Thursday, 8 October 2009

The minimum market

Much has been written about the possibility of minimum pricing for alcohol being introduced in Scotland. One aspect that hasn’t really been considered, though, is what effect it would actually have on the drinks market. One thing that is certain is that it would inevitably have unintended consequences, as has every other piece of banning and nannying legislation passed over the last twelve years.

If we assume that the minimum price was set at 50p/unit, as has been widely mooted, that would make the price of 4x500ml cans of Stella £5, a bottle of 13% ABV wine £4.88 and a standard bottle of whisky £14. Not, maybe, eye-wateringly dear, but it would still mean that at least 75% of off-trade alcohol would either rise in price or stay the same. Across most of the market it would effectively eliminate price competition, and lead to the demise of bottom-end products that sell only on price. If manufacturers couldn’t compete on price, they would inevitably look for other ways to differentiate their products, which could lead to an upsurge in advertising, presumably not what the proponents of the policy intended.

Especially in the beer and cider market, there would also be a much closer correlation between strength and price than there is today, with the effect that stronger was widely perceived as better because it was more expensive. Again, raising the kudos of stronger drinks is not quite what they are setting out to achieve.

On the other hand, we could see the alcoholic strength of some products being reduced so they can be sold more cheaply. Probably not to any extent with beers and wines, as this would mark them out as “cheap” and thus inferior. But it could be more likely with spirits. Some spirits are already sold at 37.5% ABV, and to a cash-strapped customer a bottle at £13.13 might seem a lot more appealing than one at £14. It could also mean an end to the practice of charging a premium for half and quarter bottles.

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