Sunday, 22 September 2019

Reassuringly expensive

Wetherspoon’s have recently cut the price of some beers by 20p a pint as a way of illustrating the benefits that could be gained from a post-Brexit free trade regime. However, this has been criticised by the Society of Independent Brewers (SIBA) on the grounds that it will devalue the product and make it increasingly difficult for small brewers to make a decent living.

To some extent, they have a case, as presenting beer as a high-quality, premium product is inconsistent with it being sold in a market where low price is a key selling point. However, comments like this often seem to assume that beer is somehow exempt from the normal laws of supply and demand. If Wetherspoon’s charged half as much again for their beer, as most of their competitors do, they would sell a lot less of it. Every price increase, however small, will make the product unaffordable for someone.

As RedNev argues here, it is wrong to blame drinkers for low prices in the beer market. It’s not as if they’re some organised lobby who could easily pay more, but prefer to greedily trouser the difference. They act as individuals and can only make their buying decisions based on what is set out before them. Plus it has to be said that, outside of Wetherspoon’s, beer isn’t exactly cheap anyway, with £4 a pint now common in many places, although how the cake is actually distributed is another matter.

Nobody, certainly not CAMRA, is actively campaigning for an across-the-board cut in beer prices, and I’ve argued in the past that relative price alone is a relatively minor factor in the decline in the pub trade over recent years. But it does beer no favours to be asked to pay a premium price for something that isn’t of consistently high quality.

I’ve discussed the beer pricing issue at some length in the past, and don’t intend to go over the same points again. However, rather than just complaining that life isn’t fair, the brewers should recognise that competitive markets are often unforgiving, and look at what they can do themselves to enhance the perceived value of their product.

There are a couple of factors in the marketplace that clearly work against this. The first is oversupply – there are a very large number of breweries chasing a finite amount of business, and many of them, for various reasons, are in a position where they don’t actually need to make a full-time living from brewing. This inevitably leads to intense price competition and deep discounting, which may benefit pubs and consumers in the short term, but which doesn’t produce a healthy brewing industry. It may sound harsh, but some kind of shakeout is needed to restore the equilibrium of supply and demand and allow the remaining brewers to improve their margins.

Then there is the prevailing culture, at least in the cask beer market, of ever-changing rotating guest beers. This presents cask as an undifferentiated, interchangeable product and denies drinkers the opportunity to make repeat purchases if a beer takes their fancy. If brewers wish to develop a premium reputation for their product, it is important to be able to secure permanent lines in pubs – possibly for the brewery rather than specific brands – so that customers are given the opportunity to show loyalty rather than just accepting what happens to have turned up on the bar.

But there are things that brewers could do to improve their situation. The first, which may sound obvious, is to actually brew good beer, so that people will try it, enjoy it, and ask for it again. If you don’t like Wetherspoon’s, don’t sell to them. Nobody has to; they don’t operate a monopoly. Try to avoid cut-throat price competition, and if necessary just walk away from a deal rather than selling at a price you’re not happy with. Ultimately, if you conclude you can’t make a living from it, it may be best to shut up shop entirely rather than playing beggar-my-neighbour.

And, perhaps most importantly, do what you can to gain more control over your distribution chain. This means that you can exert more influence over both the selling price and the quality of the end product. Restrict your sales to outlets that you know you can trust and, if finances allow, try to develop your own pubs and bars. Even a single brewery tap can act as a showcase for your products. These are things that far-sighted breweries are already doing. Yes, it’s a tough world out there, but brewers don’t just have to sit back and take it.

8 comments:

  1. One beer is discounted by a serial discounter and hysteria sets in. You'd think SIBA might be more annoyed by Spoons and Stonegate constantly selling beers for £1.99, but of course that's cheap Lout and John Smiths so they don't really care, and as they have direct access supply deals for their members with the big guys, they don't want to rock the boat too much. Perhaps they'd be better off targeting the retailers that demand heavy discounts on their products only to sell them on for sky-high margins.

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  2. The Stafford Mudgie22 September 2019 at 20:15

    Tim's 'barns' have a "cheap and nasty" reputation that has nothing to do with a hypothetical "free trade regime".

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  3. I know what will shake out all these mediocre price undercutting vanity brewers. Abolish small brewery duty relief. That'll give you the shake out.

    Proper artisinal craft product can compete with industrial production on equal tax terms.

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    1. But the crafties won't have it that PBD is a major factor behind the race to the bottom on pricing.

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    2. Craft cheese sells for more than industrial cheese. Don't see any craft cheese mongers using a tax break to flog cheaper cheese. Seems a tax disparity is distorting the market.

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  4. Alternatively, cut beer taxation across the board.

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    Replies
    1. Not saying that wouldn't be a good idea, but surely the price competition would just continue at a lower level. And to some extent beer duty, which is the same whether beer is artisanal nectar or home-brew swill, flattens out the difference between the products that are cheap and expensive to make.

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  5. I'm sickened by this neo Thatcherite view of Nev. The fat cat capitalist exploitative publicans and brewers need to pay their fair share and support our precious NHS. Beer tax needs to increase so we can nationalise pubs and the bitter and make the bitter a universal human right.

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