Thursday, 6 December 2012

Inertia rules

I was recently discussing, in an entirely different context, how people in positions of authority greatly overestimate the effect that small changes in rules and regulations will have on people’s actual behaviour. The new beer tax regime introduced in October last year is a perfect example.

Basically this halved the duty for beers of 2.8% or below, and added an extra 25% duty for beers above 7.5%. Now, I have to say I was a bit sceptical at the time about how much difference this would make, but even I expected that, at the lower end, one of the major cooking lager brands would have a go with a 2.8% brand extension, and at the top end someone would try cutting the strength of some “tramp juice” to 7.5% to sell at a substantially lower price.

But neither of these things has happened. Yes, a few new 2.8% ales have been introduced, but none seem to have gained much traction. The biggest brand would appear to be Skol, which was cut from a whacking 3.0%. This despite the fact that the duty+VAT on a 440ml can at 2.8% is only 14.4p, so surely with the right marketing four cans at £1.79 or a 12-pack for a fiver could have been a successful proposition. Although Gold Label has had its strength reduced, all of the four main super lager brands remain defiantly at 9.0%, with their prices correspondingly increased.

This just serves to underline how wedded consumers are to existing habits – clearly no brewer thought it worthwhile to make a big effort to respond to these new market opportunities, although surely one or two had a good look at it.

And, ironically, minimum pricing would pretty much wipe out any effect from these changes anyway, at least in the off-trade. While a 2.8% beer will attract a lot less duty than a 4.0% one, you won’t be able to sell it any cheaper in unit terms. That four-pack will need to be at least £2.22. And, when I last visited, Tesco were selling 4x440ml cans of both Carlsberg Special and Tennent’s Super for £7.09, which is pretty much bang on 45p/unit. Clearly, although the margin will be less than with a weaker beer, it will still be profitable to sell 9.0% beers at that price.

So, in retrospect, the whole exercise looks like futile tinkering that has done nothing significant to change the beer market.

4 comments:

  1. Not so much inertia but equilibrium.

    Had there been a market for low alcohol beer prior to the tax changes there would have been one.

    Carling and Guinness both had 2% versions that failed.

    There was no evidence of an unexploited market being hampered by tax and therefore no reason to believe a tax change would bring into existence a whole new market for piss weak beer.

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  2. I have no problem with the government preaching to us, if it really feels it must. But taxation is levied to run the country, not to control behaviour. It's quite amusing that politicians who profess to believe in the free market economy immediately try to control it for activities they disapprove of. Hence the ever-rising duty on alcohol and cigarettes. It mainly shows that politicians' most fundamental principles are ditched when they become inconvenient - nanny knows best. Before you make a listless swipe at the Labour Party, Curmudgeon, I'm referring to all parties that embrace the principle of rationing by price and tax.

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  3. I tried some of the new 2.8% beers available in Tesco, quite open minded about the prospect of making them a regular purchase. The problem was, they all tasted pretty awful. Still I'd rather drink them than some hot mess at 9.0%.

    I still don't see the market for 2.8% - surely if you want to drink less alcohol than the traditional 3.5-5.5% range, just drink alcohol free beer?

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  4. Drinks seem to have gone up a lot since Jan 1, 2012 -- as if we already had minimum pricing.

    We use quite a bit of port, sherry and brandy (VS) in our cooking (sauces and stock). As soon as 2011 ended, prices seemed to skyrocket by a four to six quid per bottle. Even the cheapest port, which we normally don't buy, has nearly doubled in price.

    I do not really understand the need for minimum pricing when what we buy already dramatically increased nearly a year ago. Surely, enough is enough?

    Churchmouse

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