The premium merry-go-round

The hackneyed topic of cask beer premiumisation has recently reared its head again in the shape of comments by Georgina Young of St Austell Brewery. Tandleman rapidly provided a comprehensive and impassioned response. Cask beer, he always reminds us, has to be priced to go. Looking back I recall that back in 2019 I did similar out of something of a sense of exasperation.

The idea that increasing its selling price will improve the quality and perception of cask beer always seems to me to be a case of putting the cart before the horse. Premium positioning has to be earned over a long period of time – it can’t be achieved overnight. It’s certainly possible to achieve premium pricing for individual beer brands and pubs, and many, to a greater or lesser extent, succeed in doing this. But to premiumise an entire sector comprised of many disparate products, producers and outlets is an impossible task.

A key aspect of the market that very much works against the idea of premiumisation is the widespread culture of ever-changing guest beers. To achieve premium status, you need to be able to exercise a strong measure of control over product quality at the point of sale. You must make it possible for people to readily find your product, and to be able to make repeat purchases if they like it. And you will need to develop the perception of your product over a long period of time through a carefully considered and crafted marketing strategy.

But none of this applies to rotating guest beers. Yes, it matters that the individual pub knows how to look after its beer, but if one isn’t to your taste there will be another along in a couple of days, or even later the same evening. There’s no realistic way of having confidence that a particular brand will be available, and no opportunity to make repeat purchases. Sometimes, a guest beer may be one that you recognise and have enjoyed before, but very often they will be completely unfamiliar short-run brews. It is turning cask beer into an interchangeable, disposable, commodity product.

A further issue is branded glasses. The past ten or fifteen years have seen a major change in the on-trade beer market, as pretty much all of the leading brands have acquired their own distinctive design of glass. But obviously this cannot apply to rotating guests, which will just be served in a generic unbranded glass, or at best one with the name of the pub on it. This is also an issue for the perception of cask beer more generally.

I recognise that plenty of beer enthusiasts like this approach to selling beer, and are always on the lookout for something new. A fair number of pubs do well out of it. But it’s something that just doesn’t resonate with the 90% of pub drinkers who don’t drink cask, and indeed also a substantial proportion of those who do. Most people just don’t want to drink beers they’ve never heard of. And it goes completely against all recognised strategies of developing premium status.

By far the most successful example of a premium brand in the current beer market is Guinness, which I wrote about last year. Guinness ticks all the boxes of premiumisation. It is permanently available in a large number of pubs, so you know where you’ll be able to find it, and that you’ll be able to make a repeat purchase. It doesn’t occasionally crop us as a rotating guest stout. It’s distinctively different from anything else on the bar. A great deal of effort is put in to maintaining quality, and poor examples are highlighted, for example, by the ShitLondonGuinness Twitter account. And its brewers have over the years carried out a series of very well-crafted and memorable marketing campaigns to burnish its image, with a level of consistency no other brand can equal.

Going back thirty or forty years, this was matched by Stella Artois, which was carefully positioned as a premium brand using the “Reassuringly Expensive” strapline, which was introduced in 1982. But, more recently, this image has been eroded by cheapening the recipe and progressively reducing the strength, so it is now regarded as just a bog-standard product in what is described as the “premium lager” category, although in reality that just means “stronger than cooking lager”. It’s a classic example of the destruction of brand equity.

I would have said that Peroni had achieved something of the same image, being a beer that sold for a price premium, was not on draught in Spoons and was not sold in slabs of 440ml cans. I can’t say that premium lagers are something that much interests me in pubs, but I do get the impression that some of the shine has worn off more recently. And reducing its strength from 5.1% to 5.0%, while trivial in itself, is a slight chink in its image as something that stands out from other products.

In the cask sector, Timothy Taylor’s have achieved considerable success in positioning Landlord as a premium beer. It is now the second best selling cask beer and seems to consistently achieve a higher price point than other beers. It is noted for literate, gently humorous advertising placed in upmarket publications. However, Taylor’s don’t control quality at the point of sale, and it is frequently disappointing, in particular often being served too green. Unless it’s in a pub where I know I can trust the cask quality, I tend to give it a miss in favour of something else.

Ironically, one beer that has almost accidentally achieved many of the characteristics of a premium brand is Draught Bass. Pubs have to make a point of asking for it, rather than having it foisted on them by brewers, so the quality tends to be better. It has a strong reputation amongst a loyal band of devotees, so to some extent markets itself. And it has possibly the most instantly recognisable design of branded glass of any cask beer, which now seems to have got into most outlets. But it remains something of a secret in the wider beer market, and so doesn’t tend to sell for a premium price. Which, as a drinker, I’m not complaining about.

Drink for Britain!

The Daily Telegraph reports that an increasingly abstemious younger generation are blowing a large hole in the government’s revenue forecasts:

Clean-living youngsters threaten to blow a multibillion-pound hole in public finances as alcohol and tobacco tax income declines, the head of the spending watchdog has warned.

Richard Hughes, head of the Office for Budget Responsibility (OBR), has questioned whether assumptions about future tax income from what are often dubbed “sin taxes” are realistic. He told the House of Lords Economic Affairs Committee: “There are some bits of the tax system which are themselves not sustainable. In a few decades’ time we won’t collect any fuel duty because every car will be electric, and they don’t pay any fuel duty. Nowadays, you have to ask whether young people are drinking and smoking enough for us to be collecting alcohol and tobacco duties at the current rate that we are.”

Around one-third of 18 to 24-year-olds do not drink alcohol, according to surveys from YouGov, up from one in five in 2019. Some experts believe Generation Z are less interested in alcohol because they fear the fallout on social media if they embarrass themselves while drunk.

The number of smokers in Britain has also been steadily declining for years and Rishi Sunak has announced plans to ban smoking for the next generation.

Plans to balance the books are built in part on the assumption of higher incomes from sin taxes, particularly from drinking. Alcohol duty is set to bring in £13bn this year, according to the OBR’s forecasts, rising to more than £17bn in 2028-29, an increase of almost one-third in just five years. A failure to collect this level of tax could be significant for a government whose finances are already finely balanced.

It’s all very well making worthy attempts to cut down people’s consumption, but the risk is that you end up shooting yourself in the foot in terms of the public finances. Although somehow I can’t see our po-faced public health lobby being happy to follow the Japanese example and officially encourage young people to drink more to swell the Treasury coffers.

Champion in your own backyard

It was reported earlier this week that the highly-regarded Elland Brewery in West Yorkshire was facing liquidation. Obviously sympathy has to go out to those involved, but it’s an unfortunate fact of life that, at a time when there is significant overcapacity in a declining market, not all breweries are going to survive.

There often seems to be little correlation between breweries’ survival prospects and the quality of the beer they produce, and this was certainly true of Elland, whose 1872 Porter is the current holder of CAMRA’s Champion Beer of Britain award, which was revived in 2023 after three fallow years during the Covid crisis. It was also the runner-up in this week’s Champion Winter Beer competition, which was won by Sarah Hughes’ Snowflake Barley Wine. As these awards operate on blind tastings, this cannot be said to have just been a sympathy vote.

However, this clearly shows that winning CBOB is no guarantee of long-term success. As a 6.5% dark ale, the potential market for 1872 Porter would be inherently limited, and the award would probably have only made a marginal difference to Elland’s prospects. There is a full list of all past winners on Wikipedia, and many of the successful breweries have failed to go on to bigger things. As the page says, “While the award is prestigious, winning has sometimes caused problems for smaller breweries who have been unable to meet the demand for their champion beers caused by the newfound fame and publicity.”

In the early years, many of the winners were established favourites like Taylor’s Landlord and Fuller’s ESB, and winning would only have given a small fillip to their existing reputations. And quite a lot of winners are ones that never seem to have made much of an impact. I remember Coniston Brewery running into problems after Bluebird won in 1998, when they ended up sub-contracting production out to Brakspear to increase their capacity. However, this did not stop their No. 9 Barley Wine winning in 2012.

Some past winners, such as Oakham JHB, Harviestoun Bitter and Twisted and Castle Rock Harvest Pale, are ones that at least for a while were very often seen in the free trade, and I understand that Cwtch winning in 2015 gave a major boost to the fortunes of Tiny Rebel. That was (and is) a highly distinctive beer that people would make a point of looking out for.

Awards of this kind do not exist in a vacuum, and some regard has to be paid to what their purpose is, which in this case presumably is generating column inches about cask beer and promoting the category in general. People will expect the winners to be beers that they stand a decent chance of getting hold of and might actually want to drink. Having said this, it would seem unreasonable to exclude smaller breweries purely on the grounds of limited production capacity.

Four of the past five winners have been dark beers, and it often seems to be the case that dark beers do disproportionately well in beer competitions, perhaps because they tend to have stronger and more clearly-defined flavours that make an immediate impact on the judges. But it’s been widely observed that dark cask beers don’t tend to sell well in the pub trade, and drinkers may react with “Yawn, yet another stout or porter.”

Another consideration is strength. As with dark beers, the market for cask beer over about 5.0% is fairly limited. Indeed one contributor to Twitter suggested putting a strength ceiling on CBOB contenders. The proportion of everyday cask drinkers (i.e. not the habitués of specialist taprooms) who would even consider ordering a 6.5% porter, is relatively small. But if beers are good, however strong they are, is it fair to exclude them?

I’m pretty agnostic on this issue, as I can see the arguments either way, and limiting the field for a competition may undermine its credibility. But it’s undeniable that, over time, the impact of any kind of award will be lessened if it is repeatedly given to products that, whether because of their style, strength or limited availability, aren’t going to be of much interest to the majority of consumers. If say, you were running a fiction prize, and awarded it year after year to experimental avant-garde novels, it would be hardly surprising if most of the reading public switched off.

Give me some relief

Several industry bodies have joined together to campaign for a reduction of VAT applying to hospitality and tourism from 20% to 10% in the forthcoming budget on Wednesday 6 March. This is something that would give a significant boost to a hard-pressed sector. Several other countries have a similar differential, and there is a precedent for it in this country on a temporary basis during the Covid crisis. There is a petition to support it here, which also gives more detail on the rationale behind the proposal. A petition has also recently been added to the government website here.

However, a note of caution is needed. It would lead to a large hole in Treasury receipts and, while it has been widely reported that there is some scope for tax cuts, this may not be seen as the highest priority. While hospitality is a major industry and a large employer, most hospitality spending is to some extent a luxury, and prioritising daily necessities may be seen as more important. So, realistically, the chances of it actually happening must be below 50-50.

A further issue is that it would apply to hot takeaway food as well as on-premises consumption. This was the case with the VAT relief during Covid, and in practical terms it would be impossible to disentangle the two. So it might be portrayed as a tax bonus for McDonald’s and kebab shops.

On the other hand, it would not apply to alcoholic drinks, so there would be little or no benefit to wet-led pubs. Again, this was the case during Covid, and it would be very difficult to rigidly segregate on- and off-sales. In any case, the proponents of the reduction aren’t calling for it to apply to alcohol. And the public health lobby would be up in arms if there was any tax reduction on drink.

The effect of a reduction in VAT from 20% to 10% would be to reduce sale prices by 8.33%, although it is probable that much of it would be used to strengthen margins rather than being given directly to customers. Of course this would provide a boost, but it isn’t really a game-changer either way. So, while a VAT reduction would be welcome, it’s probably wise not to bet the farm on it happening.

In contrast, some of the advocates of a VAT reduction have been pooh-poohing the idea of freezes or reductions in beer duty. “We never see any of it”, they complain. Well, there hasn’t been any reduction in the general rate of beer duty for several years. The differential between draught and packaged rates was achieved by freezing the draught duty while increasing that on packaged beers. So there hasn’t been anything for brewers to give to pubs. (It is true that the lower sub-3.4% duty rate doesn’t seem to have resulted in much reduction of wholesale prices for the products it applies to).

But the UK has one of the highest rates of beer duty in Europe, if not the world, so any freeze or reduction would be welcome, and would benefit all beer drinkers. It’s a lot better than the alternative - if there was to be a substantial increase, then no doubt the same people would be loudly decrying it. And to dismiss the impact of beer duty changes rather undermines CAMRA’s campaign to widen the draught discount from 10% to 20%.

There are other forms of tax relief that might benefit the licensed trade, in particular reducing the rate of employer’s National Insurance contributions, which has been widely touted as a possibility in the budget, and is probably more likely than a VAT cut.

Another turn of the screw

In a move that will surprise no-one, the Guardian reports that the Scottish government are planning to announce a 30% increase in the minimum unit price for alcohol, from 50p to 65p. I have discussed this extensively in the past, so don’t propose to go over old ground again, but I will repeat what I wrote a couple of years ago:

Meanwhile, the Scottish government has released a report on the impact of MUP on homeless and street drinkers. This confirms that, to some extent, all the predictions made before its introduction have proved to be justified – a switch from cider to spirits, increased use of illicit drugs, especially cheap “street benzos”, consumption of “non-beverage alcohol”, an increase in theft and begging to fund drinking, and allocating a greater proportion of a limited budget to alcohol. As the old Russian proverb goes, “Daddy, now that vodka is dearer, will you drink less? No, my son, you will eat less.”

Maybe the policy, does, all things considered, have an overall beneficial effect. But it is certainly an indiscriminate blunt instrument that creates a lot of collateral damage. And, while it isn’t stated explicitly, it’s hard to avoid the conclusion that at least part of the motivation behind MUP was to deter and denormalise alcohol consumption amongst normal drinkers of modest means. It is effectively a tax on the less well-off.

The report states that Scotland has experienced a 25% rise in alcohol-related deaths over the past three years, which hardly suggests it’s an effective policy. But is it a case of “ the medicine isn’t working, so we must increase the dose”? The question also has to be asked why a party calling themselves the “Liberal” Democrats are supporting such an illiberal policy.

The 50p rate did increase the price of many bottom-end products, particularly cheap cider, but it only nibbled at the heels of mainstream drinks. However, 65p will increase the price of most off-trade alcohol that people buy. A four-pack of Stella or Madri will be at least £5.26, a bottle of 13% red wine £6.38 and a standard 70cl bottle of whisky £18.20. It will also put a huge amount of money into the coffers of retailers by in effect legitimising a price-fixing ring.

As I said, the fact that the main impact will be felt by normal everyday drinkers is as much a feature of the policy as a bug. It will now not only be “screw the poor”, but screw the middle class as well.

It won’t affect any drinks sold in the on-trade, with the possible exception of guest ales in Wetherspoon’s after the CAMRA discount has been deducted. But it is completely delusional to imagine that this will drive any extra trade to pubs, and indeed it may well hurt them by putting more pressure on household budgets.

Up the organisation

Following Tim Martin receiving a knighthood in the New Year’s Honours List, J. D. Wetherspoon have achieved recognition as one of Britain’s Top Employers.

To achieve Top Employer certification, participating organisations are assessed by the Top Employers Institute via an analysis of their people practices. The HR Best Practices survey covers six HR domains consisting of 20 topics across the business and employee lifecycle, including people strategy, work environment, talent acquisition, learning, wellbeing, and diversity & inclusion. The information is then validated and audited independently by the Top Employers Institute to ensure the integrity of the processes and data.

JDW people director Tom Ball said: We are extremely proud to be considered among the best employers in the United Kingdom, particularly as the recognition comes from an independent organisation, which researches numerous companies. The company employs more than 41,000 staff across its pubs in the UK and the Republic of Ireland, as well as at its head office. JDW is committed to offering employees the best opportunities to succeed and grow within the company, including studying for qualifications and apprenticeships. This is evident in the number of staff progressing to more senior positions at JDW.

Some people with an axe to grind like to characterise Wetherspoon’s as a bad employer, but it fact it is clear that they take their responsibilities very seriously. It’s also obvious that, with a few exceptions, their employees give the impression of being enthusiastic and committed to their work.

While many employees just view it as a short-term opportunity to earn money while studying, as the article says there is also the possibility of advancement up the hierarchy if that is something that interests you, something that is not available if working for an independent pub or bar. This is also true of McDonald’s, another company that is often looked down on. Hospitality must have one f the highest ratios of senior staff who started at the bottom of any major industry.

The biggest domino falls

Last December, I produced a summary of changes resulting from the introduction of the new reduced duty rate for beers of 3.4% or below, which came into effect from 1 August 2023. I noted that, although Boddington’s and Tetley’s smooth beers had been reduced, John Smith’s, the market leader, hadn’t been. But it was always going to be only a matter of time, and the brand owners Heineken have unsurprisingly declared that, from the beginning of February, it too will be cut to 3.4%.

Apparently 1.3 million hectolitres (794,000 barrels) of John Smith’s are still brewed each year at Tadcaster, and it is presumably the biggest-selling ale brand in the UK, and thus the entire world. (This is excluding Guinness, which is technically a type of ale). That is a major shift in the beer market. Predictably, Heineken have come up with disingenuous claims that its has been done for health reasons, to reflect drinkers’ preferences for lower-strength beers, but it is obvious to anyone with half a brain that duty savings were the overwhelming consideration.

This news resulted in a predictable outbreak of snobbery along the lines of “who drinks John Smith’s anyway?” But a lot of people do – those 794,000 barrels represent not far off 3% of the entire beer market, far more than any individual cask brand. (Cask Doom Bar sells 88,000 barrels a year, and the bottled version will probably do at least the same.) And you cannot stand there on your little rocky island and ignore the tides of watery beer lapping ever closer to your feet.

In any case, the cask sector isn’t immune either. Greene King IPA, the third biggest-selling cask beer, was quick off the mark to reduce its strength last year. Since I wrote last December, I have learned that two more leading brands of bitter, Tetley’s and Banks’s have followed suit. Several smaller brands have done the same, most recently Taylor’s Golden Best. Ordinary bitter isn’t the dominant force that it once was, and only includes one of the top ten brands, but this is certainly a significant trend.

It must be remembered that many in the industry, plus CAMRA, supported increasing the lower-strength cut-off from 2.8% to 3.4%. CAMRA has always had something of a soft spot for lower-gravity beers, and has for many years run campaigns to promote Mild. Giving a boost to these beers seemed an appealing idea. For example, in this press release from 2021 they said “Cutting tax for lower ABV drinks will incentivise lower strength alcoholic drinks”.

It doesn’t seem to have occurred to them that creating such a steep duty cut-off would lead to the large-scale watering down of beers at higher strengths. On a smaller scale, it’s a repeat of the Beer Orders, where well-meaning support for a legislative change led to severe unintended consequences, in this case the British beer market being swamped with a tide of bland, watery beers. “When we said we want to support lower-strength beers, we didn’t mean there should be a lot more of them!”

It was virtually impossible to brew beers at 2.8% with much body or character, and most brewers didn’t try. But 3.4% is a different matter. A 3.4% beer can be sort of OK, palatable enough, although it’s unlikely to uproot any trees. And there were already plenty of well-regarded milds and light bitters of that strength, although subtlety tended to be a typical characteristic.

Back in the 1950s, most beers were like this. As Anthony Avis wrote in his memoir about Norfolk beers: “All the Norwich brewed beers, before and after the last war, were much the same – thin, flat and lifeless; however, they suited, or appeared to suit, the customers.” It wasn’t a matter of rapid inebriation, more of a gentle lubricant to habitual socialising. Plus at this time the actual strength of beer was never declared. So drinkers may well end up grudgingly putting up with these beers even if they’re not particularly enthusiastic about them.

As far as I can see, Worthington Creamflow remains at 3.6% both on draught and in cans, but surely it is only a matter of time before that is cut too. And I’d expect the brand owners of Fosters and Carling to be at least discussing whether they should also take the plunge. It may even have come up in the Guinness boardroom, although I can’t see that happening. As I said in my earlier blogpost, it will take some time before this change fully works its way through the beer market. It would not surprise me if, by 2026, fully half of all beer sold in Britain is 3.4% or below. You may not like it, but you’ll be left with little choice other than to lump it.

Worthington Creamflow is, of course, a staple of the Wetherspoon’s beer offer, and there remains the conundrum of the ABVs declared on the Wetherspoon’s app. Both Carlsberg and Bud Light have officially stated that their strength has been cut to 3.4%, but they are still declared at 3.8% and 3.5%. And UK supplies of Leffe have now been cut to 6.0%, but the app shows it as 6.6%. Are Wetherspoon’s being remiss in not updating their app, or are they getting special supplies of stronger brews?

Then they came for the vapers…

In its dying days, the present government seems to have developed a distinctly illiberal streak. First there was the utterly appalling creeping smoking ban announced last Autumn, following the example of New Zealand, where the policy has since been scrapped after a change in government. And now they have announced that they are going to ban disposable vapes completely, giving as a reason the protection of children. But it is already illegal to sell them to under-18s, so surely the answer should be to enforce the law more effectively, rather than to deprive adults of a legitimate pleasure.

Chris Snowdon has summed up the case against this very well, and he makes the point that:

There is also the small matter of personal liberty. Banning adults from buying products because minors sometimes buy them illegally has never been a principle of UK law. Many more 11-15 year olds drink alcohol regularly than vape regularly, but no one is talking about banning cider.

Even if the loss of liberty doesn’t concern you too much, there is a more utilitarian argument that it is likely to lead people to return to smoking tobacco. It is generally accepted that vaping is considerably safer than smoking, so this would appear to be a major own goal.

However, as Sam Bowman says on Twitter, the idea that anyone could actually take up vaping because they enjoy it, rather than as a smoking cessation tool, makes the heads of the public health establishment explode. The same applies to drinking, smoking, gambling and eating crisps and chocolates. Adult consumers are viewed as unwitting dupes with no personal agency.

Most people in politics in the UK don’t understand that adults enjoy pleasure, and so don’t just drink, gamble, smoke, vape or eat because of addiction or advertising. https://t.co/zNhGvCgoUS

— Sam Bowman (@s8mb) January 29, 2024

We like to boast in Britain that we are a freedom-loving nation, but in fact in recent years we have increasingly turned into a ban-loving nation, as shown by the widespread enthusiasm for lockdown restrictions. As Chris Snowdon says in his article:

The British public love a ban. Last month a survey found that 29 per cent of us want to close the nightclubs to deal with the remnants of Covid-19 and 20 per cent want to re-introduce lockdown.

This tendency is likely to continue even if there is a change of government later this year, and indeed there’s a distinct possibility it will intensify. So if you are minded to support this particular prohibition, bear in mind that eventually they will come for your own preferred indulgence, and the vapers are unlikely to give you much support when they do.