Friday, 29 January 2021

After the storm

As I said in my previous post, “It may seem a distant pipedream at present, but the day will eventually come when the pubs are allowed to open again.” Planning for the future may appear inappropriate when set against the very high daily death tolls recorded in recent days, but to retreat into panic and despair and refuse to look forward would be irresponsible. It should be remembered that, During World War 2, the Beveridge Report was published at the time of the battle of El Alamein, and the 1944 Education Act was being debated in Parliament while the D-Day landings were taking place.

Although it is still more than three weeks away, the Prime Minister has stated that some kind of roadmap for reopening the economy will be produced on February 22nd, and the past few days have seen encouraging reductions in the number of positive Covid tests and hospitalisations. Assuming the vaccines prove effective, this trend should accelerate in the coming weeks.

However, it would be naive to expect any rapid progress in the sphere of hospitality. Over the past year, it often seems to have been treated as a scapegoat even when there was no evidence it was a significant source of infection. The main differences between Tiers 1, 2 and 3 were in how hospitality was treated. The impression has been given that government is largely indifferent to hospitality and sees it as something essentially frivolous, despite the fact that of itself it is one of the largest economic sectors and oils the wheels of the entire economy.

Even though most of hospitality has been closed for longer than it has been open since March last year, the amount of financial support provided has been distinctly grudging. If the government decrees that you’re not allowed to trade, then by rights it should compensate you for the resulting loss of income. Having said that, the overall level of borrowing that has been incurred is comparable with that needed to fund a major war, and our children and grandchildren will have to bear the burden of repaying it for decades to come. If interest rates had been at historic norms rather than virtually zero, that amount of borrowing would have been impossible, although arguably that unpalatable fact would have concentrated minds.

Looking specifically at the pub sector, the prospects do not seem at all rosy. During the brief window of relatively normal trading over last summer, the vast majority of pubs locally did eventually reopen, the exceptions mainly being ones whose future looked uncertain even before the lockdown. However, I would expect many more that are currently closed never to actually open their doors again, either under their current management or completely.

Last summer, even though capacity was restricted, few pubs seemed to be anywhere near full, and it was clear that many customers were still reluctant to venture out due to continued fear of infection, although the closure of other activities often linked to pubgoing such as theatres and sports venues also had a part to play. Licensees had to walk a tightrope between ensuring that social distancing guidelines were followed and avoiding going over the top with pettifogging restrictions. Sadly, quite a few seemed to fall into the latter camp and turned their establishments into profoundly unwelcoming places. After a winter of further scaremongering from the government, these fears will only be intensified when pubs do eventually reopen, and will lead to continued subdued demand for a long time to come. Indeed, it may never return to being as strong as it once was.

The past year has shown that making predictions is a very risky business, and I’m certainly not going to go down that road. However, on past form, it’s very likely that pubs will be one of the last sectors to be allowed to reopen. It’s probable that, at least initially, the old Tier system will be resurrected. One press commentator suggested that a likely timescale would be for most areas to go into Tier 3 on 8 March (i.e. “non-essential” retail allowed to open), Tier 2 on 6 April and Tier 1 on 4 May. That would mean that wet-led pubs had been closed for a minimum of nine out of the previous thirteen months.

There must then be a serious risk that the government would leave pubs in Tier 1 for a prolonged period. They could claim that the pubs had reopened, while ignoring the fact that they were still operating under such severe restrictions that both their ability to trade profitably and their appeal to customers had been seriously undermined. Tier 1 would be, for many pubs, a kind of living death.

Last October, I wrote about how the restrictions introduced in late September had meant the death of the swift pint. After they came in, I largely stopped going, whereas in the period from the beginning of July I had been doing so quite enthusiastically. This is echoed by this article in the Morning Advertiser in which a licensee argues that having to continue to operate under severe restrictions undermines the whole point of the pub:

As a wet-led pub, my stock-in-trade is the “pub experience”. I provide a haven for single people, people unwinding after work and people out to socialise.

The very nature of a wet-led pub is the socialising and the atmosphere. Any level of restriction has a massive impact on the experience and by opening with restrictions we are effectively destroying our own long-term prospects...

...People’s most recent memories of the pub is as a soulless place.

A pub should be a carefree place where people go to relax and enjoy themselves, not somewhere you’re being repeatedly questioned and hassled by both the staff and other customers. Going to the pub is a discretionary leisure activity; people aren’t compelled to do it, and and if they become sonewhere that is perceived as unwelcoming then people just won’t bother.

Back in December, I asked my Twitter followers to what extent they expected these restrictions to be lifted by the end of 2021.

There was a wide spread of responses, which were slightly skewed towards the more positive end of the spectrum. However, only 28.5% thought the restrictions would be completely gone, and 44.7% thought that most or all would still be in place. That isn’t a prediction, and I sincerely hope these fears are unfounded, but it doesn’t bode well for the recovery of the pub trade.

The Wickingman has also set down some thoughts on the issues surrounding the reopening of pubs here.

Edit: There is a report today that the government are considering abandoning the Tier system and opting for a single system of restrictions across England. While in a sense that might seem “fairer”, it would delay reopening as all areas could only proceed at the speed of the slowest.

Sunday, 24 January 2021

Feeling the draught

It may seem a distant pipedream at present, but the day will eventually come when the pubs are allowed to open again. When it does arrive, the licensed trade will be in need of all the help it can muster to get back on its feet. One idea that has been suggested by CAMRA is to reduce the rate of duty on draught beer only.

This has a number of reasons to commend it. By definition, draught beer is only served on licensed premises (apart from the occasional person buying a cask or keg for a party) and so this would be very accurately targeted. It is clearly defined and virtually impossible to evade. Plus, unlike with reducing duty for all beer, or indeed all alcohol , sold in the off-trade, there would be no possibility of seepage into the off-trade. Even if someone buys a container of draught beer to take home, the pub still gets the benefit, and it can’t really be done on an industrial scale.

However, it’s important not to get carried away. It’s likely that most pubs would use it as an opportunity to rebuild their margins rather than passing it on directly to the customer. The exception, as usual, would probably be Wetherspoon’s.

And how much difference to consumer behaviour would it actually make? The duty plus VAT on duty paid on a pint of 4% beer is 52p. Even if that was halved, it would still only be a gain of 26p, which is well under 10% of the price of most pints. That’s really neither here nor there for most pubgoers and, as I wrote here, isn’t of itself going to tempt them to drink much more in pubs. “Responsible people who aren’t on the breadline, which is most of us, don’t go to the pub because the opportunity doesn’t arise, not because they can’t afford it.”

I’m also inherently suspicious of any attempts to use the tax system to discriminate between “desirable” and “undesirable” activities. For a start, they often have little effect, especially when going against the grain of people’s behaviour. Despite the 50% duty cut, there hasn’t been any upsurge in consumption of 2.8% ABV beers, because people just don’t want to drink them. And, although there aren’t really likely to be significant issues in this case, such policies also tend to lead to “tax break specials” to get around the spirit of the legislation, and have the potential to produce adverse unintended consequences.

Some CAMRA diehards will grumble that the majority of the benefit will accrue to the drinkers of Carling and Stella, not real ale. But the objective is to support pubs, not real ale as such, and it should not be forgotten that two out of every three pints drunk in pubs are lager, while only one in seven is cask beer. It is the lager drinkers who keep the pubs going.

Another question is how such a measure would interact with the existing systems of lower duty for very weak beers, and higher duty for very strong ones, and Small Brewers’ Relief. Plus the anti-drink lobby will be up in arms at any cut in alcohol duty, no matter how worthy the motivation.

Given the current state of the public finances, the likelihood must be that, in his Budget in March, the Chancellor decides to raise alcohol duties across the board. So, even though it may in theory have much to be said for it, don’t expect a cut in draught beer duty to figure on his agenda. And I doubt whether much, if any, draught beer will end up being sold in March anyway.

Friday, 15 January 2021

Vertical disintegration

Just before Christmas came the news that Brains Brewery of Cardiff had signed a 25-year deal with Marston’s to take over the running of their pubs, although they would retain the underlying ownership and continue to supply the pubs with beer. It was rather hard to know what to make of this, as it seemed to go against the usual trend of a company closing or selling off its brewery but continuing to operate its pubs, which typically account for the bulk of the profit.

Initially, it was met with guarded optimism, with CAMRA welcoming it as a means of preserving both the pubs and the brewery. However, it wasn’t long before it all started to unravel, and the announcement came that Brains were unlikely to reopen their new, state-of-the-art brewery, and that the beers could well end up being brewed in England. I’m sure Bedford or Wolverhampton could make a decent fist of them, but this would mean that a once-proud brewery company would be reduced a mere financial husk, with no direct involvement in either brewing or pub operation.

It should not be forgotten that, in the 1970s, Brains were one of the select band of breweries to offer real ale in every single pub they owned. Their flagship beer SA was one of the early standard-bearers of the real ale movement, although it is in a style that is no longer so fashionable. It is still one of my favourites, though, and one I will usually go for if I happen to see it on the bar.

However, they have suffered from the usual problems encountered by every brewery mainly dependent on the on-trade, which has halved over the last couple of decades. And in recent years they have seemed to lack a coherent strategy, introducing a range of craft beers that were well-received, but seemed to fall between two stools in the marketplace, and increasing their estate by expanding into England, only to sell all those pubs again early last year. Plus the lockdowns in Wales have been even longer and more restrictive than those in England, and Brains have now become the first major brewing casualty of the Covid crisis. Tandleman has also blogged very perceptively on the Brains story here.

No doubt this news will give the directors of the remaining family brewers pause for thought as to whether the vertically integrated model combining brewery and pubs is still relevant in today’s business landscape. Going back a couple of generations, this was the default in the industry. Breweries acquired pubs to sell their product, and the number of pubs they owned was a key factor in judging their success and status. Most production went through their own pubs, and most of what the pubs sold came from the owning brewery.

Up and down the country there was a patchwork quilt of independent breweries of various sizes, in general just producing variations on the theme of standard British beer styles. People would, in general, choose a pub based on its location, its atmosphere, where their friends went and what activities took place there rather than specifically which beer it sold. Obviously some beers were better regarded than others, but by the end of the 1960s the wave of big brewery takeovers had eliminated pretty much all of the total clunkers. Perhaps one of the last to go was Swales of Manchester, taken over by Boddingtons in 1970 with 38 pubs and rapidly closed down, whose beer was dismissed as “Swales’s Swill.” But I’m too young to remember it, and I may be unjustly denigrating them.

There were still about 100 independent family brewers remaining at the dawn of the CAMRA era. Some, such as Boddingtons and Young’s, had strong local followings, whereas others weren’t met with such enthusiasm. Locally, I don’t think people would have gone much out of their way to drink Burtonwood or Matthew Brown. But all of them had their own individual character, and there was something to be said for pretty much all of them. The only one that people seemed to struggle to find a good word about seemed to be Gibbs Mew of Salisbury. Often the main determinant of which pub to choose was whether or not they sold real ale – people would choose a real Oldham Brewery pub over a keg Thwaites one.

Over the years, the various pressures on the industry caused many of these companies to be taken over or leave brewing, with the result that less than half are still standing today. It must always be remembered that, with the one exception of Matthew Brown being taken over by Scottish & Newcastle in the late 1980s, all of these were agreed deals. The single biggest factor determining survival or extinction was the continued commitment of the owning family.

In the ensuing years, various changes occurred in the industry to undermine the viability of the integrated model. First was the rise of lager, which by the middle of the 1980s accounted for half of all beer sold in pubs. Many family brewers developed their own brands, some decent, some less so, but they never resonated with customers in the same way as their ales, and the lack of a well-known national brand on the bar was often a reason for drinkers to avoid their pubs.

Then there was the growth of the food trade. Some brewers had attractive suburban and rural pubs in their estates that were well-placed to capitalise on this, but it reduced the overall importance of ale in the sales mix. After the 1990 Beer Orders, there was a growing expectation of seeing a wider range of beers on the bar, whether rotating guest beers or national brands, making brewers’ own ranges look dull and uninspiring.

And the dramatic decline of total beer volumes in pubs, which halved between 1998 and 2019, put further pressure on the brewing side of the business. Typically, the family brewers sold a much higher proportion of their production in the on-trade than the industry as a whole. This trend has particularly affected wet-led pubs without food sales to fall back on, and this was exacerbated by the 2007 smoking ban. This type of pub was over-represented in the estates of many of the family brewers, such as those in the North-West.

The overall effect of these changes has been to greatly erode the synergy between the brewing and pub-operating sides of the business, and diminish the relative importance of brewing. As I’ve said in the past, many of these companies have come to look like a chain of smart dining pubs with an under-utilised ale brewery tacked on as an afterthought. Inevitably, this has caused some of them to question whether it makes sense to carry on this way in the future, and no doubt more will do the same.

But surely, if you are running an integrated business, it makes sense to make a virtue of it rather than seeing it as a problem. There are no magic answers, but several breweries have found ways to address this. For firms varying from Bathams to BrewDog, the fact that you can buy those particular beers in those pubs or bars is a major factor in defining their appeal.

Sam Smith’s beers may not be such a compelling attraction, but their overall offer is a highly distinctive one on the pub market, and they make a point of promoting the fact that as much as possible of what they sell is made in-house. That, incidentally, as also something that the supermarket chain Morrisons use in their publicity. And Holt’s of Manchester, while a lot less out on a limb than Sam’s, do brew their own range of lagers and stouts which are the standard beers in those categories in their pubs. If you own a brewery, you might as well try to make the best use of it.

Too many pubs now have beer ranges that are hard to distinguish from one another. Promoting the fact that Bloggs’ pubs are the best place to find Bloggs’ beers has the potential to create a unique selling proposition. It also must be noted that the integrated approach has been adopted by newer breweries such as Joule’s and Wye Valley who have built up significant tied estates that heavily feature their own beers. Clearly there is life in that model yet.