Thursday 20 April 2023

Kicking the can

Last Autumn, I wrote about the issues surrounding the Scottish Government’s plans to introduce a Deposit Return Scheme (DRS) for beverage containers, with effect from August this year. It has to be said that some of the comments showed a complete misunderstanding of the nature of the scheme, in particular failing to appreciate that every container would need a specific barcode to confirm it was one on which a deposit had been paid, and not realising that, unlike virtually all similar schemes in other countries, every producer would be required to register and would have their performance monitored in terms of the proportion of containers returned.

Since then, there was a growing chorus of concern from both industry and consumer groups that the scheme as designed would be inflationary, would impose significant extra costs and administrative burdens on businesses, and would severely restrict consumer choice. It also became clear that no attempt had been made to look at how such schemes operated in other countries, and that the Scottish Government had failed to apply for an Internal Market Exemption from the UK Government, which would be needed to put the scheme into operation. Plus it remained unclear how the deposits would be treated for VAT purposes, which is essential for the programming of electronic point-of-sale systems. So it started to look increasingly likely that there would be some further delay in the implementation date.

Then in the middle of February came the unexpected and precipitate resignation of Nicola Sturgeon, which turned out to put a slow-burning match under the whole edifice of the Scottish National Party. All three of the candidates to succeed her said that, to a greater or lesser extent, that they would review the scheme, and earlier his week her eventual successor Humza Yousaf duly announced that the implementation date would be pushed back until 1 March next year. However, the hapless Yousaf now seems to be inhabiting a burning building, with the whole of the SNP having imploded, so it’s anyone’s guess exactly what the situation will be then.

In any case, all that he has done is to kick the can further down road. While the extension does give the opportunity for a review, and allows businesses more time to prepare, nothing has actually changed, and the scheme remains as damaging and impractical as it was before. In the words of a statement from the Night Time Industries Association Scotland (NTIA),

“The NTIA welcomes the news that the Scottish Deposit Return Scheme has been delayed until March 2024, but we need to be clear that the scheme as designed is fundamentally flawed and remains completely unworkable for large parts of our sector. It would also be significantly inflationary and worsen the cost of living pressures being felt across society.

“Scotland’s DRS as currently proposed cannot be fixed by tweaking around the edges, and a total redesign, learning the lessons of schemes elsewhere, is needed. If there is to be a scheme it also must be identical in scope across the UK, launching at the same time UK wide, and it should be much simpler and less expensive to implement.

“We urge Scottish Government to now engage in meaningful consultation with businesses and commission a full review and redesign from scratch of the deposit return scheme.”

So, unless there are significant changes, Scotland will end up in just the same mess in March 2024 as it would have done in August this year. There must be a very severe doubt as to whether that date will be achieved either. If a DRS is to be implemented at all, surely the sensible option would be to shelve the Scotland-only plans and await the UK-wide scheme planned for 2025, which will avoid the creation of any internal trade barriers.

It also has to be questioned whether such a scheme is worthwhile in the first place. Unlike most other countries that have introduced a DRS, the UK already has an effective system of kerbside collections which handles the majority of beverage containers. Recycling is not worth doing regardless of cost and, in a report produced by the Institute of Economic Affairs, they point out that it does not make economic sense even when intangible benefits are taken into account:

A UK-wide deposit return scheme (DRS) can be expected to increase recycling rates for beverage bottles and cans from 70-75 per cent to 85-90 per cent, but at a disproportionate cost.

A DRS is expected to cost over £1 billion in its first year and £814 million per annum thereafter. The tangible economic benefits are expected to be less than £100 million per year. In financial terms, a DRS would be highly inefficient, largely because kerbside collection already recovers 72 per cent of these containers.

The government’s impact assessment is only able to claim a net economic gain by including intangible benefits of £968 million per annum from a reduction in litter. This figure is highly questionable. The impact assessment neglects to include the much larger costs of unpaid labour that will be incurred by households having to collect, store and return empty containers. When the full costs and benefits are included in the analysis, there seems to be no economic case for a deposit return scheme.

There also remain significant questions around the sheer practicalities of how the scheme is expected to work. The sheer volume of containers involved is enormous. I haven’t been able to find a figure for the average number people use, but if we assume it’s two per person per day, that means a two-person household will generate well over a hundred per month. People are supposedly going to use “reverse vending machines” that will give you a credit for each container but, given that they’re going to have to check the barcode on every one, they’re not exactly going to the lightning-quick. How many of these will be needed to avoid massive queues? Is there enough supply to achieve this from the start? Where will they be located, and who will be responsible for operating them? Has there even been a demonstration of one in a UK context?

Another issue is how the repayments will actually be made. In some other counties the machines issue supermarket vouchers, but I can’t see most people being happy with that. They’ll want actual money. And, while it may be possible to create a system where people create an account that sends the repayments directly to their bank, that’s not going to cover everyone and will create a barrier to claiming refunds. A foreign student who buys a can of Coke in the street is going to want actual cash, so are we going to have machines dotted around the streets containing large sums and potentially presenting a target for thieves?

As I said in my previous post, given that we already have an extensive system of kerbside collection that in general works fairly well, surely it would make sense to build on this for the majority of containers that are consumed at home, rather than making people use something entirely different. Effectively all such containers that I buy go in the recycling already, so personally I would gain nothing apart from more hassle. I, and I’d guess millions of others, would happily get a private company or charity to collect the containers from the my home and take a commission for doing so.

At the same time, the Scottish Government announced that they were withdrawing their proposals for draconian curbs on alcohol advertising and promotion and would review them. I have to say I didn’t get too worked up about these, as they always seemed too extreme to be actually implemented. Such ideas always show a failure to appreciate how advertising actually works. They would have done little or nothing to address problem drinking and would have disadvantaged small producers and new entrants to the market in favour of the big established players. The main motivation seemed to be to express a distaste for alcohol in general. And to demonise the industry that is your biggest export earner is a spectacular example of shooting yourself in the foot.

Monday 10 April 2023

A touch of grey

We live in an ageing society, with an ever-increasing ratio of older people compared with younger ones. However, you would never guess this from the media, who seem obsessed with the youth market. Scarcely a week goes by that we do not hear of some presenter or columnist being put out to grass in the interest of “bringing in new blood”.

This can be a dangerous attitude to carry across into the business world, where companies often seem preoccupied with attracting a diminishing and fickle youth audience while loyal older customers are ignored. This article identifies this misapprehension as one of the factors behind the fall of Silicon Valley Bank:

When releasing its annual State of the Wine Industry report for 2023 (as well as lending to tech start-ups, it also had a premium wine lending arm), it came to the conclusion that the future of the wine sector depended on bringing a new generation of young drinkers into the category.

This was the wrong decision again by SVB. The reality is that great swathes of young people don’t touch wine, and they never have done. Consider that as many as 35% of people in their 20s don’t drink vino at all, whereas in contrast, the majority of wine is consumed by the over-40s. What actually happens is that many of these younger drinkers ultimately move over into the wine-drinking camp as they get older, and possibly more discerning with their alcohol choices.

The same seems to happen on a regular cycle with trying to attract younger drinkers to cask beer. However, the main thrust of Glynn Davis’ article is how this attitude applies to the pub trade. Increasingly, the over-45s are the people with both the time and money to spend in pubs, but when they do cross the threshold they encounter a variety of factors that make them feel ill at ease.

Meanwhile, 25% of the population is sitting pretty. These are aged over 45, largely mortgage-free and living rather comfortably, with plenty of disposable income. But they have moderated their behaviour in line with the rest of the country and reduced their frequency of visits to pubs, bars and restaurants.

Drawing these people out of their homes more often must surely represent a major opportunity for the hospitality industry? They need to be given more confidence, and reasons, to get spending again, and this could involve some really simple things like increasing the print size of menus, adjusting the lighting and addressing one of the biggest bugbears of older customers – the high volume of music in many venues.

The volume of music in pubs is a perennial complaint. Regardless of what genre it is, if it’s too loud to sustain a conversation many people are simply not going to want to stay. I remember on our trip to Shifnal in 2019 going in the Crown in mid-afternoon and being regaled by the greatest hits of Pink at absolutely earsplitting volume. There were very few other customers, none of them particularly young, and I’m really not sure for whose benefit it was being played. As I said, “It wasn’t surprising that this was by some way the least busy of all the pubs we visited.”

The choice of music is also an important factor. It has to be remembered that the older generation are people who have lived through the Summer of Love, punk and rave culture, and so don’t necessarily want to be given the musical equivalent of a pipe and slippers. They are people who will still put School’s Out, Back in Black and Smells Like Teen Spirit on the jukebox. There is a tendency to believe a pub appealing to a more mature clientele should offer a mixture of bland easy listening and songs from the shows, which can be very wide of the mark.

From the Beatles to the Britpop era, the popular music of the day was part of the general public consciousness. But, in the present century, the fragmentation of media and the growth of streaming has greatly undermined this, and so if a pub plays contemporary pop it will to a large extent fall on deaf ears. And a crucial factor is that music should always be selected to suit the tastes of the customers, not the bar staff.

Edit: I ran this Twitter poll which underlines the point. Only 13% of respondents said they made any effort to keep up with the current charts, including a slightly lower proportion of under-50s:

Pub seating is another important aspect. If customers aren’t comfortable, they’ll go elsewhere. A particular offender is the growing trend towards high-level posing tables. A couple of years ago, Holt’s refurbished the Cat & Lion at Stretton, a prosperous and genteel suburb just south of Warrington. Yet the bulk of the seating in the main bar area consists of posing tables, as pictured. You have to wonder where all the fit young customers are going to come from who will find that appealing. Another type of seating that is very offputting to older people is long forms with no backs, as often seen in craft bars.

Other factors that could be added are:

  • Low lighting, making reading impossible.

  • Bare wood floors, which echo and amplify noise rather than soaking it up.

  • Long flights of stairs to reach the toilets. There is a huge territory covered by “not disabled, but not as sprightly as I once was”. Wetherspoon’s do well on most of these points, but not on this one.

  • Putting your entire menu on a blackboard – maybe OK for daily specials, but regular items should on a printed menu with font of a legible size and which makes it clear how to order and exactly what comes with what.

  • Allowing noisy children a free run of the pub.

Obviously if a pub deliberately markets itself as being targeted at the older generation it is likely to have a negative effect – oldies do not want to be reminded of the fact. But it shouldn’t be too difficult for pub operators to take a few simple steps to avoid being offputting to older customers without deterring anyone else. And, at a time when younger people seem to be increasingly avoiding alcohol entirely, and preferring burying themselves in social media to actual physical socialising, it makes good business sense.

It’s easy to say “you need to catch them young”, but it has been extensively demonstrated over the years that there are many things in life that people just grow into. An excessive focus on youth is likely to prove counter-productive.