Monday, 30 November 2020

More beer watering

Amidst all the excitement surrounding news of lockdowns and tiers, Budweiser Brewing Group UK & Ireland (which seems to be the new name for the UK offshoot of AB InBev) slipped out the news that the strength of Stella Artois, Britain’s best-selling premium lager, had been reduced yet again, from 4.8% to 4.6%. They came out with the usual corporate guff to justify this move:
The AB InBev-owned brewer stated that the change was in line with its commitment to responsible drinking, addressing the consumer need for moderation by giving people greater choice in how they can moderate alcohol intake without having to sacrifice on the taste of their favourite beers.

Dorien Nijs, Brewmaster at the Stella Artois Brewery in Leuven, commented: “We know that taste and quality remain the number one priority for Stella Artois drinkers, and we also recognise an ongoing health and wellness trend through moderation. We are proud that we can now deliver the same Stella Artois taste people know and love, with an ABV of 4.6%.”

The brand highlighted that the 4.6% ABV bracket has been the fastest growing in premium beer in the UK, more than doubling in size over two years.

In other words, we have sneaked this move through when we hoped nobody would notice, so we can save some duty and appease the public health lobby.

Looking back through my blog archive, it’s a full twelve years since the strength of Stella was cut from the original 5.2% ABV to 5.0. (Some have suggested it was once even stronger than 5.2%, but I’ve seen no evidence for this.) It was then cut again to 4.8% a few years later. However, marketing people forget at their peril that, at the end of the day, people drink alcoholic drinks precisely because they contain alcohol. It’s all very well going on about “the taste”, but the key reason people choose premium lagers over Carling and Fosters is not because they taste better, but because they’re stronger.

As I wrote here, drinkers in general aren’t too bothered about small differences in alcoholic strength between products in the same broad category. But I wonder whether this will turn out to be a cut too far that is perceived as taking Stella out of the true premium segment. While Stella has also suffered from a debasement of the recipe from its 1980s “reassuringly expensive” heyday, it’s not hard to tell the difference between 5.2% and 4.6%. A few years ago, Wetherspoon’s strongly promoted the 4.6% Tuborg, but it never seemed to sell well and has now disappeared off their bars.

At least, looking them up on the Tesco website, it seems that Heineken, Kronenbourg and San Miguel are still all sold at 5.0% if you prefer something with the full premium lager strength. But for how long?

Saturday, 28 November 2020

Villains of the piece?

Tom Kerridge’s TV series on saving the British pub has turned the spotlight on the activities of the large tied pubcos. To many people, the pubcos are perceived as pantomime villains who are responsible for all the current woes of the industry. But where did they come from in the first place, and what can, or should, be done to rein them in?

Going back fifty years, a large majority of pubs in England and Wales were tied to breweries. Genuinely free houses tended in general to be smaller pubs in rural areas, and in large towns and cities were virtually unknown. This system had developed over the years as brewers sought to gain outlets for their products. The more pubs you owned, the stronger was your position in the market. This dominance was reinforced by post-war planning policies that ensured that any new licences issued were allocated to the major existing pub owners in a given area.

Even in the early days of CAMRA, many members were critical of the tie as restricting access to most of the pub market for the independent brewers’ real ales. However, it must be remembered that the existence of the tie saved cask beer as a mass-market product in this country. Some companies, such as Young’s, had a commitment in principle to maintaining brewing traditions, but others continued as they had before as they simply lacked the funds to upgrade brewing methods and cellar equipment. The same was true of many plants that had been acquired by the industry giants during the takeover spree of the 1960s, but were still well down the queue for investment.

At a time when traditional beer was desperately unfashionable, the likes of Hook Norton and Batemans would have vanished off the face of the earth if they had not been guaranteed an outlet for their products in their own pubs. Free trade licensees would simply have swept them off the bar in favour of flashy keg products supported by hefty advertising budgets. This is exactly what happened in Scotland, where the proportion of tied pubs was much less, and by the early 1970s cask beer had virtually disappeared.

During the 70s and 80s this dominance was slowly eroded. The big brewers were persuaded by the government to engage in some half-hearted pub swaps to reduce local monopolies. They also started to sell off lower-performing pubs, either to regional breweries or to what in retrospect were proto pub companies. Belhaven was a small Scottish brewer who built up a substantial estate of mostly bottom-end pubs in England that didn’t actually sell any of their beers. Small free-trade managed operators such as Wetherspoon’s started to get a foothold in the market. The rise of the off-trade made sales through pubs less critical, and the increasing market share of lager meant that pubs were increasingly selling draught brands that, while they may have been licensed by the brewers, were not so closely identified with them. The link between the name on the sign and the beer on the bar was being weakened.

Then came the notorious Beer Orders of 1989, which were intended to address what was identified as a “complex monopoly” in the beer market. At the time they were widely welcomed, not least by CAMRA, who were mesmerised by the prospect of every Big Six tenant getting the right to a guest cask ale. I wasn’t writing a magazine column at the time, let alone blogging, so nobody can go back and throw my words back in my face. However, I do wonder whether anyone seriously thought about what the likely consequence would be. They certainly turned out to be a classic case of “be careful what you wish for!”

One of the key outcomes of the Beer Orders was the restriction on the number of pubs that the Big Six brewers could continue to tie, which led most of them to conclude that they might as well get out of the pub business entirely. The response to this was the creation of pub companies, often led by former big brewery executives, who would take the unwanted pubs off their hands and maintain the tied house business model. But a major difference was that, while many of the old brewery tied houses were owned outright, the pub companies took on a huge amount of debt to acquire them. In a market in long-term decline, a debt burden can all too easily become a millstone around your neck, which was exacerbated by the pubcos spectacularly underestimating the negative impact of the 2007 smoking ban. More recently, we have seen a wave of takeovers, mergers and restructurings, but pubcos remain a major force in the market today.

There are plenty of things that they can be criticised for – attracting prospective tenants with unrealistic projections, providing them with minimal support, penalising success through extortionate rent increases and being all too eager to dispose of pubs for redevelopment. But many of their critics seem to ignore the fact that they are operating commercial businesses, not charities, and are doing so in a very challenging climate. Are their actions really any different in kind from those of the old Big Six national brewers? And it should not be forgotten that some of the family brewers, who are sometimes held up as examples of a more sympatheitc approach, have been pretty ruthless in disposing of surplus pubs from their estates.

This criticism sometimes turns into a distinctly obsessional insistence on blaming the pubcos for all the current woes of the pub industry, in the manner of the man who, being in possession of a hammer, sees every problem as a nail. But, as I have explained on this blog over the past thirteen years, the decline of pubs has been caused by a perfect storm of changing social attitudes and restrictive legislation that have combined to greatly reduce the range of occasions when people will contemplate a visit to pub, especially one that is not combined with dining. It’s a demand crisis, and the effect of the way the industry is structured is pretty incidental. If this analysis contained much truth, then surely pubs operating under different business models would be thriving as compared to those owned by pubcos, but that patently isn’t the case – the decline is across the board.

It is significant that the harshest critics of the pubcos never seem to be able to come up with any credible alternative structure for the industry. The Beer Orders have now been completely repealed but, apart from the takeover of half of Punch Taverns by Heineken offshoot Star Pubs and Bars, there has been little move to return to the old vertically integrated model. With two-thirds of pub beer sales now international lager brands, and food now often more important than drink, brewing and pub retailing are increasingly divergent businesses. Unless you are BrewDog or Sam Smith’s, it makes little sense to own a large chain of pubs mainly as outlets for your own production.

In many cases, as I wrote here, the dislike of pubcos seems to stem from a generalised animus towards private business per se. This inevitably leads to critics favouring community-based solutions. However, any community-owned pub by definition involves “dead capital” that isn’t expected to show a financial return, and there’s precious little of that around at present. And, while some may hark back to the long-gone days of the Carlisle State Management Scheme, do we really want the likes of Public Health England having any say in the way pubs are run?

The favoured option usually seems to be preventing non-brewing companies imposing any kind of product tie on leased pubs. However, an immediate objection to this is that it cuts away the core business of the pubcos and undermines freedom of contract. It is also fraught with unintended consequences. For a start, in many pubs owned by breweries, the share of sales accounted for by their own products is often very small. Indeed, I can think of one or two, now closed, where it was probably zero. Is 5 or 10% really that different from nothing – and couldn’t Punch set up their own small brewery to produce a cheap house lager to get round it?

And, as Martyn Cornell writes here, the likely outcome is that, far from opening up a brave new world of free houses, such a move would lead the pubcos to, entirely understandably, do whatever they could to retain such pubs within their control.

The call has been made for a mandatory free-of-tie option to be offered to pubco tenants. I can tell you what will happen if that is brought in: large numbers of the best currently tenanted/leased pubs will be turned into managed houses, and those pubs not suitable for a managed operation that look as if they will not bring in an adequate return to their pubco owner as free-of-tie operations will be sold to the highest bidder – likely to be Tesco, Sainsbury’s or Morrisons...

...There’s a good argument for saying that if it wasn’t for the pubco model and the support it provides licensees, even more pubs would have gone under in Britain than have so far.

That highest bidder now is just as likely to be Taylor Wimpey or Persimmon. There has also been a movement in recent years to replace conventional leases with franchise-type agreements such as EI’s Craft Union, where the licensee retains self-employed status, but the pubco exercises much greater control over stocking and the general way the business operates. These would only increase if the traditional type of leases were outlawed. To be successful, any kind of business arrangement has to offer something to both parties. Turning pub companies into mere property renters fails on that score, and that is also why they have been so resistant to the idea of the Market Rent Only option.

As Martyn hints, pubco leases provide a means of entry into the pub market for people wanting to run their own business that would not be available if they had to raise the capital to buy their own pub. Although no doubt they could often do these things better, the pubcso also provide business support, investment and a structured business framework. Running a pub as an independent free trader can be a daunting prospect that many people would struggle with. Over the years, while some of the very best pubs I’ve visited have been genuine free houses, so have some of the absolute worst, where the licensees had basically given up and were just going through the motions. There are many examples in other sectors where self-employed people run businesses under a corporate nameplate which exerts a large degree of influence on their operations.

While there is much to criticise about the actions of the pubcos, those calling for further statutory regulation of their activities need to be very careful what they wish for. In the wise words of Milton Friedman, "The government solution to a problem is usually as bad as the problem." And we should never forget the outcome of the Beer Orders, which were introduced with the best of intentions.

Thursday, 26 November 2020

Every little doesn’t count

Some people regard supermarket loyalty cards as an invasion of privacy, but I have to say I’m not too bothered about the Tesco Clubcard so long as they don’t start sending me discount vouchers for carrots. I typically spend maybe £15-£20 there each week, and every three months get a coupon for £3 or so off my shop.

Every Christmas for quite a few years, they’ve sent me a batch of coupons offering me one week of £6 off if I spent £40, and then £4 off for each of the two following weeks. Their main objective, I assume, is to encourage me to do my Christmas shopping there rather than with one of their competitors, but it’s a useful discount given that I’m spending more money at that time of year anyway.

However, this year I noticed that, in the small print, alongside the usual exclusions of petrol, tobacco, infant formula milk and the like, they had added alcohol. Now, while my weekly spend isn’t primarily on drink, there’s usually a couple of bottles or cans included, and at Christmas a significant amount of the extra spending is going to be on alcohol, either for myself or as presents. I might treat myself, say, to a nice bottle of malt whisky that I wouldn’t normally do through the year.

With alcohol excluded, I would struggle to get together enough other shopping to reach the £40 threshold on even one occasion, unless there was some particular household or clothing item I wanted, which at present there isn’t. So the upshot is that the coupons end up in the recycling, and a little amount of goodwill has been lost.

I can understand that this may have to apply in Scotland because of their minimum pricing legislation, but in England it just comes across as remarkably lacking in Christmas spirit, in more ways than one. It’s yet another small, niggling turn of the prohibitionist screw.

Tuesday, 17 November 2020

A daily reminder of pub life

I was kindly sent a review copy of the 2021 Pub Life Calendar. Its creator Michael describes it as “a fun take on characters I’ve seen in my many years of visiting our great British pubs.” It’s a large format wall calendar, with each month featuring its own humorous character such as the Bandisnoot, the Gobhoblin and the Sipster.

Hopefully by next year we will be allowed back in the pubs, but you might still like a daily reminder on your kitchen wall, or know a friend or relative who might appreciate it as a Christmas gift. It’s available for £9.99 directly from the website at www.publife.co.uk.

Sunday, 15 November 2020

A recipe to save the pub

I have to say I had my doubts when I heard that a TV series on Saving the British Pub was going to be hosted by celebrity chef Tom Kerridge*. What can anyone who boasts about how his pub in affluent Marlow became the first pub in the world to gain two Michelin stars have to say about the vast majority of ordinary boozers? However, I approached it with an open mind, and have to say the first episode on Thursday night was a lot better than I had expected.

Kerridge himself is a surprisingly down-to-earth and affable presenter and, rather than following in the footsteps of Alex Polizzi with a hackneyed “pub doctor” format, the programme mixed case studies of individual pubs with wider consideration of the general pressures affecting the industry. He did say at the beginning that the three important factors in any pub are the drinks, the food and the atmosphere, which obviously doesn’t apply to all those pubs that are primarily or entirely wet-led, but in fact only one of the three pubs he looked at came anywhere near to the expected stereotype of the country dining pub.

This was the White Hart at Chilsworthy, overlooking the Tamar valley in East Cornwall, close to the Devon border. Ian and Amy had sold a four-bedroom house a couple of years ago in order to realise their lifelong dream of running a country pub. They had succeeded in being named CAMRA’s Cornwall Pub of the Year in 2019. However, they weren’t really making any money out of it, and this moved Amy to tears. Amy seemed to do the lion’s share of the work, but to be fair Ian had kept on his day job as a gas engineer and, as Tom politely suggested, Amy possibly found it difficult to delegate.

The bar seemed busy enough with locals, but the dining trade was struggling, and Tom suggested knocking through the wall between dining room and bar to integrate it better with the rest of the pub, and open up the magnificent view. I have to say I’m rarely a fan of knocking walls through, and Ian was sceptical, saying he didn’t want somewhere with grey walls and a sofa in the corner, but they went ahead, the work going on in the early months of 2020 while the bar remained open. They were looking forward a good Spring and Summer with their new look. And then a bombshell struck!

The second pub was the Prince Albert in Stroud, Gloucestershire, a wet-led pub standing high above the town centre with a well-established reputation for live music. One problem Tom immediately identified was a lack of parking, which is a major deterrent to attracting trade beyond the locality, but didn’t make any more of it. The pub seemed to do a healthy trade, but licensees Lottie and Miles, as tenants of pubco Punch Taverns, were making very little money out of it.

The first thing Tom suggested was to review their prices to make sure they were getting a decent margin on all their beers. However, £4.50 a pint for Landlord already didn’t seem particularly cheap, and chasing margin can be a recipe for disaster. Yes, if you increase your prices by 10%, and trade goes down by less, you’re gaining, at least in the short term, but it’s a drug where the dose has to keep being repeated to gain the same effect, and gaining a reputation for high prices is not going to attract new customers even if regulars put up with it.

This predictably moved on to taking aim at the pubcos in general. While there is plenty of criticise about the actions of pubcos, they are really a symptom of the decline of the industry rather than a cause, and this needs to be traced back to the disastrous Beer Orders of thirty years ago. It is all too easy to portray pubcos as pantomime villains, but their critics can never come up with any other realistic business model for the industry, and they, like every commercial business, are surely entitled to try to make a profit. It doesn’t seem unreasonable for a pubco to want to set the rent under a Market Rent Only option to recover the profits lost through no longer being able to sell beer to the tenant. In next week’s episode, Tom is going to put these criticisms to the MD of Punch Taverns, and it will be interesting to hear what he has to say.

The third pub was the Golden Anchor, a monumental street-corner pub in South London that for many years had been popular with the local Afro-Caribbean community. But the business was now struggling, and again Lana, the licensee of over twenty years, was moved to tears. One problem was that a substantial section of the clientele was elderly West Indian gentlemen who came in to play dominoes but put very little money across the bar during the course of an evening.

This was an example of where the “pub doctor” approach was more appropriate. An area previously only used as a concert room was opened up for general use, and the domino players were politely shifted to a less prominent location. To attract a wider cross-section of customers, Tom suggested that Lana put on a selection of real ales and craft beers, which the pub hadn’t offered before. An open evening was arranged to promote the new offering, and this seemed to be successful in bringing in a more diverse crowd, so on the face of it this seemed the most successful intervention.

An inherent problem with this kind of exercise is that the reasons for the success or failure of specific pubs are very different from those behind the overall decline of the pub trade. For most struggling pubs, it is possible to identify some concrete actions they can take to increase their custom and profitability. But most of this will just mean attracting customers from other pubs, not people who didn’t go to the pub at all.

Over the past three decades, the pub trade has been affected by a raft of changes in legislation and social attitudes that overall have greatly reduced the range of occasions when people will contemplate a visit to a pub. People still like the idea of pubs in theory, but in practice they visit them less and less. Of course it is still possible to do well in a declining market, but that should not be allowed to obscure the wider picture. By and large, the reason so many pubs have closed is not because they haven’t been run as well as they could have been.

And it was disappointing, if not entirely surprising, that an entire hour discussing the decline of the pub trade passed by without a single mention of the legendary Elephant in the Room...

* One of the few things I remember about Tom Kerridge, not being a connoisseur of the work of celebrity chefs, is that a few years ago he made the news for losing no less than 150 lb in weight. He doesn’t drink alcohol now, which may be connected.

Thursday, 12 November 2020

Junking business

No chance of being able to advertise these tempting artisan cakes

Still deep in the Covid crisis, and with the end of the Brexit transition period fast approaching, you might imagine that the government had its hands pretty full. But they have still found time to launch a consultation on a total ban on Internet advertising of so-called “HFSS” (High in Fat, Salt or Sugar) food products.

The ostensible aim is to combat childhood obesity, but it seems to stem from the “something must be done” school of policymaking. The thought process seems to be that, if children spend a lot of time on the Internet, banning advertising there will reduce their exposure to it and thus their consumption of such foods. However, the government’s own estimates assume that average calorie consumption will be reduced by a mere 2.8 calories a day, and that itself is an increase from an initial estimate of just 0.3 calories. It is also very poorly targeted, with many items included that have little or no appeal to children. How many, for example, go out shopping for cooking sauces?

As I reported last year, the definition of HFSS foods includes many items that are generally perceived as wholesome and natural, such as orange juice, butter, full-fat cheese and milk, and many meat products including bacon. The lazy assumption is that it just applies to crisps and burgers, but many companies who perceive themselves as being in the health food market are taken aback to find themselves in the fiiring line too. Small artisanal producers are affected just as much as the big boys, and may indeed find the impact even more severe.

As Christopher Snowdon points out, the proposed scope of the restrictions is quite breathtaking. Not only does it include anything with added sugar, such as biscuits, jams, ice cream and yoghurts, but also a long list of savoury items as shown in the graphic below.

It’s hard to think of many food items involving any processing whatsoever that will be excluded. These aren’t just a small subset of particularly harmful products, but a huge swathe of what most ordinary people actually eat and enjoy as part of their normal everyday diets.

The Internet is no longer just a fancy little add-on for companies, but the principal channel of advertising and promotion. Deprived of that, it is much harder to do business. As I have pointed out before in the context of tobacco and alcohol, advertising bans have little effect on underlying demand, but what they do do is to ossify the market. It becomes difficult or impossible to launch new products, let alone for entirely new competitors to enter. This will especially affect small start-up companies wishing to challenge the dominance of existing players. It will be a kick in the teeth for thousands of small businesses. It seems redundant to express surprise at such a policy being floated by a Conservative government when they have spent most of the past year being just as authoritarian and anti-business as anyone else.

The government have been generous enough to still permit factual listings of product details on company websites, so it won’t stop online sales, either direct or through supermarkets, or takeaway ordering. But will it even be acceptable to show a photo of the product concerned? And you certainly won’t be permitted to advertise the fact that you offer these products anywhere else. How, for example, will a wedding cake maker be able to inform anyone that they provide that particular service?

The government spends a lot of time promoting distinctive British food products around the world, but it would be ironic if they were extolling the virtues of Lancashire hotpot, Wensleydale cheese and Melton Mowbray pork pies while at the same time preventing them from being advertised in their country of origin. And, if you imagine that none of this is going to be applied to alcohol over the next few years, then I have a bridge to sell you.

Sunday, 1 November 2020

Singled out

Yesterday, Boris Johnson announced a new national lockdown lasting four weeks until the end of November. Not surprisingly, as before, hospitality bore the brunt of the restrictions, with pubs, restaurants, cafĂ©s and coffee shops unable to serve customers on the premises in any way. This is despite official government figures showing the hospitality sector as responsible for an utterly trivial source of infections outside the home – a mere 2% according to the chart below.

Given this, it is hard to see that this particular part of the restrictions will have any significant effect in curbing the number of cases. It seems that, yet again, hospitality is being unfairly scapegoated as it forms an easy target. Indeed, the whole package comes across as an ill-considered example of the “Something Must be Done!” school of policymaking.

To add insult to injury, looking at the small print of the regulations reveals that licensed premises are even going to be banned from selling alcoholic drinks for takeaway. For plenty of pubs this was a lifeline during the first lockdown and allowed drinkers to continue enjoying cask ale. To prohibit it now seems completely unreasonable given that supermarkets and specialist off-licences can continue selling alcohol. You have to wonder whether the anti-drink lobby have managed to sneak it in under the radar.

However, it has not gone unnoticed by industry groups such as UK Hospitality and SIBA, and hopefully pressure can be brought to bear to get this reversed before the lockdown comes into effect next Thursday. Johnson said that this lockdown wasn’t like the first one, but on this evidence it seems to be even stricter!