Friday, 7 September 2012

Creative destruction

A point I have made more than once on here is that large sections of the pub trade seem to be intent on slowly but surely pricing themselves out of business, something that is echoed in this piece in The Independent by James Moore. While the finger of blame is often pointed at low supermarket alcohol prices, in reality it is the on-trade that has got progressively dearer, not the off-trade that has got cheaper.

To some extent this is inevitable because, as living standards rise over time, the price of services with a substantial labour content will rise more quickly than that of goods. But there seems to be a lazy acquiescence in this process, that each year prices over the bar will go up a bit more than inflation, and if we lose a few cost-conscious customers, so what, as we want to attract high spenders. Many pubs seem to have simply given up on any attempt to compete on price on any drinks.

Over time, though, the pub trade as a whole has shot itself in the foot with this approach. I once made this point on the Morning Advertiser website, which drew howls of complaint from licensees who said “with my current cost structure, there is no way I could significantly cut prices”. Which may be true, but perhaps that whole model of running tenanted or leased pubs is ultimately doomed. No business has a right to survival if it can’t compete.

The £3 plus pint may not be too much of a problem for the upmarket dining pub where most customers will only have one or two drinks and factor it into the price of their meal alongside the £17.95 braised lamb shank, or the hipster-infested craft beer bar, but in a wet-led boozer it becomes a serious deterrent.

Wetherspoon’s, of course, have seen this gap in the market and enthusiastically exploited it. A Spoons will rarely be the most characterful pub in its location, but the odds are it will be the busiest. Sam Smith’s pubs still seem to do well out of offering conspicuously low prices, without coming across as seedy or grotty, and so do many of the more traditional Holt’s houses.

Maybe someone needs to come up with a “value proposition”, including food, but not dominated by it, that will work for smaller sites than Wetherspoons, and for locations with less footfall, and which doesn’t come across as too downmarket that it deters “respectable” customers. But the days of the traditional, unbranded, all-purpose pub on the inner-urban, suburban or small-town High Street, charging 80p a pint more than Spoons, are surely numbered. The pub market is changing, and the old ways won’t necessarily work any more.

17 comments:

  1. Some creative thinking about mark-ups, margins and customer psychology really wouldn't go amiss. There's tons of literature on, e.g., how to price items on a menu so that people buy the thing with the highest mark-up (pasta) thinking they're getting a bargain because it's also the cheapest.

    Big chains probably spend a fortune on that kind of consultancy and strategy; do pubcos give their tenants similar advice and support?

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  2. Yes, pubs don't need to be cheap on everything, but if they gain a reputation for value even on one or two things the word gets around - which is precisely the model adopted by Tesco et al.

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  3. An Anonymous Boozer7 September 2012 at 13:57

    Ummm, given the beer duty escalator, pub prices are going to HAVE to go up a little bit more than inflation every year aren't they?

    So if it's true that average pub prices have gone up by an 'inflation-busting' 4.6% over the past year, it's really less a case of pubs pricing themselves out of the market, and more a case of prices rising in accordance with the budget.

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  4. You're not wrong, but they don't listen do they?

    When you compare the price of a pub pint to the price of basic commodities and income for the lowest to average paid, pensioners and the like, pub drinking has become dearer for most people.

    It is no surprise that for many pubs have become an occasional visit when once for they were frequent because most people are not beer and pub enthusiasts just people that like a drink as part of an overall standard of living.




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  5. It's a shrinking market all round. Spoons and Smiths, yes. But Holts, whilst still cheaper than some, aren't the bargain they used to be and a lot of their pubs are emptier than they used to be. Time is running out for some operators to get it right.

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  6. I've given up with pubs except for the occasional meet up with friends. Bargains searched out in supermarkets & I have begun to brew my own beer again. The latter will become my mainstay in the lean years to come.

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  7. And yet...and yet... a pub near me sells Perroni lager at £4.50 a pint (yes!) and people are queuing up to buy it. It;s not a trendy craft beer bar or any of that nonsense, it's an ordinary boozer. It's not in London either. It amazes me that people are prepared to pay such an exorbitant amount for basically Europiss but there it is. The pub's a tied house. albeit to a traditional brewery and not a pubco and it's rammed every night. Strange.

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  8. "Ummm, given the beer duty escalator, pub prices are going to HAVE to go up a little bit more than inflation every year aren't they?"

    Well, yes, but when Spoons are charging £1.99 a pint for arguably better beer than the Robbies' pub up the road charging £3, it suggests some revision of the basic business model is needed to make pubs more competitive.

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  9. "But Holts, whilst still cheaper than some, aren't the bargain they used to be and a lot of their pubs are emptier than they used to be."

    Indeed, and some of their refurbished pubs are now no cheaper than the typical prices in the area. But some of them still have a touch of the traditional Holts atmosphere, and where old-fashioned boozing still takes place it is very often in Holts pubs.

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  10. Bill

    Re: Peroni at £4.50, it goes for an equivalent £6 or 7 a pint in Italy so if it's imported then it's a bargain. Comes in a nice glass but apart from being cold I can't see the appeal either.

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  11. A lot of pubs definitely need to up their game. It's sink or swim in the pub trade at the moment, I'm afraid!

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  12. If my currency calculations are correct, you're talking about $5 per beer.

    You guys must all be rich, to be able to drink at those prices. When you buy a round for the house, do you have to go to the bank and take out a loan first?

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  13. So how much is a typical draft beer in a US bar? And how does that equate to the UK, adjusting for volume?

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  14. US and UK is comparing apples and oranges. They pay a fortune every year for their licence, have buy beer from third parties and many other restrictive things.

    In the UK pub sector, debt is the issue. Of course family brewers run debt free estates. Therefore there is a lot to worry about there. Choice and quality are still factors and missing tricks too.

    Look forward to more discussion like this when back home.

    Craft beer in the US can be seven dollars or more. Domestic stuff such as Bud much less. We copy too many Yankee bad habits.

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  15. In the US you are often faced with the awkward choice between paying $3 for a budweiser or $7 for something drinkable like a Sierra Nevada.

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  16. spoons cheap? im not suprised ive seen what they pay brewers, thats why theres a growing number of breweries that wont supply them.....

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  17. Well, every brewery has the right not to supply Spoons, or Tesco. But they have to be careful they don't end up cutting off their nose to spite their face.

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