31.3.1999

EN

Official Journal of the European Communities

L 88/31

Table 2

UK on-trade beer consumption

1985

1997

(a)

30,8

10,0

(b)

24,2

17,2

(c)

0,0

11,4

(d)

0,0

8,3

(e)

22,0

18,1

(%)

(f)

23,0

35,0

of

(24) The 10 % figure for the sales going through the
tied estates of the brewers in 1997 includes the
lessees
the
tied
the
purchases
cask-conditioned beer
the tenants and
that
lessees of the national brewers purchase, with a
from their landlord-brewer (12). The
discount,
figure does not include the purchases by the
national brewers’ tenants and lessees of a guest
beer from another supplier.

and

(25) The 18,1 % figure

loan-tied premises’
for
volume in 1997 does include the total volume
that a loan-tied pub operator buys from the
supplier with whom he has a loan tie. This
volume may exceed the tied quantities
laid
down in the loan agreement. It is, however, not
the 18,1 % represents
known what part of
purchases in excess of the loan-tied quantity.
The 18,1 % figure does not include the (cid:28)free’
purchases of a loan-tied pub operator with other
suppliers.

(26) While the above table gives an idea of

the
throughput in the on-trade by describing the
ownership situation of the premises, it can also
be noted that if one refers to the category of
on-licensed premises, 70 % of beer
sold
through the
estimated 57 000 pubs, 20 %
through clubs and 10 % through restaurants,
hotels, wine bars and so forth with full or
restricted on-licences (1995 data).

is

(27) The Orders also reduced the restrictive scope of
loan ties, by allowing their termination at any
moment in time by the tenant on three months’
notice. The Orders
the
guest-beer right for publicans with trade loans
from the national brewers. From information
supplied by the BLRA (following a specific
survey undertaken in 1996), it appears that the

introduced

also

(12) This is also sometimes called a guest beer, although the
legal definition of a guest beer refers to the purchase of a
cask-conditioned beer
(see
recital 15).

from another

supplier

usual period of a loan is five or 10 years, and
the average actual length is almost four years.
31 brewers had some 37 000 loans outstanding
at the end of the survey period (almost 35 000
at the start) with over the year almost 8 000
new loans entered into and over 5 000 repaid.
The value of the loans repaid during the period
exceeded the value of the new loans made (to
existing or new customers); some 2 % of the
outstanding capital was written off as bad debts.
The average value of a loan is around GBP
30 000. There appear to be two types of loans,
relatively small ones (a value of almost GBP
5 000 at the start of the period, but only an
average value of less than GBP 2 000 at the end
the survey period) which are often made
of
available to small
free-trade pubs and they
appear to be very volatile. On the other hand,
there are much larger loans to large volume
outlets such as clubs (average value around GBP
60 000) and these are usually non-exclusive.
However, the purchasing obligations are usually
for a specific quantity of beer. No estimate was
made by the BLRA as to the volume split
between small and big loans, the number of the
the total on-trade
loans,
non-exclusive (big)
volume-percentage
such
accounted
non-exclusive loans, or the percentage of total
throughput of the relevant premises accounted
for by the quantity of beer stipulated in such
loan ties. No information was given as to the
proportion of loans which the publican pays
back with money loaned to him by another
brewer (in exchange for a new loan tie). Beer
volumes sold through loan ties have fallen in the
last
years
1994-1997, the scale of loan repayments has
exceeded the value of new loans.

couple of

years

and,

the

for

for

by

Competition between brewers

(28) At the wholesale level, the major brewers have
some guaranteed sales through their tied and
managed estates. The brewers have to compete

L 88/32

EN

Official Journal of the European Communities

31.3.1999

to supply the remainder of the market, through
individual agreements with free houses (with or
without loan ties) and supply agreements with
pub chains and other brewers (with or without
(cid:28)ties’ such as minimum purchasing obligations,
non-compete and must-stock obligations). The
competitive parameters are mainly price and
brand strength, although the brewers also try to
gain sales by offering other benefits such as
promotional support.

has

supported by substantial advertising spending.
Whitbread
licensing
concluded
agreements with Interbrew (Stella Artois),
Heineken (lager and export Heineken) and for
the Murphy’s Irish Stout brand.

such

Market entry at retail level

Market entry at brewing level

(32) Pubs compete only with others in their locality.
Broadly speaking, each area has a local price for
a certain type of package, which comprises the
total pub (cid:28)offer’ (facilities, ambience) and not
just the price of beer.

(29) The main hindrances to entry at this level are
the need to secure outlets for supplies and to
have access to a distribution system. A new
entrant has to secure supplies to free houses,
pub chains, or to the brewer’s estates as part of
their portfolio of beers or (in the case of a
national brewer) as a guest beer. Possession by
competitors of well-known brands may hinder
the entry, or expansion, of existing brewers.
This may be more important in lagers, which
are normally marketed nationally, and where
economies of scale in advertising may make
small-scale entry less viable. The difficulties
involved in small-scale entry may be increasing
as the advertising spend for the national lager
brands has increased substantially over the last
couple of years, even on a brand basis.

(30) The need to secure outlets has been reduced
since the implementation of the Orders, owing
to the reduction of the proportion of the market
subject to ties and to the emergence of pub
chains (in so far as they are not tied — see
recital 28). It is easier for a new entrant to enter
supply agreements with a chain rather than with
individual pubs. Whereas it is relatively easy to
set up a distribution system limited to the supply
of the wholesale depots of the other brewers
and/or wholesalers, it is more difficult to reach
the individual retail outlets.

(31) Most foreign producers of beer (mostly lager)
have chosen to enter the UK market by entering
into exclusive licensing agreements with existing
national brewers whereby the beer is brewed in
the UK and sold as part of the national brewer’s
portfolio of brands. These foreign lagers have
often been marketed as premium brands and

(33) Entry barriers in the retail market are relatively
low. The only one of any significance is the
presence of licensing laws, which can prevent
new pubs from being opened unless there is a
need for them. These laws are not applied
strictly throughout the UK but, where it is, it
can result in entry within that locality being
difficult. Also, in some areas of the UK, licences
are now being refused mainly on public order
grounds. However, a particular pub company
has succeeded in opening over 100 pubs on
greenfield sites in recent years.

Changes in arrangements between pub tenants
and their landlords

(34) Historically, pubs were

the fabric of

let by means of
(cid:28)traditional’ short-term pub tenancies. Brewers
retained responsibility for
the
building and its fixtures and fittings, and tenants
were responsible for selling beer supplied by the
landlord plus other drink and food. Following
the MMC report, pub tenants in England and
Wales were provided with security of tenure (13)
by being brought within the Landlord and

(13) Except for a limited number of specified reasons, i.e. the
owner of the pub wants to use the outlet for his own
purposes as a managed house, in which case the lessee
receives compensation fixed by law,
the parties can
negotiate a new agreement. In the absence of a new
agreement, the UK courts will renew the agreement on
similar
existing agreement with the
exception of the rent and the duration which cannot
exceed 14 years.

to the

terms

31.3.1999

EN

Official Journal of the European Communities

L 88/33

recommendation,

Tenant Act 1954. However, well before the
MMC’s
long full
repair and maintenance leases, which provided
some security of tenure and the ability to assign
the lease, were offered.

the first

D. THE AGREEMENTS

(35) The Leases are contracts between Whitbread
and the
lessee, whereby Whitbread makes
available a licensed public house together with
fixtures and fittings to a lessee for the purpose
of carrying on the business of the public house
to
and under which the lessee pays a rent
Whitbread and agrees to purchase the beers
specified in the Lease from Whitbread or its
nominee, and from no other source.

(36) The lessee has to sell trade fixtures and fittings,
furniture and effects and stock, on termination
of the lease, to Whitbread or to the new lessee.

on

already

(37) The lessee is not allowed to exhibit signs except
premises without
the
those
Whitbread’s consent, provided that the lessee
may advertise goods supplied otherwise than by
Whitbread or its nominees in proportion to the
share of
turnover
those goods
realised in the premises.

in the total

the

the 20-year

(38) The lessee is not to place amusement machines
on the premises without
consent of
Whitbread, which shall not be unreasonably
withheld in the case of
lease.
Whitbread has indicated that consent is given as
the
a matter of course on condition that
amusement machine supplier is selected from an
approved list and that qualification for inclusion
of a machine
in
accordance with objective qualitative criteria
service and financial
such as
strength.

supplier on the

standards of

list

is

(39) The differences between the 20-year lease and
the other two standard leases are that in the
case of the 20-year lease (i) the lessee has to put
and keep the premises and the fixtures and
fittings in good repair (under the other two
leases the lessee is not
liable for structural
repairs or exterior decorations), (ii) the lessee is
not allowed to make any alterations without
the
Whitbread’s

case of

(in the

consent

pre-retirement lease alterations are prohibited,
except
to the
that non-structural alterations
interior may be made with Whitbread’s consent;
in the five-year lease alterations are prohibited),
(iii) the lessee is not allowed to assign the lease
during the first three years of the term and
thereinafter if the lessee wishes to assign then, if
so required by Whitbread,
to assign to a
nominee of Whitbread on open-market terms
and not to assign the lease to a brewer (in the
pre-retirement
is prohibited
lease assignment
except, with Whitbread’s consent, to the lessee’s
widow or widower;
lease,
assignment is prohibited). Some 640 assignments
have occurred in the four and a half years from
March 1994 to August 1998 and in many cases
the lessees obtain a premium on such an
assignment. For 56 of the 91 assignments in the
six months to August 1998, Whitbread was
informed of the premium achieved (the lessees
are not obliged to inform Whitbread of
the
premium). The average premium for these 56
outlets was GBP 59 000. The date of first use of
a 20-year lease was on 1 January 1990.

in the five-year

(40) The five-year lease is used in circumstances
where the 20-year is considered inappropriate,
such as unstable local economic conditions,
where too high a level of expenditure is required
to put the property into a full state of repair, or
where a refurbishment of the premises within
the next three years is contemplated. The first
such lease was entered into on 1 September
1991.

(41) The pre-retirement lease was used when existing
tenants on annual agreements were converting
to 20-year leases in the years 1990-1992. Some
lessees saw themselves wishing to retire from the
industry over the next five years but wanted to
ensure their security of tenure up to retirement.
The first such lease was entered in on 22 May
1992.

The beer tie

from 1 April 1998,

(42) The lessee agrees to buy all specified beers from
Whitbread or its nominee with the exception of
one brand of cask-conditioned draught beer, and
as
also one bottle
conditioned beer ((cid:28)guest beer clause’). Specified
beers are the beers of the type set out in the
Appendix to the Schedule of the Lease which
contains the Terms of Trading. These types are
light, pale or bitter ale (known in Scotland as
70 – , heavy special or Scotch ale), export or
premium ale (also known in Scotland as 80 – ,

L 88/34

EN

Official Journal of the European Communities

31.3.1999

ale), mild ale (known in Scotland as 60 – , light
or pale ale), brown ale, strong ale (including
barley wine), bitter stout or porter, sweet stout,
lager, export or premium lager (also known as
(cid:28)malt lager’ or (cid:28)malt liquor’), strong lager, (cid:28)diat
pils’ (or premium low carbohydrate beer) and
low carbohydrate (or (cid:28)lite’) beer. These types are
represented by the brands or denominations of
beer listed in Whitbread’s current price list.

(43) The lessee may sell any type of beer other than
the specified types if it is packaged in bottles,
cans or other small containers or if it is in
draught
that beer in
draught form is customary or is necessary to
satisfy a sufficient demand from the lessee’s
customers.

form and the sale of

consumers on a very local basis, but marketing
decisions are taken by a national brewer on a
national basis. So if sales are uneconomical
overall, a brand is discontinued to the potential
detriment of an individual’s customer base. This
was illustrated by a reference to a brand that
Whitbread stopped brewing in 1980. This third
party also indicated that Hoegaarden White
Beer, licensed by the Belgian brewer Interbrew
to Whitbread and forming part of Whitbread’s
price list (listed as (cid:28)lager’) is of a different type
than any of those specified in the Lease and
should thus be free of tie. If a lessee considers
currently
that Hoegaarden White
purchased by a couple of dozen WPP lessees
from Whitbread, is of a different type from any
of the specified beers, the procedure in the Lease
for (cid:28)non specified’ beers can be invoked.

Beer,

by

the

issue.

taste’,

relevant

distinguishable

remarked that

complainant has argued that

(44) A few parties making submissions commented
on this
the
It was
(cid:28)specified’ type definitions cover substantially all
beer types sold in the UK. This is not disputed.
One
the 12
specified types are too generic and thus not
composition,
(cid:28)clearly
appearance or
criteria
indicated in the Regulation to define (cid:28)different
types of beer’ (14). The complainant referred to
the difference between (cid:28)cask-conditioned beer’ (a
beer with fermentation in the cask) and (cid:28)keg
beer’ (no fermentation in the cask) types and the
absence of any reference to this difference in the
specification of the 12 types. The Commission
recognises that discerning drinkers can taste the
difference between the cask-conditioned and the
kegged version of the same brand. However, the
Commission
this
not
necessarily implies that specification of the types
should take account of
this difference. The
definition of beer types is a matter for experts to
decide (15). As the specification of the 12 types
was originally agreed between the respective
federations of brewers and licensed victuallers in
the United Kingdom, experts with regard to
beer, the Commission accepts this definition as
an appropriate, workable way of defining beer
types in the UK.

consider

does

that

(45) One third party indicated that a brand may
build up a favourable following to a lessee’s

(14) Article 7(2).
(15) See also recital 51 of the Commission notice concerning
Commission Regulation (EEC) No 1983/83 and (EEC)
No 1984/83 on the application of Article 85(3) of the
Treaty to categories of
exclusive distribution and
exclusive purchasing agreements (hereinafter (cid:28)the Notice
to the Regulation’) (OJ C 101, 13.4.1984, p. 2).

(46) Another lessee stated that he faces the risk that
if his tied house is sold on, he might be forced
to buy unfamiliar products.

Rent

(47) Rent is paid quarterly in advance and the lessee
will repay the premiums paid by the landlord
for insuring the premises against
loss or
damage by fire and including three year’s
open-market rent of the premises and expert’s
fees and (ii) loss of the justice’s licence.

(i)

(48) Numerous

that

that

indicated that

indicated in their
lessees have
submissions
the
consider
they
insurance that they have to repay Whitbread is
above market rates for similar coverage and that
they are not entitled to see the contract.
Whitbread has
the building
insurance cover is set out in a guide given to all
lessees, and that there is no specific sum insured
or limit per property on their policy. There are,
furthermore, no warranties in their policy that
might render any claim voidable, contrary to
many other pub insurance packages. In addition,
claim processes
Whitbread manages
including dealing with the loss adjusters and, if
the replacement building makes
the rebuild
(cid:28)better’ than its pre-damage state; they do not
pass this cost to the lessee although the full cost

the

31.3.1999

EN

Official Journal of the European Communities

L 88/35

of the works is not covered through insurance.
They also indicate that the insurance is charged
to lessees quarterly in arrears without penalty.

Discounts and countervailing benefits

(49) Furthermore,

the Whitbread insurance covers
the entire risk portfolio of the group-buildings,
motor, public liability and so forth. And that
risk portfolio is
tendered in the insurance
market. This results in the policy and the total
premium being commercially sensitive and not
disclosed to lessees.

tie

the

becomes

(50) Whitbread may require the rent to be reviewed
at the end of each third year and on the day
before the expiry of the term of the Lease or
when
by
Whitbread or when Whitbread reduces the tie.
The reviewed rent is the higher of the existing
rent or the market rental value of the premises
at the relevant increased date. The market rental
value is defined as either what the parties agree
to be the current market rental value or the sum
as determined by an arbitrator.

unenforceable

(51) Several submissions have indicated what they
consider to be the negative effects of such an
(cid:28)upward only rent review’ (hereinafter (cid:28)UORR’),
in particular when turnover in the individual
pub goes down due to local circumstances or an
overall recession in the country.

(52) The OFT report has looked into this issue and
the OFT discussed this practice with the
Department of the Environment which in 1995
conducted a major review of UK commercial
property leases. It appeared that UORR is a
widespread practice for all sorts of commercial
property and thus not peculiar to pub leases.
UORR can be said to encourage property
investment because of the more predictable flow
in the
of
absence of UORR, the level of rent at the time
of entry into the lease could be higher to
compensate for the increased uncertainties for
income flow.

is also estimated that,

income.

It

company

to another

(53) As individuals who are not tied for their beer
purchases
(individual
free-house operators) can obtain in the United
their beer purchases
for
Kingdom discounts
which are not available to the tied operators,
the Commission has assessed (i) the net price
differential for beer purchases from Whitbread
between the price paid by individual free-house
operators and Whitbread’s tied lessees and (ii)
the value of benefits which are granted by
Whitbread to its lessees and which are either not
free-house
readily available to the individual
of Whitbread’s
in
operators
contractual obligations
lessees
(hereinafter
benefits’). The
starting point for this assessment was the OFT
report, which was
supplemented by further
investigations by the Commission.

(cid:28)countervailing

towards

excess

its

or

to

(54) The price differential is the difference between
the average discounts in GBP/barrel granted by
Whitbread
free-house
operator-clients across a typical product mix,
and the discounts granted to the WPP lessees
which include the actual discounts on cask-ale
purchases and the value of the lower WPP list
prices as compared to the Whitbread price list.

individual

its

(55) Most interested third parties have indicated that
they are aware of higher discounts being granted
by Whitbread to individual free traders than
those indicated in Table 3 below at recital 93,
and some of them have supplied copies of offers
made by Whitbread to such clients. It is not
disputed
higher
discounts are granted as Table 3 is based upon
averages
individual
free-house operator-clients. It also follows from
recital 54 that the relevant figure in Table 3 is
the result of the average discount to the free
trade minus
the discounts granted to WPP
lessees.

all Whitbread’s

individual

cases

that

for

in

(56) Another

a

party making

has
questioned the number of accounts Whitbread
has with free traders and therefore the reliability
of the basis for the price differential. In this
for the years
respect,

it can be noted that,

submission

L 88/36

EN

Official Journal of the European Communities

31.3.1999

1995/1996 and 1996/1997, over […] clients
have been supplied who purchased over […]
barrels. In addition, the level of discounts given
that purchased a total
to the free houses
to the average barrelage
barrelage
purchases by WPP lessees was very close to the
overall average used in the comparison for the
year 1996/1997 (16).

similar

(57) An important

is

the

and

balance

divisible

countervailing benefit

the
so-called rent subsidy, the benefit resulting from
a comparison with the rent paid for a tied outlet
and property equivalent costs to be paid by a
(cid:28)free of tie’ pub operator. There are a number of
methodologies for calculating the rent subsidy.
identified three main
The OFT report has
methods of comparison. The first is to take an
the
(cid:28)average pub’, estimating the value of
property
and
comparing the resulting mortgage payments
with the rent a brewer would take. The second
is to look at the brewers’ returns on capital
employed from their pub estate and compare
these to some estimate of a normal return. The
third is by calculating the difference between the
ratio rent/turnover for the tied estate with an
estimated ratio rent/turnover for (cid:28)free of
tie
outlets’. This third method has been used in the
OFT report, as the OFT had the most data
available to use this method. The Commission
has
it
followed this methodology because
allowed the Commission to build on the work
of the OFT, which yields an obvious economy in
procedure.

the
officials. Whitbread
Commission that
to
the
turnover ratio for the entire WPP estate is
12,19 %,

informed

average

rent

has

— for the years 1990/1991 and 1991/1992 the
data relate to the totality of Whitbread
leased pubs on the basis of figures for the
rental income and barrelage sold as supplied
by Whitbread,

— for the years 1992/1993 up to 1996/1997,
the data relate to the pubs let on notified
agreements on the basis of figures for the
rental income and barrelage sold as supplied
by Whitbread with some estimates made by
the Commission on the basis of
this
information.

(59) Several lessees have indicated that their rent is
more than 15 % of turnover, or, alternatively,
more than the average of 12,72 % calculated by
the Commission. It resulted from submissions of
their
lessees
of
smaller
a
rent/turnover
ratio was below the 12,72 %.
However, none of these lessees have presented
arguments against the methodology used by the
average
Commission
rent/turnover ratio for the WPP tied estate as
described above.

calculating

number

that

the

in

(58) In practice, the rent subsidy is calculated by
subtracting (a) the actual rental income from the
tied estate from (b) 15 % of the turnover of the
tied estate (the assumed rent for an untied outlet
being 15 % of turnover). To arrive at the rent
subsidy per barrel, the overall rent subsidy is
divided by the total number of barrels sold to
the estate. For the calculation of the rent subsidy
as shown in Table 3, the following assumptions
were made:

— the estimate of the total turnover for the tied
estate was calculated on the basis of the rent
paid being equal to 12,72 % of turnover. The
figure of 12,72 % stems
from internal
Whitbread documents, mainly in preparation
for rent or rent review negotiations, for a
sample of 30 pubs chosen by Commission

(16) This information is not readily available in such detail

for previous years.

(60) A trade federation stated in its submission that
the Royal Institute of Chartered Surveyors, the
UK’s leading authority on commercial property,
recommend the rent of a full
repair and
insurance commercial lease to be between 10 %
and 15 % of
the freehold bricks-and-mortar
value. A Whitbread lessee has stated that it is
widely known that the economic rent for an
average public house free of tie is between eight
and a half and twelve and a half per cent of
accountants who
turnover. One
the
in
commented on the notice considers that,
practice, rents are determined on the basis of 50
per cent of the divisible balance, which means
the net profit. It is therefore alleged that the
assumption that rent is properly based on a
percentage of turnover is false, and that the
assumption that free-of-tie rent is based on 15
per cent of turnover is therefore also false. He
that
considers
imposed by
total
rent
i.e. the lease rent and the cost of
Whitbread,

the

of

31.3.1999

EN

Official Journal of the European Communities

L 88/37

discounts denied (wet rent) result in the lessees’
being disadvantaged financially.

rent

taking into account

(61) The Commission does not dispute the fact that
actual
take place
(review) negotiations
between the company and the (prospective)
lessee on the basis of a shadow profit and loss
the performance
account
achievable by a competent lessee; the market
sector in which the site trades; the product sales
mix; the tied product procurement terms; the
the property, and the
size and condition of
complexity of
the operation (e.g. number of
bars). This is explained by Whitbread to the
lessee prior to any rent negotiations and detailed
in the recently published Code of Practice.

(62) The contractual rent negotiated by the parties is
not automatically determined on the basis of 50
per cent of the divisible balance. Resulting from
open competition on the market
the parties
negotiate a rent typically between 40 % to 60 %
of the divisible balance.

(63) However, the purpose of the current assessment
is not
to describe how individual rents are
negotiated, but to make a comparative analysis
of the average rental levels between one part of
the market and another. The advantage of using
the rent/turnover
this analysis as
ratio for
compared to a conceivable methodology based
upon the differences in the average rent/divisible
balance is that
the comparison for the first
methodology is based on fewer estimates of
variable parameters. No estimates need to be
made for the (cid:28)cost’ structure of the pubs in
working with rent/turnover.

(64) With regard to the result of

the different
methods, it would not be unusual to find that
the average (cid:28)free of tie’ rent as a percentage of
turnover for a particular estate is 15 per cent
and that the average divisible balance is 50 per
cent.

(65) For the most important remaining variable in
the Commission’s methodology, namely that 15
per cent
the
(cid:28)free-of-tie’ rent, the Commission relies on the
following facts:

the ratio for

rent/turnover

is

letter of 17 March 1997 to Whitbread that,
when they reported in January 1994 on
estimated tied and free-of-tie rents at a
valuation date of November 1993 on a
sample of 36 public houses throughout the
country,
the aggregate
free-of-tie rents were 28 % higher than the
aggregate tied rents. They anticipate that the
relationship between tied and free-of-tie
rents would be broadly similar in March
1997,

they found that

— Gerald Eve and Christie & Co, Surveyors,
Valuers and Agents (hereinafter (cid:28)Christie’),
both indicated in December 1997 that there
is a difference of 3 % to 4 % in the
a
rent/turnover
percentage of gross turnover excluding VAT)
for tied and free-of-tie pubs,

(expressed

ratio

as

— Gerald Eve and Christie have indicated to
another brewer that most of the free-of-tie
reviews
should see a free-of-tie rent of
between 13 and 17 per cent. In addition,
they have also informed that brewer that in
their expert opinion, the average rents in the
sector are generally around 50 per cent of
the average competent operator net profit
with the remaining 50 per cent attributable
to the tenant. In cases where the 50 per cent
attributable
tenant produces an
inadequate living for the tenant this could be
a lower percentage. Conversely, on outlets
where the discount
level and profits are
higher, rent in excess of 50 per cent are not
uncommon and they would consider that 60
per cent would be the upper end of the scale,

to the

free

in the

— these findings confirm the facts presented to
free houses pay 2 to 3
the OFT that
percentage points more of their turnover in
rent than the tied tenants of brewers and
that
equivalents
trade
amounted to between 14 and 15 per cent of
turnover. This enabled the OFT in their
report
to base their methodology for the
calculation of the (cid:28)rent subsidy’ upon the
difference paid in actual rent by the tied
lessees with an estimate of between 14 per
cent and 15 per cent of turnover.

rent

— Gerald

Surveyors,
(hereinafter (cid:28)Gerald Eve’) have indicated in a

Chartered

Eve,

(66) The Commission therefore considers that for all
the reasons set out above,
the rent/turnover
methodology is appropriate for assessing the
rent subsidy to tied tenants.

L 88/38

EN

Official Journal of the European Communities

31.3.1999

(67) Whitbread has estimated the average value and
benefit of the professional services per lessee for
each of the relevant years. This value has then
been multiplied by the total number of pubs let
on notified agreements (with the exception for
the years 1990/1991 and 1991/1992, where data
are used for all WPP pubs) and then divided by
the number of barrels supplied to these houses.

(68) Whitbread has used two different methodologies
to support its estimates. The first consisted in
calculating the cost to Whitbread of services
provided free of charge to lessees’ management
resource (area managers, property surveyors,
leasing managers and catering managers). This
cost was then (cid:28)marked up’ (doubled) to replicate
the cost to the individual free trader. From this
sum was then deducted the doubled cost of
Whitbread’s sales executives for the individual
free-trade operators.

(69) The second methodology used an estimate of
annual Whitbread management days
spent
supporting lessees. For instance for the year
1994/1995, for which the estimate of the benefit
for each lessee was set at GBP 2 500, eight
man/days (five for the area manager for the
monthly (cid:28)business’ day-time visit, the quarterly
evening visit, training sessions and development
work, two for the property manager reflecting
the annual property inspection, development
work and legal type property advice and one for
other managers) were considered a benefit for
all pubs and on average an additional 2,5
man/days of catering advice for food-oriented
pubs reflecting the monthly visit and formal
training sessions.

(70) The WPP subsidy cost

for various training,
marketing and catering related services provided
to lessees
included in this estimate.
Whitbread estimates that the subsidy cost for
the year 1996/1997 is equal to a further GBP
180 benefit to WPP lessees.

is not

(71) The commenting law professor stated that the
management time spent on the above activities
will not only have the effect of decreasing the
costs of the tied tenants, but will also have the
effect of decreasing Whitbread’s own costs,
increasing its turnover and its overall return on
investment. He therefore argues that the whole

of the costs should not therefore be ascribed to
the tied tenants.

their

from lessees or

(72) This view has been reiterated in almost all other
replies
representatives
indicating that the primary role of the business
development managers is to police the beer tie
and the other lease obligations. Other lessees
pointed out that professional advice is mainly
necessary
interest with
Whitbread.

conflicts

over

of

lessees have indicated that
they receive

the cellar
(73) Several
service
from Whitbread is of
excellent quality, although some of them have
stated that free-trade Whitbread clients receive
as good a service.

(74) In reaction to these observations, it should be
explained that the basis for this calculation is
not the total cost of the personnel providing the
services, but what Whitbread considered to be
the proportion of time spent by these employees
working directly in the interests of the lessee.
For the two most important functions in this
respect,
the business development manager
(hereinafter (cid:28)BDM’) and the property function,
time
the percentage of
55 %
supporting
respectively. This information is supported by
details of the actual BDM visits in the period of
January to November 1997 to the 30 pubs that
Commission officials have selected for the rent
subsidy calculation (recital 58), quarterly and
annual time surveys for the property function,
examples of submitted (cid:28)time sheets’, and job
descriptions for all lessee facing functions within
WPP.

the proportion of

lessees was

78 % and

(75) Three lessees have commented on the training
provided. They state that training is always at a
cost of GBP 30 per participant with an average
of 15 delegates per session so that at least the
marginal costs are covered. Some of the courses
are covered free of charge at local councils or
institutes.

(76) The subsidy cost for the training is not taken
the
However,
they operate a

into
professional
Whitbread has indicated that

calculation
benefit.

for
services

account

the

of

31.3.1999

EN

Official Journal of the European Communities

L 88/39

policy of subsidised training, covering the core
elements of running a pub. From an induction
programme attended prior to taking a pub,
which lasts for several days,
to a range of
one-day workshops with an average number of
participants of 6 to 10 per workshop. The
average charge is GBP 25, aimed at recovering a
proportion of the costs of the venue, materials
(which the lessees take away to use in their
experts and
(in-house
and tutor
business)
external
consultants). Whitbread does not
dispute that health and safety or food hygiene
training may be available elsewhere at a lower
this would not be pub-specific.
cost, but
Whitbread disputes that the vast majority of the
other workshops are available at a lower cost
externally. It also indicated that at the time of
pub capital developments, a range of training
hygiene,
covering
merchandising and chalk-boarding are provided
free to lessees and staff.

customer

care,

food

to

the

that

relating

recognises

(77) The Commission considers on the basis of all of
the
above
the
considerations
two
(cid:28)professional
services’
methodologies presented by Whitbread to give
an indication of the value of the professional
services granted by WPP to its
lessees, as
compared with professional services granted to
individual free traders, represent a reasonable
estimate. The Commission
in
particular the comparison between the costs
involved as described in the first methodology
and accepts that doubling such costs to achieve
an estimated price/value of such services on the
free market is reasonable. With regard to the
second methodology, particular
is
made to the percentages indicated in recital 74,
supported by documentary evidence. However,
in order to reduce the margin of possible error
as much as possible, the Commission will base
its assessment of the value of this (cid:28)countervailing
benefit’ on a slight reduction of the benefits as
the
indicated by Whitbread. The amount of
benefit is therefore reduced by 10 % and the
relevant GBP/barrel
for professional
services of Table 3 are adapted accordingly.

reference

figures

instance,
for the year 1996/1997 the overall
average was GBP 3 580. Such procurement
benefits are not offered to the free-trade clients
of Whitbread and have never been so offered for
the period under consideration.

procurement

(79) Whitbread supported the figures for the food
and non-food pubs by
supplying detailed
information for each of the individual items for
and
which
estimates of their value. For 1996/1997 these
details were provided for the following items:
insurance, credit cards, glassware, crisps
gas,
and nuts,
frozen food, water-saving device,
mixed gas, LPG, butchers, washroom services
and pest control.

benefits

existed

have

(80) Almost all lessees have commented on this issue.
Most have indicated that
these procurement
benefits represent no value whatsoever for their
business. Others have indicated that better terms
are almost always available elsewhere and have
thus placed, in general, a minimal value to it (in
the range of GBP 1 to 5/barrel for the recent
years). A few respondents
actually
indicated that one or two specific items were
advantageous and referred to other
specific
items that they could obtain cheaper elsewhere.
Several lessees pointed out that similar schemes
were also available for free traders, but only
two lessees have indicated such alternatives, one
being (cid:28)Les Routiers’, while the other
lessee
referred to a scheme of his local Victuallers’
Association. However, this latter scheme was
from a private profit-making organisation
offering bulk-purchasing
to its
members. For the few suppliers that figure on
the WPP list as well as on the private company’s
list, the WPP discounts were better in all cases.
The lessee that referred to (cid:28)Les Routiers’ gave
no details. Whitbread has indicated that (cid:28)Les
Routiers’ offers bulk purchasing, but it has a
fee.
restricted membership and an annual
Purchasing terms on offer appear limited and
Whitbread understands that suppliers report low
levels of uptake and sales.

advantages

(78) To calculate the value of

the procurement
benefits, Whitbread supplied a (cid:28)support value’
per lessee which was then multiplied with the
total number of pubs let on notified agreements
and then divided by the number of barrels
supplied to those pubs. The methodology
followed by Whitbread consisted of calculating
the advantages for pubs that are (cid:28)major food
outlets’,
(cid:28)limited food outlets’ and (cid:28)non-food
outlets’, to arrive at the overall average. For

(81) One lessee indicated that these benefits were
first negotiated and put
the
managed houses so as to provide uniformity and
accountability within the company and then also
offered to the leased estate. Another lessee said

into place for

L 88/40

EN

Official Journal of the European Communities

31.3.1999

in view of

that these benefits were only of interest for the
lazy lessee who could not bother to conduct the
negotiations himself. Whitbread has indicated
that the majority of terms offered to lessees are
negotiated on the back of Whitbread’s managed
business contracts, which has the advantage
that,
substantial business
the
arrangements with Whitbread, WPP can secure
advantageous
lessees. However,
separate negotiations by WPP with suppliers are
required, as
from
individual leased houses is different to that for
the Whitbread management estate in view of
factors such as debt, administration, individual
order size and delivery frequency. Furthermore,
WPP requests the suppliers to demonstrate why
lower prices, if they apply at all, should apply to
the managed estate.

the profile of business

terms

for

(84) It is self-evident that for each of the items listed
there may be cheaper alternatives from other
firms on the market. It is, however, virtually
impossible to compare the WPP offer with
possible alternative individual quotes from other
suppliers in view of the number of areas to
consider that have an impact on the true value
of any supplier offer such as the quality of
goods
terms
comparison, the supplier’s commercial concern
with awareness of (confidential) terms in the
market
per
account-size, and time involved in researching
the
the market,
supplier confidence and problems resolution and
so forth.

the geographic availability,

services,

detailed

place,

range

terms

and

the

the

of

benefits

relate directly

recent purchase of

(82) Several specific comments from lessees on bulk
purchasing do not
to the
procurement
described. A lessee
an
commented on a
ice-maker and a glass-washer at a cheaper price
than the one on the WPP list. Although the
lessee recognises that the WPP-advised products
are of a very good standard and that such
advice in itself can already be considered a
benefit,
these two products, although on the
WPP list, were not taken into account for the
above calculation, which is based on a selection
of the (most important) offers. Other lessees
have referred to (cid:28)plus pounds’, a form of
discounts offered by Whitbread on purchases of
non-tied
ales. These
discounts can be paid out, used in settling the
trading account, or compensated for by air
miles. They
be
not
procurement benefits. In one of the few cases
where the lessees have provided details about
the
elsewhere,
verification with the actual WPP offer has
shown that
for credit/debit cards
referred to by the lessee was almost identical to
the WPP offer.

and cask-conditioned

considered

obtainable

the offer

better

rates

are

to

(85) The

methodology

above-described

for
calculating the procurement benefits compares
the WPP terms with the wholesale list price of
the same supplier, thereby reflecting the benefit
that an individual lessee would receive if he/she
did not actively seek improved terms or services
and bought at
the published price list. The
Commission accepts that at least a significant
proportion of
lessees will actively look for
cheaper deals, at least for some of the more
important cost items, in operating the pubs. On
the other hand, a large number of lessees have
actually taken up the WPP offer: 1 010 frozen
food, 988 the insurance, 842 bulk LPG, 384
credit and debit cards, 251 glassware, 177 gas
(extreme volatility in the market), 158 crisps
and nuts (WPP may not publish the prices in
view of the supplier’s sensitivity), 98 LPG (out
of an estate potential of 130 to 140 accounts),
concept
239 butchers
houses), 50 to 200 washroom services, and a
dozen on preventive pest control (the majority
of usage is on a call-out basis which is not
specifically
In
addition, reference is made to the results of a
recent survey among lessees on the 1997 Buying
Guide. Of 155 responses, 37 (24 %) gave the
best mark, 49 (32 %) gave a two, 42 (24 %) a
three, 13 (8 %) gave mark 4 and 11 (7 %) gave
the lowest mark 5 (cid:28)not useful’ (three lessees gave
no reply).

(primarily used by

supplier).

recorded

the

by

(83) The Commission recognises

that

it may be
possible to negotiate individually better terms
with the same supplier than those offered by
WPP. However, even if this were to be the case
for all items, the fact that an interested lessee
has a reference point, based on a negotiated rate
for a large estate, to start price discussions is
already an advantage in itself.

above

(86) The Commission considers on the basis of all of
the
considerations
the
(cid:28)procurement benefits’ that a reduction should
be made to the value of the benefit as calculated
by Whitbread and represented in the Notice in
order to take into account the fact that, as was

relating

to

31.3.1999

EN

Official Journal of the European Communities

L 88/41

track-records

in Whitbread’s

stated in recital 85, a significant proportion of
lessees will actively look for cheaper deals than
the list price quoted by the supplier. However, in
view of the references in recital 85 on uptake
in addition, to the fact
and satisfaction, and,
that the availability of a list with suppliers with
proven
large
managed estate is a benefit in itself (even if there
are no additional discounts offered (17)),
this
reduction should be moderate. Therefore, and in
order to reduce the margin of possible error as
much as possible, the Commission will base its
assessment of the value of this (cid:28)countervailing
benefit’ on a reduction by 25 % of the benefits
as indicated by Whitbread and in the Notice.
The relevant GBP/barrel figures for procurement
benefits, in Table 3, are adjusted accordingly.

20 % of
the expenditure. For investments of
more than GBP 20 000, the increase is 10 %.
The figures presented by the lessees that had a
capital expenditure confirm this overall policy.
One lessee has indicated that the rent increase
percentage will be higher for investment that is
not aimed at
increasing the consumption of
drinks.

(90) It is, of course, correct that the rent increase is
for longer than five years, but so is the benefit
of the investment to the lessee. After the end of
the Lease, the lessee in England and Wales has
security of tenure (Landlord and Tenant Act, see
recital 34) unless Whitbread wants to use the
premises for its own purpose.

(87) The benefit which is attributed to capital
expenditure carried out with existing lessees is
calculated by subtracting from this expenditure
the additional income for Whitbread which can
be expected over five years as a result of the
expenditure. This additional income consists of
the
the
expenditure, multiplied by the number of
projects, multiplied by 5.

following

increase

average

rent

(88) Almost all

lessees who benefited from capital
the total
expenditure have given details of
by
and
by Whitbread
investment made
themselves and the rent increase resulting from
WPP’s investment. They indicated that the rent
increase is for the rest of the lease (which has a
20-year duration) and not only for the five years
indicated in the above methodology. Some
indicated that the full benefit of the investment
will always go back to Whitbread after the end
of the lease.

(89) One lessee indicated that WPP has a policy
investment of less than
increases with

whereby for a capital
GBP 20 000,

the annual rent

(17) This is challenged by one of the complainants, who
stated that the majority of the suppliers are household
names well known to the licensed trade or readily
available from any trade directory. With regard to the
reference to trade directories, it is noted that in such
directories all firms can list themselves and that this is
no indication whatsoever as to the quality of the service.
It is recognised that some of the suppliers are household
names, well known to the licensed trade. For such firms,
the main benefit
a
that
discount-offer based on the negotiated rate for the
Whitbread managed estate.

receives

lessee

the

is

(91) However,

the result of

the above-described
methodology is consistent with two possible
alternative methodologies
for calculating the
(cid:28)countervailing benefit’ element of the capital
expenditure. The first alternative is a refinement.
It consists of a reduction of the average rental
increase used above by a post tax position (as
the rental payments will be tax allowable). Then
the discounted cash flow methodology is used in
calculating the cost to lessees of their rental
payments over time compared with the (cid:28)upfront’
investment
a
(cid:28)modest’ (18) discount
rate of 10 % and an
average lessee tax rate of 30 %, the relevant
benefit per barrel indicated in Table 3 can be
extended up to 16 years without diluting the
benefit per barrel. Such a period would thus
cover the rest of the lease duration in almost all
cases and will be actually longer than the rest of
the lease duration for a lot of investments.

of Whitbread. Using

cost

(92) The second alternative would be to consider the
benefit from a lessee’s perspective. It is based
upon 11 projects completed by WPP in its
designated east area from March to September
1997. The data contain the WPP spend (average
of GBP 92 000),
estimated
expenditure by the lessee (average GBP 17 500),
the estimated post-rent
increase
(average GBP 11 700) and the lessee’s return
(average 67 %). The
upon investment
average incremental profit
is then compared
with a (cid:28)normal’ return of 15 % on the lessee’s

the known or

lessee profit

rate

(18) This is modest, as the required rates of return in most

investments in the UK are in excess of 10 %.

L 88/42

EN

Official Journal of the European Communities

31.3.1999

investment to arrive at an average benefit of
GBP 9 100. Relating the average WPP spend in
the sample to the actual average would result in
an average lessee (cid:28)countervailing benefit’ of GBP
6 900 per annum. Taking five years as an
appropriate period over which to measure this
profit, this would produce a profit per barrel

consistent with the one indicated below in
Table 3.

(93) The result of

the price
differential and the countervailing benefits are
shown in the following table:

this assessment of

Table 3

Price differential and countervailing benefits

(GBP/barrel)

Year end 26 February

1990/1991 1991/1992 1992/1993 1993/1994 1994/1995 1995/1996 1996/1997

Pris differential

circa

21

Rent subsidy

circa

Professional services

circa

Procurement benefits

circa

Capital expenditure

circa

9

6

3

27

11

7

3

31

15

9

3

0

32

15

9

3

1

Conclusion

circa

(cid:159) 3

(cid:159) 6

(cid:159) 5

(cid:159) 3

34

16

10

10

3

5

36

17

10

11

7

9

40

19

10

12

10

11

(94) In addition to these quantifiable (cid:28)countervailing
benefits’, Whitbread has,
in circumstances
relating to the lessee’s personal as well as
business conditions, agreed to several hundreds
of cases in which the lessee has surrendered the
Lease. In a limited number of cases, Whitbread
has agreed to a reduction of the rent (19). These
(cid:28)partnerschip’ elements and the fact that the rent
paid is lower than a free-of-tie rent support the
claim that tied lessees face a risk return situation
differing from that of free traders.

II. LEGAL ASSESSMENT

A. ARTICLE 85(1)

1.

The relevant market

1.1. The relevant product market

(95) The

relevant product market

principle, all goods or

in
services which are

includes,

(19) 36 cases in the period 1993-95; 20 cases in the financial
year to February 1997 with an average reduction in rent
of 24 %.

for

and premises

perceived by the consumer, on the grounds of
their characteristics, price or intended purpose,
as being reasonably interchangeable with each
other (20). As the Court of Justice has stated in
the Delimitis judgment (21), (cid:28)the relevant market
is primarily defined on the basis of the nature of
the economic activity in question, in this case
the sale of beer. Beer is sold through both retail
and
channels
consumption of drinks. From the consumer’s
point of view, the latter sector, comprising in
particular public houses (22) and restaurants,
may be distinguished from the retail sector on
the sale of beer in public
the grounds that
houses does not solely consist of the purchase of
a product but is also linked with the provision
of services, and that beer consumption in public
houses is not essentially dependent on economic
considerations. The specific nature of the public
house trade is borne out by the fact that the
breweries organise specific distribution systems

sale

the

(20) Case

27/76, United Brands,

[1978] ECR 207,

paragraph 12.

(21) Case C-234/89, Stergios Delimitis v. Henninger Br(cid:228)u,

[1991] ECR I-935, paragraph 16.

(22) The German (procedural

the
judgment uses the term (cid:28)Schankwirtschaften’.
In the
French version, being the working language within the
Court, the term (cid:28)cafe´s’ is used.

language) version of

31.3.1999

EN

Official Journal of the European Communities

L 88/43

this

sector which

for
special
installations; and that the prices charged in the
sector are generally higher than retail prices.’

require

most beer supply agreements are still entered
into at a national
in
level.
applying the Community competition rules to
the agreement, account is to be taken of the UK
market for beer distribution in premises for the
sale and consumption of drinks.

follows that,

It

In

of

the

this

and

is
for

“premises

restaurants’.

stated that
sale

(96) In view of the specific licensing system in the
UK, it has to be specified which sections of the
three distinct classes of on-licences (recital 22)
(cid:28)public
form the relevant product market of
houses
respect,
reference is made to recital 43 of the Notice to
(cid:28)the
the Regulation where it
and
concept
consumption of drinks” covers any licensed
premises used for this purpose. Private clubs are
also included’. This is understandable, as all
these outlets, including the restricted on-licenses,
have the common feature that the drinks are
purchased for consumption on the premises and
that
service element
provided. The Commission recognises that the
beer price in clubs, being in December 1994
some 82 % to 83 % of that prevailing in pubs, is
lower than that charged in pubs (23). However,
this reflects to a large extent the fact that these
clubs operate on a non-profit basis. It remains
the case that, in view of the service element, the
price in clubs is still in excess of the price of
beer in supermarkets. Furthermore, the specific
the whole on-trade,
distribution system for
including
special
the
the
installations for draught dispense, the brewers’
beer list prices, and the operation of loan ties.

there is an important

clubs,

same:

is

(97) It follows that the reference market is that for
the distribution of beer in premises for the sale
and consumption of drinks (the whole on-trade
market). As was
the Delimitis
held
judgment (24), that finding is not affected by the
fact that there is a certain overlap between the
on- and off-trade, inasmuch as retail sales allow
new competitors to make their brands known
and to use their reputation in order to gain
access to the market constituted by premises for
the sale and consumption of drinks.

in

1.2. The relevant geographic market

(98) The objective competitive conditions of supply
and demand for the supply of beer to the
on-trade vary considerably in the different parts
of the Community. As the Court of Justice has
noted in the Delimitis judgment at paragraph 18,

(23) Extracts

from Stats MR’s

survey of

retail prices,

submitted by a national brewer to the OFT.

(24) See footnote 21; at paragraph 17.

(99) The UK market

is also distinct

from beer
markets in other Member States in view of the
Orders (recital 15), the high consumption of
the presence of
draught beer
(recital 18),
pub-management companies
the
(recital 21),
pub licensing regulations (recitals 22 and 33)
and the
ale offered
(recital 42).

in types of

variety

2. Agreement between undertakings

(100) Whitbread and the lessees are undertakings

within the meaning of Article 85(1).

(101) The individual leases, in a form similar to the
standard Leases described above, between
Whitbread and each of its lessees are agreements
within the meaning of Article 85(1).

3.

Restrictive effect on competition of the
principal restrictions

3.1 Description and nature of

the principal

restrictions

(102) A beer supply agreement such as the Leases is
generally qualified by referring to the exclusive
purchasing obligation which is generally backed
by a non-competition obligation (25). These
clauses are formulated in the Lease as follows
(recitals 42 and 43 above):

— the tenant shall purchase from Whitbread or
its nominee and from no other person or
firm such specified beers (with the exception
of the guest beer clause) as he shall require
for sale in the premises;
the
brewer is free to add, replace or delete the
actual brands of a specified type in the
(exclusive purchasing
company’s price list
obligation),

in practice,

(25) See footnote 21; at paragraph 10.

L 88/44

EN

Official Journal of the European Communities

31.3.1999

— the tenant shall not sell or expose for sale in
the premises or bring on to the premises for
the purpose of sale therein:
(a) any beer
which is of the same type as a specified beer
but which is not supplied by Whitbread or
its nominees; or (b) any other beer unless (i)
either it is packaged in bottles, cans or other
small containers, or (ii) it is in draught form
and the sale of that beer in draught form is
is necessary to satisfy a
customary or
sufficient
lessee’s
circumstances (non-competition obligation).

from the

demand

(107) In the case of Brasserie De Haecht v. Wilkin (27),
the Court of Justice held that the effects of a
beer supply agreement had to be assessed in the
economic and legal context in which they occur
and where they might combine with others to
have a cumulative effect on competition. It is
therefore necessary to assess, as a first step, the
overall effect of all networks
in the UK.
it also follows from that judgment
However,
the cumulative effect of several similar
that
agreements
amongst
others in ascertaining whether competition is
prevented, restricted or distorted (28).

constitutes one

factor

(103) It may be noted that, apart from the explicit
non-competition obligation with regard to
specified types of beers, the exclusive purchasing
it already
obligation is
includes implicitly a non-competition obligation
by reference to the general wording (cid:28)such
specified beers’.

so formulated that

3.2.1. Cumulative

effect of

several

similar

networks

contract

(104) Because of the exclusive purchasing obligation,
the lessees are precluded from accepting offers
of
suppliers.
Competition for the lessees between the brewer
and other beer wholesalers who offer the same
brands is precluded (restriction of intra-brand
competition).

from other

goods

(105) The

of

and

explicit

implicit

specified types
restricts
beer,

non-competition
obligation for specified types of beer — that is,
the prohibition on the lessees against purchasing
from other
other brands of
producers
inter-brand
competition. The contractual provisions on the
purchase of non-specified types impose certain
administrative constraints on the lessees but do
not in effect restrict their ability to offer such
non-specified types on their premises. These
clauses therefore lack a restrictive effect on
competition.

3.2. Restrictive effect

(106) Having identified the nature of the restriction of
competition brought about by the network of
the brewers’
the restrictive effects on
retailers and suppliers in the relevant market
need to be demonstrated (26).

leases,

(26) See also paragraph 13 of the Delimitis judgment: (cid:28)If such
(exclusive beer supply) agreements do not have the
object of restricting competition within the meaning of
Article 85(1),
it is nevertheless necessary to ascertain
whether they have the effect of preventing, restricting or
distorting competition.’

hindrance

(108) The purpose of this assessment is to measure the
degree of foreclosure of the UK on-trade market,
the
the
thereby measuring
opportunities
for other producers of beer,
national or foreign, to reach the on-trade market
independently,
resulting from the cumulative
effect of all brewers’ networks. In other words,
the assessment relates to the opportunities open
to such other brewers
final
consumer in competitive conditions (29) defined
independently by the brewer in question.

to reach the

of

(109) Furthermore, as Whitbread notified the Leases
in order to obtain an exemption to take effect
from the date on which the agreements were
entered into, this assessment must go back to
1990, the year of introduction of the 20-year
lease.

(110) The foreclosure resulting from the brewers’
networks has different forms. First, there is the
vertical integration by UK brewers down to the
retail
integration takes the
form of managed houses and property tied

level. This vertical

(27) Case 23/67, ECR 1967, p. 407.
(28) See footnote 21; at paragraph 14.
(29) With regard to competition policy, the main parameters
are what is called the (cid:28)above the line’ parameters: overall
the brand (including pricing), general
positioning of
marketing
national
(advertising
advertising, promotions) as opposed to (cid:28)below the line’
which is more (cid:28)point of sale’-related marketing.

concept,

policy

31.3.1999

EN

Official Journal of the European Communities

L 88/45

level,

houses. Secondly, the network includes (cid:28)vertical
agreements’ on either of
two levels: either,
directly with retail outlets via loan ties, or on
supply
the wholesale
containing
agreements,
agreements
exclusive
obligations, minimum
purchasing obligations, must-stock obligations
and so forth with (cid:28)traditional’ wholesalers,
non-brewing pub companies or other brewers in
their wholesale function.

namely
purchasing

(cid:28)tying’

by

in the on-trade. Loan ties

(111) From Table 2 (recital 23) it can be seen that
sales of the property tied and managed houses
of brewers represented in 1985 about 55 % of
foreclosed
sales
another 22 % of the on-trade market in that
year. As there have been only limited changes in
the situation on the UK on-trade beer market
the 1985 data are
prior
considered representative for at least the years
1985 to 1989. In 1990, the Orders were still not
fully implemented so that, although the situation
was starting to change compared to the previous
years, it can be estimated that still around 70 %
of consumption of beer in the UK on-trade
occurred in tied outlets.

to the Orders,

throughput. Loan ties account

(112) For the year 1997, the last year for which this
kind of data is available, brewers’ property tied
for 27,2 % of
and managed houses account
volume
for
18,1 %. An unidentifiable part of the volume for
loan ties is not supplied subject to a legally
binding commitment on the part of the retailer
to buy the volume of the tying brewer (see
recital 25) (30), but it is most likely that the
binding commitment will at least cover 10 % of
on-trade volume throughput. Accordingly, the
the UK brewers tie
conclusion must be that
themselves directly to a maximum extent of
45,3 % (but most likely at least 37 %). This
volume throughput of the UK on-trade market
offers no direct opportunities for independent
access by other brewers direct to the retail level.

(113) It has been argued that since the Orders made it
possible to terminate a loan tie upon three

(30) The intrinsic link between the loan tie and the actual
volume purchased cannot be denied, the best evidence
for this link is the inability of the brewers to dissociate
the two in their internal accounts.

months’ notice, such ties should no longer be
regarded as hindering any opportunities
for
access.

(114) The Commission accepts

that

independent
access to the loan-tied outlets in question is not
always excluded, as there are an unidentified
number
tie
of
agreements (31). However,
volume
the
covered
possibility for other brewers to reach directly
the final consumer in competitive conditions
defined independently by the brewer in question
is limited.

non-exclusive
for

non-exclusive

loan

loan

ties,

the

by

(115) The Commission also recognises that the Orders
make it easier to terminate a loan tie. However,
the average duration of four years indicates that
the contractual relationship is not a temporary
one. Furthermore, the brewer wanting to enter
independently into loan-tied premises needs to
offer the individual pub operator the finance to
pay back the first loan (by way of, most likely, a
new loan tie). Competition between such
brewers is thus not restricted to the quality and
(direct) price of the beer, but requires the other
brewer also to offer loan ties. In addition,
it
needs to be remarked that such an independent
entry into loan-tied premises would only make
sense for a brewer that offers all or most types
of beer typically offered by a pub retailer to the
public, because otherwise the total finance cost
of the loan would need to be recouped by the
sale of one brand (or a limited number of
brands).

indirect access

the (property or

(116) It is not disputed that the tied volume might
for other brewers
still offer
in so far as
tying
loan)
brewer/wholesaler is prepared to supply to its
tied outlets beer from other brewers. However,
the
focuses on
opportunities for independent access for other
from
brewers which clearly does not
actual
(cid:28)horizontal’
cooperation
competitors. Such cooperation may limit
the
level of
inter-brand competition between the
brewers in question and the tying brewer will

assessment on foreclosure

between

result

(31) This access could be excluded in practice by way of

multiple non-exclusive loans.

L 88/46

EN

Official Journal of the European Communities

31.3.1999

only allow an other brewer’s beer in his outlets
when this is in the tying brewer’s interest.

3.2.2.1. O p p o r t u n i t i e s f o r a c c e s s

It

(117) In addition to the direct (managed and leased
houses and loan ties) ties by UK brewers of
retail outlets, reference has to be made to the
19,7 % (in 1997) going through the non-brewing
pub companies’ property tied and managed
is estimated that around 13 % is
houses.
supply agreements
accounted for by (cid:28)tying’
between pub companies and brewers. This
percentage includes the volume throughput of
Inntrepreneur Pub Company Limited, Spring
Estates Limited and Allied Domecq Retailing, all
of which had to buy in 1997 (32) almost all the
beer
their estate from one
national brewer. Also included are the estimates
of the four national brewers of their supplies
subject to contractual restriction to other pub
companies.

requirements of

(120) Paragraph 21 of the Delimitis judgment referred
to the (cid:28)real concrete possibilities for a new
competitor to penetrate the bundle of contracts
by acquiring a brewery already established on
the market together with its network of sales
outlets, or to circumvent the bundle of contracts
by opening new public houses. For that purpose,
it is necessary to have regard to the legal rules
and agreements on the acquisition of companies
and the establishment of outlets, and to the
minimum number of outlets necessary for the
economic operation of a distribution system.
The presence of beer wholesalers not tied to
producers who are active on the market is also a
factor capable of facilitating a new producer’s
access to that market since he can make use of
those wholesalers’ sales networks to distribute
his own beer.’

(118) It can thus be concluded that a maximum of
some 58 % (but most likely at least 50 %) of the
UK on-trade volume was still accounted for in
1997 by tying restrictions of brewers. Therefore,
the bundle of tying agreements of UK brewers
has since 1990 had considerable effect on the
opportunities for gaining independent access to
the UK on-trade beer market.

3.2.2. Other factors

is only one

(119) The Court of Justice also held that, as was last
confirmed in the abovementioned Delimitis
judgment, the effect of the network of exclusive
purchasing agreements
factor,
amongst others, pertaining to the economic and
legal context in which an agreement must be
appraised. The other factors to be taken into
those also
account are,
and,
relating
to
which
secondly,
competitive
relevant
market.

the
under
forces operate on the

in the first
opportunities

instance,
for

conditions

access

(see

laws

(121) It is not easy to open a substantial number of
new pubs within a couple of years in view of the
licensing
recital 33). Moreover,
although there is an active trade in UK pubs,
and although substantial numbers of pubs have
it has to be
in single deals,
been sold off
remarked that the investment that would need
to be borne by a new competitor to acquire a
network of sales outlets or to open new public
houses is a considerable one (33) and would, in
involve a change in focus from being a
fact,
brewer to also being a UK retailer. This would,
furthermore, require additional horizontal links
with other UK brewers
the
different types of beer that a retail outlet would
need to offer as new competitors (and especially
foreign competitors) will tend to offer individual
brands rather than the whole range of types of
beer common in the UK.

to provide all

(122) Direct takeovers of UK brewers (and their tied
estate) by foreign brewers have occurred a few
times in recent years, but in most cases the
foreign brewer has since divested itself of its
interest again (the Dutch brewer Grolsch in

(32) The exclusive supply agreement for the Inntrepreneur
and Spring estates ended on 28 March 1998; that for the
Allied Domecq estate on 12 December 1997.

(33) The average sales price of a private freehold UK pub is

around GBP 200 000 (source: Fleurets).

31.3.1999

EN

Official Journal of the European Communities

L 88/47

Ruddles, and the Australian brewer Foster’s in
Courage).

countries in view of the fact that the off-trade
represents only 27 % of
sales
(recital 16).

total beer

(123) In addition, the relatively small role played by
(cid:28)traditional’ wholesalers in the distribution of
beer in the UK (recital 20), make it difficult for
a foreign brewer, or for a new brewer, to enter
the market independently.

(124) Therefore,

in most cases,

foreign breweries
to brew and
license a major UK brewer
distribute their products within the UK, thereby
to their public houses and
gaining access
distribution facilities to free houses.
In such
circumstances, the UK brewer will have a strong
influence on the positioning and the marketing
(advertising) of the foreign brewer’s brand.

(125) The Commission accepts

that

the increased
importance of retail sales volume in outlets
operated by non-brewing pub companies offers,
at least theoretically, an increased possibility for
other brewers to gain an access to the UK
on-trade beer consumer. It is indeed a lot easier
for a newcomer on the market to conclude an
agreement with a pub company, even if
the
newcomer would only have one brand, and
the pubs in that
thereby gain access to all
network, in preference to concluding agreements
with individual outlets. However, as was stated
above in recital 117, the concrete opening of
this segment of the market cannot be estimated
In addition, a brewer wishing to
accurately.
supply
its own
distribution facilities would need to organise the
distribution (see also recitals 21 and 30).

a pub company without

3.2.2.2. C o m p e t i t i v e f o r c e s o n t h e

m a r k e t (34)

(126) The UK brewing industry has been going
through a process of concentration (recital 19).
Furthermore, the overall demand for beer as
well as
the on-trade market are likely to
continue to decline or remain, at best, static
(recital
ever-increasing
advertising expenditure to support a single
brand (a sunk cost), gives a further incentive to
foreign
licensing
agreements. Finally, the possibilities of building
upon a reputation in the off-trade beer market
to gain access to the on-trade market is more
limited in the UK than in most other European

16). Moreover,

brewers

enter

the

via

to

3.3. Conclusion on first Delimitis test

(127) It can thus be concluded that an examination of
all tying agreements, including but not limited
to beer-supply agreements entered into, and the
other factors relevant to the economic and legal
context of the UK on-trade market shows that
the brewers’ tying agreements had in 1990 and
still have today, on the basis of the most recent
available information, the cumulative effect of
considerably hindering independent access to
that market,
for new national and foreign
competitors.

3.4. Significant contribution

(128) It

to

the brewery

respect by the totality of

found on that market. Under

is now necessary to assess, as the Court
explained in paragraph 24 of
the Delimitis
judgment, (cid:28)the extent to which the agreements
in question
entered into by
contribute to the cumulative effect produced in
the similar
that
contracts
the
Community rules of competition, responsibility
for such an effect of closing off the market must
be attributed to the breweries which make an
appreciable contribution thereto. Beer supply
agreements entered into by breweries whose
is
contribution
therefore fall under the
insignificant do not
prohibition under Article 85(1)’. Therefore,
in
assessing the extent of the contribution made by
the brewery in question, in this case Whitbread,
including but
the brewer’s total tied network,
not
purchasing
to
obligation and the inherent non-competition
obligation in the Leases, must be assessed. In
other words, it is the network that, according to
the Delimitis judgment, (cid:28)must make a significant
contribution to the sealing-off effect brought
tying
about by the totality of
agreements
legal
in
context’ (35).

the brewers’
and

cumulative

economic

exclusive

limited

effect

their

the

the

(129) In so doing, consideration will be given to the
effect of the network of Whitbread as a whole;

(34) See footnote 21; at paragraph 22.

part of the judgment.

(35) Penultimate sentence of paragraph 1 of the operative

L 88/48

EN

Official Journal of the European Communities

31.3.1999

the finding of a restrictive effect for the network
would then apply equally to each of
its
constituents (36).

3.4.1. The beer de-minimis Notice (37)

the companies

contribution of
in question,
referred to (cid:28)the strong position occupied by the
(company concerned)
in the relevant market,
and, in particular, its market share’ (39). The CFI
has thus based itself primarily on the broader
concept of the overall market share.

(130) Whitbread is clearly not a (cid:28)small brewer’ as
defined by the Notice, as it produces more than
200 000 hl, its market share is more than 1 % of
the UK on-trade market and the standard
20-year Lease is longer than the maximum of 15
years indicated in the Notice.

(133) An assessment of the contribution by the brewer
therefore needs to take into account its position
on the relevant market, and in particular his
contribution by way of tying arrangements to
the foreclosure and, secondly, the duration of his
restrictive agreements, and in particular his
standard agreements.

3.4.2. Individual assessment

(131) The Court

in

of

has

the Delimitis
ruled
judgment (38) that (cid:28)the extent of the contribution
made by the individual agreement depends on
the position of the contracting parties in the
the
relevant market and on the duration of
agreement.’ In paragraphs 25 and 26 of the
judgment, the Court has held that (cid:28)that positiion
is not determined solely by the market share
held by the brewery and any group to which it
may belong, but also by the number of outlets
tied to it or to its group, in relation to the total
number
and
consumption of drinks found in the relevant
market’. As to the duration, the Court indicated
that (cid:28)if the duration is manifestly excessive in
relation to the average duration of beer supply
entered into on the
agreements
relevant market,
falls
under the prohibition under Article 85(1). A
brewery with a relatively small market share
which ties its sales outlets for many years may
make
contribution to a
a
sealing-off of
the market as a brewery in a
relatively strong market position which regularly
releases sales outlets at shorter intervals.’

the individual contract

significant

generally

premises

sale

the

for

as

(132) In the German ice-cream cases, the Court of
significant

in assessing

Instance,

First

the

(36) The Court of First Instance pointed out in Cases T-7 &
9/93, Langnese-Iglo and Sch(cid:246)ller, [1995] ECR II-1539
and II-1611, paragraphs 129 and 95 respectively
(hereinafter (cid:28)the German ice-cream cases’) that (cid:28)where
there is a network of similar agreements concluded by
the same producer, the assessment of the effects of that
network on competition applies to all the individual
agreements making up the network.’

(37) Paragraph 40 of the Notice to the Regulation (OJ C 121,

13.5.1992, p. 2).

(134) The assessment of

it

the contribution of

the brewer’s network),

the
brewer takes into account the managed estate of
the brewer, although this latter part in itself
does not fall under Article 85(1), as it does not
concern an agreement between independent
operators. In considering the notified agreements
(as part of
is
particularly important that due account be given
to the foreclosure resulting from the managed
estate of a national brewer, since the total
number of property ties is limited by the Orders.
However, within that number the brewer is free
to choose whether he wants to operate the
house by way of a tenancy/lease agreement or
by way of a managed house. The brewer has
thus the possibility of offering at any time a
lease agreement for a currently managed house,
and, after the end of a Lease, the brewer may
turn the leased house into a managed house.

loan ties

for which its

(135) The other segments of the (cid:28)tied network’ of
and
Whitbread are Whitbread’s
amounts of beer
(cid:28)wholesale
partners’ are under an obligation to buy
(exclusivity, minimum purchasing, must-stock,
non-compete and so forth). However, as was
indicated at recital 12, the Commission does not
have any precise data for
(cid:28)channel’.
Furthermore, in assessing any brewer’s role on
the market, account can also be given to his
overall market share of the UK on-trade market,
and its share on the related UK beer production
market.

this

(136) The 6 162 pubs (of which 4 291 were operated
by way of tenancies/leases) owned by Whitbread

(38) Last sentence of paragraph 1 of the operative part of the

(39) See footnote 36; at paragraph 87 for Sch(cid:246)ller and

judgment.

paragraph 112 for Langnese-Iglo.

31.3.1999

EN

Official Journal of the European Communities

L 88/49

in 1990/1991 and the 4 490 (2 130 leased)
owned in 1996/1997 account for 4 % and 3 %
respectively of the total number of on-licensed
premises. Moreover,
they account, as was
indicated in Table 1 (recital 10), for 5,67 % and
4,92 % respectively of the on-trade volume in
1990/1991 and 1996/1997 (the property tied
part accounting for 2,98 % and 1,70 %). The
Whitbread tied sales for which the Commission
has the data, namely the above and including
the loan tie sales, account
for 7,59 % and
6,12 % respectively of the UK on-trade market
volume. The (cid:28)tied’ part
loan and
managed) thus accounts for half of Whitbread’s
total sales on the on-trade market share of 12 %
to 13 %. To these already significant
(cid:28)tied’
market shares should be added the (cid:28)wholesale
partners’ ties’ as described in recital 135.

(property,

it

to

has

tied

(137) With regard to the duration of the segments of
be
network,
Whitbread’s
understood that all the houses that Whitbread
owns are, in principle, always (cid:28)locked in’ to the
company. This is not only the case for the
managed house, but also the leased houses will
after the end of one (short- or long-term) lease,
be re-let to another operator on a tied basis. In
addition,
the notified
leases, the 20-year lease, is amongst the longest
in the UK. Whitbread’s loan ties last on average
three years.

important of

the most

(138) It is therefore concluded that Whitbread’s tied
sales, of which the notified agreements are a
part, contribute significantly to the foreclosure
of
the UK on-trade market. The exclusive
purchasing obligation and the non-competition
obligation in the Leases
therefore have a
restrictive effect on competition.

4.

Restrictive effect on competition of other
restrictions

4.1. Description

(139) The Leases contain the following clauses for
which it has been argued by some of
the
respondents to the Notice that
they have a
restrictive effect on competition:

— to put and keep the premises and the fixtures
and fittings in good repair in the case of the
20-year lease (different obligations in the
two other standard leases),

— to use the premises only as a fully licensed

public house,

— restrictions on assignments (recital 39),

— to sell trade fixtures and fittings, furniture
and effects and stock, on termination of the
lease, to Whitbread or to the new lessee,

— not to place amusement machines without

the consent of Whitbread, and

— to avoid advertising goods supplied by other
undertakings in a higher proportion than the
share of those goods in the total turnover
realised in the premises
(cid:28)the
advertising clause’).

(hereinafter

4.2. Evaluation

(140) The first four of the above clauses cannot be
considered to have the object or the effect of
restricting competition in a particular market.
The clause with regard to the amusement
machines
the
restrictive in view of
influence of
amusement machines on the
character of the premises (40).

is not

(141) Whether or not the advertising clause falls foul
of Article 85(1) is only relevant to the market
for the distribution of beer. With regard to all
other neighbouring markets for the supply of
goods to on-licensed premises in the UK, such as
amusement
non-beer
crisps
restrictive. The
machines,
Leases,
exclusive
absence
purchasing obligation and a non-competition
obligation for the supply of such products, do
not restrict competition on such markets, if such
were considered to exist,
to an appreciable
extent by the mere imposition of an advertising
clause.

drinks,
the clause is not

and

the

an

of

in

(142) With regard to the

supply of beer,

advertising clause has the object of

the
limiting

(40) See also paragraph 53 of the Notice to the Regulation;

see footnote 15.

L 88/50

EN

Official Journal of the European Communities

31.3.1999

turnover of

the Commission

the advertising of beer
supplied by other
undertakings. The only beer that the Whitbread
lessee is entitled, pursuant to his Lease, to buy
from other undertakings is the guest beer and
beer of non-specified types. In particular, the
brands of beer of non-specified types may not be
well known to the UK consumer and therefore
would require specific on-the-spot advertising.
The letter of the clause would make advertising
for these new products impossible, as the clause
requires the advertising to be proportionate to
the
goods, which, by
these
definition, is virtually zero as the goods are new.
no
However,
information that the advertising clause has been
as strictly applied as this. On the contrary,
Whitbread has confirmed in a letter dated
26 October 1998 that
(cid:28)Whitbread does not
enforce this clause as it relates to competing
products, and has no intention to enforce it, as
will immediately be apparent from the fact that
lessees have freedom to advertise, promote and
market according to the marketing mix of their
choice as appropriate to their chosen business
plan’. This is confirmed by what several lessees
have indicated in their submissions, namely that
they
receive more
from their guest beer
(cid:28)promotional
supplier. None of
indicated that
Whitbread has ever opposed the use of that
material in the pub.

that
support’

them has

possesses

consider

they

competition from competing goods originating
in other Member States. Indeed, as was noted in
recital 31, most foreign producers have chosen
to enter the UK market by entering licensing
including
agreements with existing brewers,
Whitbread,
to gain access to their on-trade
network (41). Accordingly, the Leases affect trade
between Member States.

6. Appreciability

(144) The exclusive purchasing and non-competition
obligations only infringe Article 85(1), however,
if they affect competition and trade between
Member States to an appreciable extent.

foreclosure of

(145) The quantification of the restrictive effect of the
factors
cumulative networks and the other
the UK
contributing to the
on-trade beer market, and of
the significant
contribution made by Whitbread’s network to
that effect, as laid out in recitals 108 to 143,
in
demonstrate
restricting
between
Member States with respect to the UK on-trade
beer market.

their
competition

appreciable
and

nature

trade

In these circumstances, the advertising clause is
not considered to be an appreciable restriction
of competition.

7. Conclusion

5. Effect on trade between Member States

(146) The exclusive purchasing and non-competition
obligations of the Leases fall foul of Article 85(1)
since the introduction of the Leases in 1990.

(143) Where,

for

the

purchasing

in gaining access

to stock and offer

location and the origin of

for the reasons described above,
of

the
effect
and
exclusive
non-competition obligations in the Leases in
question is to eliminate the freedom of
the
lessees
sale to the
consumer specified beers of competing suppliers,
those suppliers are impeded, irrespective of their
geographical
the
goods,
to the premises
concerned unless they have concluded a specific
agreement with Whitbread. This restriction has
the effect that the level of trade in beer may be
at a lower level than would otherwise be the
case. The opportunities for foreign suppliers to
establish themselves independently in the UK
on-trade beer market are in particular affected;
the (cid:28)tying’ agreements,
including the exclusive
beer-supply agreements, are likely to protect a
substantial part of the UK market from direct

B. ARTICLE 85(3)

1. Regulation (EEC) No 1984/83 (the

Regulation)

(147) The Court has confirmed in the Delimitis
that Article 6(1)
the exclusive

(paragraph 36)
the Regulation requires that

judgment
of

(41) Commission Decision 90/186/EEC — Moosehead/
Whitbread (OJ L 100, 20.4.1990, p. 32, at recital 16).

31.3.1999

EN

Official Journal of the European Communities

L 88/51

the

purchasing obligation on the part of the reseller
shall relate solely to certain beers or to certain
beers and drinks specified in the agreement. The
purpose of requiring that they be so specified is
from unilaterally
supplier
to prevent
extending the scope of the exclusive purchasing
obligation. A beer
supply agreement which
refers, for the products covered by the exclusive
purchasing agreement,
to a list of products
which may be unilaterally altered by the
suppliers does not satisfy that requirement and
thus
of
concluded
Article
the
(paragraph 37)
application of Article 6(1) of the Regulation are
not
the drinks covered by the
exclusive purchasing terms are not listed in the
text of the agreement itself but are stated to be
those set out in the price list of the brewery or
its subsidiaries, as amended from time to time.

6(1). The Court
that

the conditions

satisfied if

protection

enjoy

does

thus

not

the

for

is

for

true

easier

significantly
to establish, modernise,
maintain and operate premises used for the sale
and consumption of drinks (see also recital 15
to the Regulation). This
the
brewer/supplier who does not need to integrate
vertically as well as for the lessee. The letting of
premises at an agreed rent as in the Whitbread
standard Leases, particularly in view of
the
restrictive UK licensing system, is a method of
providing the means for a lessee to operate such
premises and, as such, allows a low-cost entry of
a newcomer on the on-trade market for the
distribution of beer. The
system whereby
in the UK allow an independent
brewers
business person to operate a licensed property
owned by the brewer
the
options for entry into the market. In a way,
property tied houses and sometimes described as
a (cid:28)half-way house’ between being a manager (in
a managed pub owned by the brewer/pub
company) and owning their own pub (which
may be loan-tied or totally free).

thereby increases

(148) The standard Leases provide for a specification
of the beer tie by type which allows Whitbread
to add to, delete or substitute the brands of beer
that it supplies to the lessees by amending the
contents of its price list from time to time for
specified beers. The specification of the beer tie
by type thus allows Whitbread unilaterally to
extend the scope of the exclusive purchasing
obligation and therefore does not
the
conditions of Article 6, which requires a
specification by brand or denomination (42).

fulfil

(149) It is for this reason that the standard Leases do
not fulfil the conditions of the Regulation.

2.

Individual exemption

2.1.

Improvement in distribution

2.1.1. General considerations

(150) A beer supply agreement generally leads to an
it

in distribution as

improvement

it makes

(42) See footnote 15.

is

(151) The incentive on the reseller, following from the
exclusive purchasing and the non-competition
obligation, to devote all the resources at his
disposal to the sale of the contract goods will
thereby generally lead to an improvement in the
distribution of those contract goods. In other
stated in recital 15 to the
words, as
Regulation, such agreements lead to durable
cooperation between the parties allowing them
to improve or maintain the quality of
the
contract goods and of
to the
the reseller.
consumer and sales efforts of
They allow long-term planning of sales and
consequently a cost-effective organisation of
production and distribution, and the pressure of
competition between products of different
makes obliges
involved to
determine the number and character of premises
used for the sale and consumption of drinks in
accordance with the wishes of customers.

the undertakings

the services

(152) With regard to the long-term duration of the
exclusivity obligation and non-compete clause
contained in the Lease, it has to be noted that
special rules are applied in cases where the
premises used for the sale and consumption of
drinks are let by the supplier to the reseller. In
this respect reference is made to Article 8(2)(a)
which
purchasing
obligations and bans on dealing in competing
products specified in the Title may be imposed
on the reseller for the whole period for which
the reseller in fact operates the premises’. On
this basis,
the
exclusivity obligation and the non-compete
clause contained in the Lease therefore do not

long-term duration of

(cid:28)exclusive

states

that

the

L 88/52

EN

Official Journal of the European Communities

31.3.1999

constitute an obstacle to exempting the exclusive
obligation and non-compete clause.

offering brands in which the customers would
not be interested.

the large number of beers

(153) Furthermore, the specification of the tie by type
is
considered to enable a more practical
operation of exclusive beer-supply arrangements
in the UK than the specification provided for in
the Regulation. The specification of the tie by
type makes it easier to introduce the brands of
foreign or new brewers
to their price lists
because it does not require the consent of all the
tenants (43). This is particularly the case in view
of
supplied by
Whitbread to the lessees and of the frequency
with which Whitbread adds or substitutes a beer
on its price list, including foreign brands. This is
important in view of the high percentage of all
beer sold in the UK as draught beer in pubs, and
the foreclosure of some 70 % (in 1989) or a
maximum of some 58 %, but most likely at least
50 % (in 1997) of
the UK on-trade by UK
brewers: nevertheless, foreign or new brewers
may still find it particularly difficult to penetrate
the UK market independently. It is further to be
noted that in any case the tenant is not in a
position to add brands because the brewer
would have been allowed to prohibit sales by
the lessee of other brands of the same type in his
outlet
in the same way as the non-compete
clause is exempted under Article 7(1)(a) of the
in no
tenant
Regulation. The
position
or
affect, whether
negatively, the level of foreclosure in the UK
on-trade beer market.

positively

therefore

to

is

for

the

individual

(154) It is correct that a lessee might be forced to buy
unfamiliar products when Whitbread sells his
tied house to another company. Where this
change takes place (cid:28)overnight’,
it may have a
considerable impact on turnover in the relevant
lessee
house, and thus
concerned. However, from a competition point
of view, the contractual structure offers in such
circumstances
for new or
an opportunity
increased entry for other brewers, national or
foreign.
If such a change takes place on a
gradual basis, it might not have a detrimental
impact on the individual lessee’s position. In this
respect, it can be noted that a gradual change of
brand portfolio will probably even occur in a
to take new or
declining market
in order
changing consumer preferences
into account.
Furthermore, it would not be in the long-term
commercial interest of the (cid:28)new’owner to ruin
the profitability of his newly owned premises by

2.1.2. Price differentials

(155) However, the Commission considers that where
there are appreciable price differences, faced by
the tied lessee,
it has to be further assessed
the above-described advantages can
whether
materialise.

purchasing

agreements. This

in the first place,

(156) Price discrimination is an important element in
the economic justification for an exemption to
exclusive
is
because,
the possibility of
facilitated by the exclusive
discriminating is
purchasing agreement, which for the duration of
the agreement gives the purchaser, unlike the
other clients of the producer, no alternative legal
source. A brewer might therefore decide to (cid:28)cash
in’ on his leverage vis-a` -vis his tied customers.

any

distribution,

improvement

improvements

(157) Secondly, with regard to the condition regarding
the
in
the
Commission considers that someone who faces
an appreciable (cid:28)net’ price discrimination might
face difficulties in competing on a level playing
in
field. Consequently,
distribution resulting from such agreements may
maintain theoretical, or be structurally inhibited
in such a way that they cannot outweigh in the
longer term the anti-competitive features of the
agreement. This idea that price discrimination
can be incompatible with Article 85(3) is also
expressed in the Regulation, of which recital 21
points out that (cid:28)in particular cases in which
agreements
this
effects
Regulation
incompatible with Article 85(3) of the Treaty,
the Commission may withdraw the benefit of
the exemption’. These circumstances, laid down
include
in Article 14 of
unjustified price discrimination (44).

satisfying the conditions of

the Regulation,

nevertheless

have

(158) The relevance of the above considerations to the
the UK
standard Leases,
on-trade beer market,
is that the lessee who
faces (unjustified) price differentials may not be
in a position to compete on a level playing field.

in the context of

(43) In so far as the underlying agreements are in conformity

with Article 85.

(44) See Article 14(c)(2) of the Regulation: (cid:28)the application of
less favourable prices or conditions of sale […] without
any objectively justified reason’.

31.3.1999

EN

Official Journal of the European Communities

L 88/53

His business, all other conditions being similar,
will be less profitable or might even become
unprofitable. The impact of this adverse effect
on profitability, either at the moment of entering
as a newcomer into the market or during any
considerable period in time during the operation
of his business, means that the lessee may be
unable to keep up with his competitors, who
can make use of the beer price discounts either
by passing them on in part to the final consumer
by lowering temporarily or permanently the
price at which they sell the same beer, or by
investing in their total pub (cid:28)offer’ (new kitchen,
toilets, family facilities, and so forth). This will
lead, all other conditions being equal, to an even
further loss of competitiveness for the lessee,
whose clients will receive a better offer for the
same price in other pubs.

on

taking

impact

appreciable

(159) Unjustified price discrimination will only have
the
negative
an
competitiveness of the lessee, and will therefore
only affect
the appraisal of any lack of
improvement in distribution, if and when it is
significant and lasts over a considerable period
of time. It is estimated that the level of discounts
(before
any possible
into account
justification)
traditionally found on the UK
on-trade market up to the mid-1980s (MMC
report of 1985: individual free houses receiving
a discount from 3 % to 5 %) were not of such a
significant nature. However, since that date, and
over the period of
the
situation has altered and certain groups of
purchasers receive discounts of a substantially
higher level
than those granted to the tied
lessees. This was looked at in some detail in the
OFT report.

the standard Leases,

obligations

(160) Such higher discounts are available to all other
operators in the UK on-trade market who do
not have an agreement with similar exclusive
purchasing
and with whom
Whitbread trades: wholesalers, pub management
companies and other brewers, and the individual
free traders. Furthermore, the discounts granted
to wholesalers, the own managed houses, and
pub management companies and other brewers
are, on average, higher than those granted to the
individual free traders.

competitors of the tied lessees in view of the
restricted access) are thereby enabled to buy
their beer cheaper than the tied lessees.

(162) As for the above competitors, only the free-trade
operators (the non-loan-tied supplies to clubs
have been included in the Whitbread data on the
discounts for the free trade operators) directly
purchase their beer on market
from
Whitbread; this group is considered to be the
(cid:28)reference group’. They are indeed the only
applies
group where
favourable prices […] to resellers bound by an
exclusive purchasing obligation as compared
with other
level of
the
distribution’ (45) (italics added).

resellers at

supplier

terms

same

[…]

(cid:28)the

(163) Table 3 (recital 93) indicates clearly that the
price differential between the price paid by tied
lessees (the WPP list price minus discounts on
cask-ale purchases) and the average price paid
by individual free-trade operators has increased
every year in view of the increasing discounts
granted to such individual free traders.

2.1.3. Countervailing benefits

(164) However, Whitbread has

argued that

the
relationship with its lessees should not only be
judged by reference to the price the lessees pay,
and that the whole business relationship should
be taken into account in order to judge whether
the lessee is able to (cid:28)survive’ in the market place,
and, hence, whether
in
distribution can be argued.

improvement

the

(165) The Commission

this

accepts

argument.
However,
this implies an inherently difficult
comparison between on the one hand, clearly
quantifiable price differentials and on the other
hand more qualitative aspects of the business
relationship.

(161) Most of

the direct competitors of
namely

the tied
pubs,
lessees,
managed houses of pub companies,
loan-tied
houses and free-trade operators, and clubs
direct
(being

brewers’ managed

limited

extent

only

to

a

(166) The description of

countervailing benefits’
reflects
difficulties
the
view of
quantification. However,
arguments described there in support of

the so-called (cid:28)quantifiable
in recitals 57 to 93
such
the
the

involved
in

in

(45) Article 14(c)(2) of the Regulation.

L 88/54

EN

Official Journal of the European Communities

31.3.1999

the

that

items,

these different

methodology for each of the benefits and the
factual information which backs up the results
the Commission
for
considers
as
described
(cid:28)Conclusion’ in Table 3, provides a reasonable
instrument for the Commission to decide, within
its discretionary margin in applying Article 85(3),
whether the (cid:28)practical’ operation of the standard
Leases
in
distribution.

improvement

result,

brings

about

an

incorporates the longest recession in the UK
economy,
the percentage of bad debt among
Whitbread lessees has been, on average, three
times less than for Whitbread’s individual free
trade-clients.

(170) The

tying
standard Leases,
restrictions,
an
thus
have
improvement of distribution on the UK on-trade
beer market.

contributed

including

the

to

(167) In

is

of

its

the

requested,

conditions

exemption

assessment

and in particular where

of
a
Article 85(3),
retroactive
the
Commission cannot make an overall assessment
for the whole (cid:28)retroactive’ period, but should
evaluate whether at all times the conditions of
Article 85(3) are fulfilled. The Commission
considers, in view of the (cid:28)standard’ nature of the
notified
several
hundreds of individual agreements, and given
the intrinsic complexity of
the data and the
limited availability of data on bases other than
its
annual,
assessment
of
Article 85(3) are fulfilled to a year-by-year
assessment.

is
of whether

to limit
conditions

agreements which

reasonable

cover

that

the

it

the

playing

the price differential

(168) It is apparent from Table 3 that for the years
1994/1995 onwards
is
more than offset by quantifiable countervailing
benefits. The (cid:28)average’ lessee is therefore, on an
overall assessment of the business relationship
with Whitbread, in a position to compete on a
(cid:28)level
free-trade
field’ with
his
counterpart. Over
the years 1990/1991 to
1993/1994, the price differential was not totally
the
offset by
shortfall being between GBP 3 and GBP 6 per
barrel. However, the Commission considers that
sufficient
these figures
to
in itself are not
the average tied
warrant
lessee
years,
significant handicaps in his capacity to compete.
This view is based on (a) the fact that such
figures represent between 1 % and 3 % of the
of
(b)
beer
(cid:28)unquantifiable’ countervailing benefits, mainly
the different risks faced by a tied lessee as
compared to a free trader (recital 94).

countervailing benefits,

the conclusion that

faced, during

existence

each of

these

price

and

the

2.2. Benefits to the consumer

(171) With regard to the general benefits created by
tied leases, recital 16 of the Regulation indicates
that (cid:28)consumers benefit from the improvements
described, in particular because they are ensured
supplies of goods of
satisfactory quality at
fair prices and conditions while being able
to choose between the products of different
manufacturers’ (46).

to attract

(172) In addition to these general references, it can be
noted that property ties create an incentive for
brewers to invest, or maintain investment,
in
outlets that may be too small to be economically
run by the brewers’ own managers. The system
is therefore a means of maintaining pubs that
might otherwise close, or fail
the
investment made by WPP and/or the lessee. The
continued availability of those outlets and/or the
improved facilities following from an investment
is
are a clear benefit
self-evident that the property ties of a particular
brewer can only be considered to contribute to
this benefit if the long-term operation of the
houses is not endangered. In other words, when
in market circumstances where there are price
differences, such differences are broadly offset
by other specific benefits. As indicated above,
this is the case with Whitbread.

to the consumer.

It

(173) With regard to the specification of tie by type,
the Commission also notes that in the period
1994 to 1998 Whitbread has on average

(169) The Commission therefore concludes that for
the whole duration of the standard Leases there
are no arguments to support the conclusion that
the improvements in distribution described in
general terms above have not been obtained.
This conclusion is supported by the fact that
during the period from 1991 to 1997, which

(46) This refers to the possibility under Article 6, read in
conjunction with Article 7(1)(a) of
the Regulation,
whereby lessees can buy beer brands of a type different
from those supplied under the agreement and can offer
these to the consumers. This possibility is equally
maintained by the standard Leases, i.e. the procedure for
the non-specified types.

31.3.1999

EN

Official Journal of the European Communities

L 88/55

introduced three draught beer brands into its
leased public houses each year. These brands
include ales
such as Fullers London Pride,
Greene King IPA and Adnams. Whitbread also
has made available around 30 non-Whitbread
bottled beers, including Budweiser, Hoegaarden
Grand Cru and Leffe Blonde.

(174) The Commission
consumers benefit
Leases.

therefore
from the operation of

concludes

that
the

2.3.

Indispensability of the restrictions

(175) The exclusive purchasing obligation,

advantages produced by beer

together
with a non-compete clause is indispensable to
the
supply
agreements, as noted in recital 150. As described
in recital 17 of the Regulation these advantages
cannot otherwise be secured to the same extent
and with the same degree of certainty.

(176) It can also be noted that the specification of the
beer tie by type is indispensable for the ease of
introduction of brands to the tied networks of
the brewers on the UK on-trade beer market
(recitals 153 and 173).

2.4. Possibility of eliminating competition in
respect of a substantial part of the market
in question (47)

(177) It is evident that Whitbread cannot eliminate
the
competition from a substantial part of
market, as they account for only 13 % of the
UK on-trade beer market in 1997. Moreover,
even taking into account the fact that in 1997 at
most 58 % of the UK on-trade market for beer
was foreclosed through the parallel networks of
brewers’
notified
agreements, Whitbread’s
agreements do not lead to the elimination of
competition in respect of a substantial part of
the UK on-trade beer market.

2.5. Conclusion

(178) The standard Whitbread Leases, and the beer tie
non-competition
the
fulfil

(exclusive
purchasing
obligations) which they contain,
conditions of Article 85(3).

and

C. RELATION WITH ARTICLE 30

that

consider

(179) The Bavarian Lager Company and the 23 lessees
that signed the standard reply (recital 4 and
the Commission
footnote 7)
cannot grant a retroactive exemption given the
Commission’s established position by way of the
Article 169 EC Treaty procedure against the
(cid:28)guest-beer
the
Metro I (48) judgment, it is argued that it would
be an improper exercise of the Commission’s
powers under Article 85(3)
a
retroactive exemption which would bless, under
the competition rules, what is considered to be a
clear breach of Article 30.

clause’. On the basis of

to permit

(180) The compatibility of the guest-beer law with
Article 30 is irrelevant for Article 85 purposes.
First of all, a decision pursuant to Article 85(3)
in respect of an agreement that incorporates up
to April 1998 only the (cid:28)old’ guest-beer clause,
namely the cask-conditioned beer,
is without
prejudice to a final judgment on the Article 30
the Regulation exempts
matter. Furthermore,
agreements
in all Member States
for use
whereby the brewer/landlord does not have to
grant a right similar to the guest-beer clause.
This is because the brewer/landlord can impose
a non-compete obligation for all brands of beer
of the same type as the brands he tied for in the
agreement. The inclusion of the (cid:28)old’ guest beer
was thus already a liberalisation of what was
the Regulation and cannot,
allowed under
therefore,
under
rise
give
Community competition law.

concern

to

a

(181) As the Article 30 issue is irrelevant, for the
reasons stated above, it was not necessary for
the Commission to refer to this issue in the
Notice. The Notice was, therefore, complete so
that the Commission did not need to publish an
for
addendum and
submissions as requested by the Bavarian Lager
Company. Moreover, interested third parties are
entitled to submit observations not only on
explicit points mentioned in a notice pursuant to
they
Article 19(3), but on all other points
consider relevant.

deadline

extend

the

(47) A concept different from (cid:28)significant contribution to the

foreclosure of the market’.

(48) Case 26/76, Metro v. Commission, [1977] ECR 1875.

L 88/56

EN

Official Journal of the European Communities

31.3.1999

D. RETROACTIVE NATURE AND DURATION OF
THE EXEMPTION

Whitbread to take its decisions to invest in its
estate subject
legal
certainty under Community competition rules,

to a reasonable level of

HAS ADOPTED THIS DECISION:

Article 1

1.
The provisions of Article 85(1) of the Treaty are,
pursuant to Article 85(3), declared inapplicable to the
individual lease agreements in the standard form of (a)
the 20-year lease, (b) the pre-retirement lease and (c)
the five-year lease, and to the exclusive purchasing
and non-competition obligation ((cid:28)beer tie’) which they
contain.

This Decision shall apply from 1 January 1990

2.
until 31 December 2008.

Article 2

This Decision is addressed to:

Whitbread PLC
Chiswell Street
United Kingdom London EC1Y 4SD

Done at Brussels, 24 February 1999.

For the Commission

Karel VAN MIERT

Member of the Commission

(182) The standard Leases are agreements in the sense
of Article 4(2)(1) of Regulation No 17 where
(cid:28)the only parties thereto are undertakings from
one Member State and the agreements […] do
not relate either to imports or to exports beween
Member States’. It follows from Article 6 of
Regulation No 17 that for such agreements the
date
to
from which a decision pursuant
Article 85(3) takes effect may be earlier than the
date of notification.

that

that

(183) The Court has held in its judgment in Fonderies
Roubaix (49)
the products
(cid:28)the fact
involved in [the] agreements to be assessed]
have previously been imported from another
Member State does not by itself mean that these
agreements must be regarded as relating to
imports within the meaning of Article 4(2) of
Regulation no 17’. Therefore the application of
that Article should not be excluded in view of
the brands on WPP’s price list that are imported
from outside the United Kingdom.

(184) Since it has been found above that the standard
Leases have
conditions under
fulfilled the
Article 85(3) since the date of first introduction
of one of the notified agreements on the market
on 1 January 1990, this Decision should apply
from 1 January 1990.

(185) Pursuant to Article 8(1) of Regulation No 17,
an exemption should be issued for a limited
period. As Whitbread still has a large tenanted
into standard
estate and continues
the
Leases with a duration of 20 years,
Commission
relatively
a
period, namely until
long-term exemption
is appropriate to enable
31 December 2008,

considers

to enter

that

(49) Case 63/75, Fonderies Roubaix v. Socie´te´ Nouvelle des

Fonderies [1976] ECR 111, paragraph 8.