Saturday, 21 January 2012

Raising the bar

“Brewer Molson Coors and drinks giant Diageo have predicted a growth in illicit cross-border trading if minimum pricing goes ahead in Scotland.” Wow, they must have some powerful crystal balls there.

But more interesting is the later comment in the article:

On the issue of competition, the Office of Fair Trading claimed there may be an unintended consequence of such a scheme — in particular, that retailers will increase their margin on selling alcohol, which “could give retailers an increased incentive to sell more rather than less low-cost alcohol — for example, through advertising or changing the mix of products on the shelves”.
Of course the product mix will change, as there will no longer be any point in selling low-priced economy brands that come in well below the minimum price. Why buy a bottle of High Commissioner when you can get a bottle of Grouse for the same price? So, while undoubtedly minimum pricing would strengthen both retailers’ and producers’ margins, it wouldn’t be the bonanza for business some claim, as the bottom end of the market would simply disappear.

Surveys indicate that a 45p/unit minimum alcohol price would affect over 70% of alcohol units sold in the off-trade, so for most of the market price competition would be a thing of the past. So inevitably there would be much more reliance on ways of encouraging trade that do not depend on price, such as in-store promotions and advertising, which would be funded by the fatter margins.

More alcohol advertising would be a likely unintended consequence of minimum pricing. So no doubt this would provide ammunition for the next step in the programme – to severly restrict advertising, with a view to eventually banning it entirely.

5 comments:

  1. Well, ignoring the obvious cross border point, surely this will mainly affect the price of those big bottles of cider?

    A 440 mil can of 4% beer is 1.8 units = 80p minimum price, that's more than in a lot of supermarkets (where you can get as low as 60p if you're lucky, normal price around 75p) but not significantly more.

    And as far as I am aware, off-licences are more expensive than supermarkets. There's one offie near Romford which charges £1.29 for a can of Fosters, and I'd consider 6 Fosters for £5 to be reasonably good value by offie standards, that's 83p a can.

    Clearly, the 45p minimum won't have much effect, so that'll give them the excuse to hike it to 50p, 60p £1 and so on.

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  2. Yes, the undiscounted prices of mainstream brands are generally already over 45p/unit, but remember that a lot of alcohol is sold at a discount, or in multibuys, or is budget brands. The UK's best-selling vodka brand is Glen's, apparently.

    The point is that minimum pricing would change the market structure by effectively removing the point of budget brands.

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  3. An interesting possibility and possible consequence.

    If alcohol prohibition is right for poor, it's right for the rich. Tell that to the beards.

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  4. If a £3.49 bottle of wine is to cost £4.20, how much will a £4.99 bottle cost? Many people think they are safe from minimum pricing because they don't buy the cheapest bottles.

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  5. Dear Curmudgeon

    Sounds like a new boom for home brew suppliers is imminent.

    You can make your beer as strong as you like and the more the government tax beer the more value is added to your own produce.

    I'll drink to that.

    DP

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