Anyone reading this blog will quickly realise that I am not the greatest fan of the smoking ban. But, on the other hand, if you are running a pub or a brewery, you would be foolish to base your business plans on an assumption it may be repealed or relaxed in the next few years.
Equally, I am strongly, indeed viscerally, opposed to the current alcohol duty regime, in particular the “duty escalator”. It penalises responsible drinkers, closes pubs and encourages smuggling while doing nothing to curb problem drinking and indeed not even being effective in maximising government revenue. But, given the current level of anti-drink hysteria in the political sphere, realistically the prospect of removing the escalator, let alone any actual cut, is extremely remote.
Before the Budget, various parts of the drinks industry mounted a concerted and heartfelt campaign to get the government to think again, most notably SIBA’s Proud of British Beer video, but it all fell on deaf ears.
So, in your business plans, it makes sense to assume that the alcohol duty escalator will stay in place at least until 2014. The first realistic opportunity for it to be abandoned is in the pre-election Budget of March 2015.
Hardknott Dave makes a very good argument that, in the current climate, it makes sense for craft brewers to concentrate on quality rather than volume. A high tax regime increases the leverage exercised by quality. As often said in relation to wine, every bottle carries the same level of duty, so the differential between the £6 bottle and the £4 bottle is entirely (apart from the additional VAT) accounted for by higher quality.
The other night, I picked up a beermat in the pub asking the question “Why is illegal tobacco so easy to get hold of?” I would have thought that qualified as an entry-level question for a CSE in the Bleeding Obvious, but on the reverse it says “More and more criminals see it as an easy way to make some cash. But what else are they selling?” Cheap imported booze, hopefully.
It’s now reckoned that between 33 and 40% of all tobacco products sold in the UK are either smuggled or legal personal imports. Raising tobacco duty by 50p for a pack of 20 is only likely to increase that percentage, and potentially lead to less government revenue. Extortionate duty encourages smuggling as surely as night follows day. How many people now would feel any sense of moral outrage about tobacco smuggling? As Kipling wrote:
Five and twenty ponies trotting through the dark -
Brandy for the Parson, 'Baccy for the Clerk.
Them that asks no questions isn't told a lie -
Watch the wall my darling while the Gentlemen go by !
The duty increases announced in this week’s Budget would result in an increase in the price of a typical pint of beer in the pub of about 4p, once VAT was added on to the additional duty. However, it’s been widely claimed that this is likely to lead to an increase of more like 10p in the price of a pint passing across the bar. Hang on, you might say, doesn’t that mean that licensees and pub companies are profiteering?
Well, maybe they are, and maybe they aren’t. The reason for this is that pubs typically look at “percentage gross profit” when assessing their financial viability. The pub will seek to maintain a fixed percentage, usually at least 50%, between what they pay for their beer and other drinks, and what they sell it for. This has to cover overheads and staff wages as well as the licensee’s own share. Obviously, over time, overheads and staff wages tend to go up roughly in line with the overall rate of inflation, so you have to increase the amount added on to the cost of beer to cover that. And, if you don’t maintain the %GP, over time inflation will steadily erode the licensee’s income in real terms.
Clearly, on Day 1 after the price increase, if the licensee maintains the same %GP, he will be raking in more money than he was before, assuming that sales do not fall. But, over time, all that it doing is compensating for the rise in other costs the pub pays, and maintaining the real value of the licensee’s income. So far, so good. It all makes sense, and nobody is profiteering or cheating the customer.
However, as any economist will tell you, in a competitive market, pricing isn’t simply a question of adding a fixed percentage to cost, it also needs to take into account what customers are able and willing to pay. Over the years, in maintaining their %GP, pubs have slowly seen the prices they charge increase over and above the general level of inflation, and above the prices charged by the off-trade and other competitors for the leisure pound. What seems a sensible idea in the short-term is, in the longer run, seriously detrimental to trade.
Then Wetherspoons have come along and smashed the old cosy model by adopting a “pile it high and sell it cheap” approach that deliberately sacrifices some margin for higher volumes. Nowadays, if you run a traditional leased or tenanted pub within a competitive radius of a Spoons, you haven’t a hope in hell of competing on price.
Now, I’m not suggesting that licensees’ incomes are generally too high, or that crude price-cutting is a good strategy for pubs. But, in recent years, the pub trade hasn’t been helped by adopting a lazy and complacent pricing model that ignores market realities. If they are to succeed in future, pubs will have to look at a more sophisticated, flexible and market-sensitive approach to pricing rather than just simplistically banging on a fixed percentage of the cost of beer.
I also often think there is more pubs could do through pricing to stimulate customer interest, such as, say:
- each week, selling one of its regular draught beers (including kegs) for 50p offMany promotional techniques that are commonplace in other retail businesses seem to be largely absent from pubs.
- having a discounted “wine of the week” or “malt whisky of the week”
- having a permanent house beer of cooking strength from a local brewery at a significantly lower price than other beers
Drinks journalist Andrew Pring has controversially claimed that, despite the closures of recent years, Britain still has far too many pubs and about a quarter of those that remain are fundamentally unviable.
He said: “We will still lose many thousands of pubs, regardless of what the government does. We are an over-pubbed nation. The pub’s USP has long since disappeared. All the technological developments have worked to the detriment of the pub. There is a whole generation who have grown up who don’t see the pub as a place to socialise.”
And, sad to say, he’s probably right, although of course it could equally be presented as a lack of pubgoers, not a surfeit of pubs. If supply exceeds demand, the imbalance can only be resolved in one of two ways.
The crisis of the pub trade is often presented, not least by Mike Benner in the linked article, as essentially a crisis of supply, caused by evil grasping pub companies, high-handed council planners and restrictive covenants. As one commenter says, “A free of tie option with open market rent for almost 2/3’s of all the pubs in the country will allow the feathers of the sector to regrow and stand a chance of flying again.”
However, surely in reality the problem is that at present there simply isn’t sufficient demand to sustain the existing pub stock, and nobody explains how supply-side improvements would magically increase demand by 25%. I would say that a good quarter – maybe even a third – of the currently trading pubs in areas I’m familiar with are not viable in the long term.
There will be plenty of wailing and gnashing of teeth from the pub and beer community over the lack of any concessions in today’s Budget but, to be honest, did anyone really expect anything different? Not only is beer duty to rise by 2% above the rate of inflation, but, as widely trailed, an additional 25% duty is to be introduced on beers above 7.5% ABV. This will mean that a 500ml can of 9% beer will incur additional duty (plus VAT) of 25p. It remains to be seen to what extent brewers of beers in this category will seek to reformulate their products to bring them down under the threshold – but I would expect an extra £1 on a four-pack to make this very likely.
To a large extent, this is pointless gesture politics, as beers over 7.5% make up only about 1% of the total beer market, and a negligible proportion of beer sold on draught. However, it’s entirely possible it may end up having the reverse of the intended effect. Most of the beer in this category is the super-strength lagers such as Carlsberg Special Brew and Tennents Super. These brews tend to be unpleasantly syrupy in character and aren’t really something anyone would want to drink unless inebriation is the primary objective. But it’s much easier to brew a strong lager at 7.5% that is also reasonably palatable. It’s widely recognised that the 7.2% Carlsberg Elephant Beer is a far better and more drinkable beer than Special Brew. So we could end up with a situation where these beers are reduced in strength and as a result gain a wider appeal, which no doubt isn’t exactly what the advocates of the tax rise intended.
Incidentally, while these beers are often characterised as “tramp juice”, bear in mind that they are on sale not just in seedy street-corner shops but also in major supermarkets, who often even have their own branded versions, and regularly appear in the Top 20 of take-home beer brands, suggesting that in reality they have a much broader and more respectable customer base.
In the past, I’ve sometimes heard the view expressed that, if a market economy functions efficiently, there should be no need for consumer pressure groups like CAMRA. There’s an example here in a comment on one of my Opening Times columns.
Tim Worstall makes an interesting post addressing this point, arguing that, far from being a sign of market failure, the presence of pressure groups is an integral part of the efficient functioning of markets:
And thus, far from CAMRA (or any other such voluntary organisation or banding together) being something which should be unnecessary in a market economy, they are exactly the manner in which a market economy works: voluntary, not directed, cooperation to achieve the desired goal(s). That spontaneous order coming from the application of the innate human abilities to use agency and cooperation to achieve a collective desire.In the late 1960s and early 1970s, business was much more in the grip of a corporatist viewpoint and took the view that standardisation and economies of scale were desirable and, to a large extent, customers should be “sold” what the company was willing to make. In this situation it made sense to band together in a pressure group to demonstrate to suppliers that there was a demand for a particular product*.
Although it was widely signalled in advance, it is still good news for pubs and pubgoers that the government has decided not to reduce the British drink-driving limit from 80mg to 50mg, as recommended last year by Sir Peter North’s review. Their response contains a detailed examination of the potential effect on the licensed trade – something that North signally failed to carry out – and says “It is possible, on some assumptions that limited safety benefits might be at a high economic cost.”
It also points out that the overwhelming majority of drink-related casualties involve drivers who are well over the current limit, and it is difficult to forecast accurately what effect, if any, reducing the limit would have on those in this category. The document says:
Of the total reported road accident fatalities in Great Britain in 2008, where a BAC was recorded, 78% of fatalities were below 80 mg/100ml (the legal alcohol limit). Within the total, 76% of fatalities had a BAC below 51mg/100ml; while 2% were between 51 and 80 mg/100ml. Over a fifth of fatalities (22%) were over the prescribed limit and 21% were over 100mg /100ml.- which suggests that disproportionate accident involvement only really begins at levels above 100mg, and certainly not below 80mg. Let us hope now that the issue will be laid to rest at least for the length of the current Parliament.
Last night, we had a CAMRA pub crawl, and one of the participants was a retired gent who said that his normal mode of pubgoing was on his own with the paper. Snap. Exactly the same applies to me. Being someone who still works during the week, the principal times when I am able to explore pubs are Saturday and Sunday lunchtimes. And, all too often, I find that Andy and Denise have decided to bring little Jake and Ellie along to the pub. Quite frankly I am getting fed up to the back teeth with it.
I have no problem with dining pubs admitting children to eating areas. But if I’m in a wet-led pub hoping to have a quiet drink, the last thing I want is howling, wailing brats running around. I really wonder whether I should just give up and stay at home with a nice bottle or two. Admitting children is often presented as “the future of the pub”, but I reckon it’s killing it.
Any suggestions from the readership for polls that you’d like to see on here in the future?
A recent report commissioned by the Department of Health has apparently found that the smoking ban has had “no clear adverse impact on the hospitality industry.” That is more than a little hard to believe when pretty much every pub operator reporting results over the past three years has referred to the adverse impact of the ban on sales, and when there is such a weight of anecdotal evidence from individual licensees that they have lost trade from it.
However, let’s look at the author of the research, Professor Linda Bauld. According to her official University of Bath profile, her professional interests include:
Any survey can have its data skewed in a manner to achieve the result which is felt is needed, and I’m sure restaurants and hotels have probably not seen a negative response from 2007’s ban, but who can ignore the dramatic rise in the closures of public houses and bingo halls after its introduction, and the drop in footfall for businesses such as nightclubs?He makes the important point that, while many smokers continue to use pubs (albeit fewer than before), they do so in a different way that means they spend less time there and put less money across the bar.
I’ve often chuckled to myself when people ask what sort of impact the smoking ban has had on my business. The honest answer is that I have only lost a handful of customers walking through the door, but they now use the pub differently, and for a much shorter amount of time in an evening than they ever did before. The net result in the first year was a drop of 40% in my takings - and that hurt.
A couple of years ago, I wrote “Might a future government seek to “persuade” brewers to reduce the strength of widely-available beers in the interest of public health?” And now it seems I’m being proven right. This week, Heineken are to announce that, as part of a “pact” with the government, they are “reducing the strength of “a leading brand” – thought to be the cider Strongbow – by 1pc alcohol by volume, from 5.3pc to 4.3pc as “just the start” of attempts to lower the alcoholic content of its drinks.”
Now, I can’t imagine the typical consumer of a 2 litre PET bottle of Strongbow being very happy with it being watered down to 4.3%, so there’s a market opportunity there for independent cidermakers, but would any of them have the guts to defy the anti-drink tide? It’s not hard to see the anti-drink lobby having a go at craft brewers and cidermakers for refusing to cut the strength of their products in line with the big boys.
And I will forecast now that, once the government see that introducing a higher level of beer duty at 7.5% ABV makes little difference to anything, they will steadily bring the threshold down so eventually it will be impossible to buy beer above 4.5% without paying punitive taxation on it, which will effectively lead to the disappearance of such beers from bars and off-licence shelves.
I recently reported on the call from Alcohol Concern for alcoholic drinks to be confined to separate areas in shops. While I certainly wouldn’t say I’m in favour of this, taken in isolation it wouldn’t really make much difference to anything. Other countries (notably Australia) have similar restrictions and don’t seem to be notably abstemious societies. Indeed, we drank more beer, and had a society in which alcohol was more “normalised”, when most off-sales were through stand-alone off-licences, or separate counters in supermarkets, when pubs closed for three hours in the afternoon and at 10.30pm during the week, and across large areas of Wales were closed all day Sunday.
Rather than being a cause of increased at-home drinking, isn’t the rise of alcohol sales in supermarkets, and the increased use of price promotions, primarily a result of a growing market which has over the years become potentially much more valuable for retailers? Business reflects changes in society, it doesn’t in general drive them.
Another factor, of course, is that the rise of beer drinking at home is closely linked with the growth in ownership of cars and refrigerators. Regardless of price, the working man of 1955 would have struggled to get a slab of Carling home from the outdoor, and would have had nowhere to keep it cool once he had, whereas, even in those pre-lager days, most pubs had naturally cool cellars for their draught ale.
I’m also far from convinced that having alcohol on general display increases overall consumption to any significant extent. Yes, it may encourage people to buy particular wines or beers that are being promoted, but I doubt whether it very often persuades people to buy a bottle on impulse when they wouldn’t otherwise have bought any at all.
I’ve often seen the argument advanced that there is a fundamental difference between tobacco and alcohol, in that tobacco is harmful to health at all levels of consumption, whereas alcohol in moderation has no adverse effects and indeed for some people may be mildly beneficial. This has led to a different approach to the two in public policy, with governments being much more willing to impose severe restrictions on the advertising and consumption of tobacco products than alcohol.
Of course the official “safe drinking guidelines” have no scientific basis, and don’t reflect real-world consumption patterns, but at least they have given a fig-leaf of respectability to the brewing and distilling industries and the licensed trade. So long as they only appeal to “responsible, moderate drinkers” then they’re OK.
However, Professor David Nutt, the scientist who a couple of years ago masqueraded as someone proposing a more rational approach to illegal drugs while actually advocating draconian anti-drink measures, has now stuck his head above the parapet and claimed that there is no such thing as a safe level of alcohol consumption.
This is very effectively demolished by Chris Snowdon, who points out that many of Nutt’s claims are profoundly unscientific and bear a close resemblance to the shrill rhetoric of 19th century temperance campaigners. This includes statements such as “alcohol is a poison” and that people can become addicted to alcohol from their first drink, together with the description of the alcohol business as a “toxic industry.” I wonder if your typical man-in-a-shed brewer or freehouse operator recognises himself from that description.
Nevertheless, this isn’t going to be the last we will see of this particular line of reasoning. So expect to see the argument advanced more and more in the coming years that, as there is no safe level of alcohol consumption, the alcohol business is not a “legitimate” trade and it is a reasonable objective for government to seek to reduce consumption as near to zero as possible. So any calls for government help for pubs, or small breweries, or distilleries, or wineries, are going to fall on deaf ears.
You can’t really imagine anyone today producing a video saying “I’m proud of British tobacco products.” In twenty years’ time, might it be equally unthinkable that British brewers could do the same about their “toxic industry”?
I was tempted to post about the government plans to require tobacco products to be sold in plain packaging, but in the end decided there’s only so much outrage I can summon up in a day. But I was struck by this rather despairing post by IanB on the Counting Cats in Zanzibar blog:
I feel scared. I can see the world I grew up in being dismantled, bit by bit. There are times I wish they’d just get it over with. In a sense, it is the gradualism that is unbearable. There are times I wish they’d just ban everything- baccy and beer, burgers and bangers, and all the rest- once and for all. Instead, they creep forward one apparently tiny step at a time. It’s like being executed with a bacon slicer.You do have to wonder when it’s all going to stop. Will there ever be some turn of the tide, some popular uprising against all the nannies and the bullies? Or will all of our freedom and individual responsiblility continue to be dismantled, agonisingly slowly, piece by piece?
Excellent article here by Tim Black on the growing campaign to “denormalise” alcohol, of which the demand to confine alcoholic drinks to separate sections of shops is just one small part.
The specific demand – to have separate alcohol areas in supermarkets – is as petty as it is predictable, coming as it does from a group of the professionally Concerned. But the general thrust behind the demand should not be so easily dismissed. That is, a state-backed coalition of the aloof seems intent on ‘denormalising’ alcohol. The means are many, from implementing a minimum price for alcohol to demanding that twentysomethings prove their age, but the end is the same: they want drinking and drinkers stigmatised. They want the consumption of alcohol to be looked upon not as ‘the natural accompaniment to a relaxing meal’, but as an activity as shameful and embarrassing as, well, smoking.Many of the individual measures may, taken alone, not seem unreasonable, but the cumulative effect is to make alcohol much less of a “normal” part of everyday life. And, of course, as he points out, the template was taken from the campaign against smoking. What happened to smokers yesterday will be happening to drinkers tomorrow.
Just as smoking has been rendered socially abhorrent, so drinking seems to be undergoing a similar assault. Every mean-spirited measure, every report highlighting how much alcohol consumption costs the NHS, every single story hacked out of the cliché of binge-drinking Britain, serves to make the rather mundane act of drinking alcohol that little bit less acceptable, that little bit less normal. We are to be shamed into changing our boozy ways.
I was a bit taken aback to see Ed on his Student Brewer blog referring to this as a golden age for pubs. At a time when pubs are closing left, right and centre, including the one at the bottom of my road, this is bit hard to accept, although it isn’t necessarily inconsistent that, despite an overall declining market, the best pubs are better than ever.
So I thought I would ask the question “In which year would you have most liked to be a beer drinker and pubgoer in the UK?” Below is a brief summary of the salient points of each year in the poll. Every year has its points of interest, although it’s hard to see why anyone would plump for 1971 over 1981, and 1951 might have historical interest but the general pubgoing experience would have been rather dismal to present-day eyes (although early results suggest it’s proving more popular than I might have thought).
1951: you can see the old-style brewing industry before the wave of takeovers and mergers. Pubs are quite busy as in the post-war world there’s not much else to spend your money on. However, many pubs are very run-down and beer quality is variable.
1961: the country is much more prosperous and pubs have been smartened up a lot, although high duty and the impact of TV have reduced custom. The first keg beers have started to appear in pubs, and bottled beer has become much more popular. There has been some consolidation of the industry, but the 1960s merger and takeover boom is still in the future. The last year in the series before the introduction of the breathalyser.
1971: the brewing industry has been transformed by the wave of takeovers that created the hated “Big Six”. It is three years since the breathalyser was introduced. Keg beer has become widespread and some areas are “real ale deserts”. However, the pub trade has boomed and sales are well up on 1961. This is your chance to see the industry before CAMRA came on the scene.
1981: this is just after the all-time peak of pub beer sales in 1979. There has been a marked increase in real ale availability, and in most parts of the country there is far more choice, although lager is now making serious inroads into overall sales of ale. The availability of decent food in pubs has greatly increased. Independent family brewers like Yates & Jackson and Border are still in operation.
1991: a dramatic expansion of micro-breweries has greatly widened the choice of beer, although a number of significant family brewers have been taken over. Lager has now overtaken ale as the biggest seller in pubs, but nevertheless handpumps are sprouting everywhere and this is possibly the post-1971 high point of real ale availability. After falling in the early 80s recession, pub beer sales have held up pretty well. All-day opening has now been introduced.
2001: further expansion of micro-breweries and specialist beer pubs. However, more independent family brewers have been lost and there is now evidence that anti-drink sentiment is depressing on-trade sales. Smooth beers have appeared on the scene and real ale has gone from many of the more marginal outlets. The trade has been transformed by the Beer Orders and the advent of the giant pubcos. Last year in the series before the smoking ban.
2011: Progressive Beer Duty has led to a further expansion of the micro-brewery sector. The UK has more breweries than at any time since the Second World War, and the range of beer brands and styles available is wider than ever before. There is a new wave of specialist beer pubs that are far more than just the traditional “multi-beer freehouse.” Pubs are now generally allowed to open after 11pm. On the other hand, the smoking ban has had a devastating effect on the trade of pubs in working-class areas, and there has been an unprecedented wave of pub closures producing growing “pub deserts”. The drinks industry is also under increasing attack from the neo-Prohibitionists.
When one brewery takes over another, it’s very common for them to say “we will keep Brewery X in operation as a completely separate business.” And that commitment almost without exception proves to have been built on sand. Today it has been announced that William Reed, publishers of the Morning Advertiser, are to acquire rival licensed trade paper The Publican from United Business Media for £1.5 million. Any bets on how long the two continue as separate publications?
The Good Beer Guide has traditionally shown a range of symbols denoting various facilities such as pub games, gardens and food. But nowadays it’s getting to the stage where the absence of certain features has become an attraction in itself, so a few negative symbols are called for. One should be “No Satellite TV”, so you know you can visit in confidence without walking into a scrum of raucous footie fans. And, given the relaxation of the law relating to children in pubs, the “family room” symbol is increasingly meaningless. What is needed is an “Adult Friendly” symbol indicating that the pub has at least one separate area where under-18s are never admitted. It also needs to be re-emphasised that the “Quiet Pub” symbol means that no piped music is played in any public area, at any time. Regrettably, I know a couple of generally very good pubs that used to qualify for this but sadly no longer do through playing the radio at times.
I know many of you will have already seen this, but this video from SIBA entitled Proud of British Beer is well worth watching. It is good that it encompasses the whole industry and avoids any hint of factionalism – indeed the woman who brews Carling is prominently featured. In its plea to George Osborne to turn off the alcohol tax escalator it also doesn’t flinch from the reality of closed pubs. As a nation we have a longstanding tendency to be cynical and self-deprecating about our achievements, but there should be no shame in taking pride in our national drink and the people who produce it.
Proud of British Beer from Society of Independent Brewers on Vimeo.