Saturday, 24 August 2013

Priced out

In the recent poll I ran on reasons deterring people from visiting pubs, “High Prices” came a strong second after the obvious front-runner. Pubs have certainly gained a reputation for being expensive, and over the years the gap between pub prices and off-trade prices has steadily widened. To some extent this is inevitable – as living standards rise over time, the price of services will tend to rise relative to that of goods because of the greater labour content, and a pint in a pub or a meal in a restaurant contains a substantial service element.

However, what has happened is not that off-trade drinks have become cheaper relative to general inflation, as is sometimes alleged, but that on-trade prices have risen substantially faster. I remember that, when I first moved in to this area in 1985, a pint of Robinson’s Unicorn (then Best Bitter) in many of the smarter pubs was around 60p. In the 28 years since then, the Retail Prices Index has increased by 168%, which would make that 60p pint £1.61. In practice, though, it’s more like £3.00, a rise of well over twice as much and surely well over any measure of wage inflation in that period too. Drinking in pubs is simply less affordable for most people than it was in the mid-80s.

The pub trade is not a monolithic body, and for each individual pub it may well seem to make sense to increase their prices by that little bit more than the RPI each year to protect their margins. They might lose the odd customer, but in the short-term it doesn’t matter. However, in the longer term the pub trade has collectively shot itself in the foot and lost a huge swathe of trade. And the oft-heard complaint that “pubs are being killed by cheap supermarket booze” doesn’t help as it simply reinforces the perception of pubs being expensive.

Then Wetherspoon’s have come along and turned the industry upside down with an unabashed “pile it high, sell it cheap” approach that has drawn more howls of anguish from the rest of the trade. Spoons are not always as cheap as people think but, unless there happens to be a Sam Smith’s pub nearby, the local branch will undoubtedly be the cheapest place for draught beer and cider. You need to have a very good reason to pay £2.90 for a pint of bitter in a brewery or pubco pub when you can get a wider choice for £2.15 in Spoons, albeit maybe in less characterful surroundings. Arguably, without Spoons, the recent decline in beer sales in pubs would have been even steeper.

It remains the case that, very often, the most successful pubs are those with the highest prices, but they are successful for reasons other than price, and so can afford to charge a premium. On the other hand, a pub with a poster outside saying “Smiths, Carling £2.20” gives an impression of desperation and may not exactly come across as somewhere you’d rush to visit. However, for many people, while they might stomach £3+ a pint for a Friday night out, it’s a price that’s hard to justify just for that casual swift one during the week.

Maybe the traditional tenanted or leased pub model is now obsolete, and in the future pubs will increasingly either be free houses or managed outlets that can take advantage of economies of scale in purchasing. But there can be no doubt that, unless the pub trade collectively takes the pricing issue more seriously, it will continue to price its customers out and wither on the vine.

At the very least, there is a huge amount of scope for borrowing some of the pricing techniques of the supermarkets by having limited-time special offers on various beers that drinkers will perceive as a bargain. And, if you are a free house, get in a cooking bitter from a local micro as a regular beer and sell it at a conspicuously low price. Your other beers may be dearer, but the fact you are selling Bloggs’ Bitter at two quid a pint, all day, every day, will stick in people’s minds and cement your reputation for good value.

6 comments:

  1. This post shows a complete lack of understanding of how pubs price products, and the challenges faced by the industry. Price is the major factor keeping many people out of public houses, however the price that you pay in a pub reflects the price which the pub pays for the beer. In most cases this has skyrocketed in recent years due to the ever increasing level of duty on beer as set by HMRC.

    Tax represents a third of the cost of every pint, and, with people at every level of the distribution chain looking to achieve a basic level of profit, means that for every penny put onto the price of the beer by the government, the beer will actually increase in cost by as much as 3 pence.

    Supermarkets and Wetherspoons use their greater buying power to circumvent this, buying in quantities which allow them to push down the prices significantly - this just isn't an option for pubs that aren't part of a large group.

    Yes, pubs could offer drinks offers in a similar manner to supermarkets, and in doing so they would be encouraging binge drinking and would find their licences brought under review.

    Binge drinking is in fact the excuse that has been used for a long time for the excessive levels of duty plied on the licensed trade, disregarding the evidence that most people who drink purely to get drunk will purchase from the supermarkets.

    I do strongly agree that the price of alcohol in pubs is disproportionate compared with that in off licenses and supermarkets. A rebalancing is necessary, and in my opinion a minimum unit pricing combined with a lowering of the level of duty would save the majority of pubs facing closure in this country.

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  2. Martin, Cambridge24 August 2013 at 19:37

    Your point about a cheap local stock bitter is a good one, and there seem to be a good number of well managed Wigan pubs who can sell excellent Allgates and Prospect for around £2.20, nearly a quid cheaper than most Stockport pubs for a similar beer.

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  3. What the bath Hotel says may be true for a small free hosue but dosn't hold true for most of the industry. It's important to remember that J.D.Wetherspoon are a fraction of the size of the likes of Punch and Enterprise.

    If it's just about scale of buying power, why didn't the big pubcos operate the same way? The answer can only be that they didn't want to. That is why a pint of ordinary Bitter is far more expensive in their pubs than it needs to be. And why Spoons are the biggest sellers of real ale despite not being the biggest operator.

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  4. Independently-run free houses are often cheaper than pubco or brewery tied houses as they can pick and choose their suppliers.

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  5. In terms of where to go to have a drink, price is one of many factors which is why the cheap but rough boozer may be less busy that the smart but more expensive one. The missus thinks it's work 40p more to not sit in a dump.

    But overall prices in the on trade have risen beyond RPI and the whole pub trade feels expensive.

    If you compare it to coffee shops the offer given to punters has smartened up it's act alongside higher prices, pubs are the same as they ever were but dearer.

    Eating out has got cheaper, compared with wages and relative prices despite that being more labour intensive than pouring a drink into a clean glass.

    When publican and brewers moan about ignorant punters not understanding their business, so what? Of what interest is it really to me? You cannot rely on a few enthusiasts willing to pay anything nor can you rely on lobbying the government to stitch up the market in your favour.

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  6. Price is certainly A reason keeping people away from pubs, but the long-term decline in the pub trade has largely been caused by other factors, as outlined here. Even if pubs could sell beer at a pound a pint, they wouldn’t be doing anything like the business they were thirty years ago.

    I was thinking more of having a selected beer on discount each week than multibuy offers. That couldn’t be seen as promoting binge-drinking. There is a lot that pubs could do to combat the perception that, as Cookie says, "the whole pubs trade feels expensive."

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