Priced out

I recently saw a couple of posts on X/Twitter expressing dismay at the rising price of beer in pubs. One was taken aback to find a London pub asking £7 for a pint, while the other was appalled that the price of Guinness in a Salford pub had risen by 70p over one weekend. With the multiple cost pressures imposed on pubs by the government, we are likely to see many more such stories in the coming weeks and months.

The obvious answer is to vote with your feet, but pricing in pubs is a very different concept to that of groceries in shops. One obvious difference is that a pint in a pub is always to some extent a discretionary purchase. You don’t *have* to buy it, and always have the option of staying at home instead, as the declining sales of beer in pubs demonstrate.

A pub isn’t simply a shop that sells alcohol – each one has its own distinct characteristics in terms of its general ambiance, the other people who go there, and its wider offer in terms of such things as food, games, TV sport and live music. If you value these things in a pub, it will take quite a hike in prices to drive you elsewhere, and indeed drinking less or going less often are more likely responses.

Each pub depends on its location for a lot of its clientele, whether it is people who live locally, or who happen to be in that particular area, whether a town or city centre or close to a tourist attraction. The range of pubs from which potential customers will realistically choose is limited. Relatively few people are going to travel a substantial distance solely to visit a particular pub, and those who do are unlikely to be mainly motivated by price anyway.

The average British adult only drinks about 1¼ pints of beer in a pub each week, which really isn’t very much. Drinking a lot of beer in pubs, such that it has a significant impact on your personal budget, is very much a minority pursuit. Many pubgoers are there primarily to have a meal, and if you’re happily spending £17.95 on a braised lamb shank, whether your pint of Landlord is £4.75 or £5.50 is neither here nor there. A further factor is that, although it’s a dwindling custom, many drinks are purchased in rounds, so the impact of high prices is dulled. If you are someone who is price-sensitive and drinks a lot in pubs, then you will obviously gravitate towards Wetherspoon’s or one of the “value pubs” found in most towns, but a large segment of pubgoers do not fall into that category.

The combination of these factors results in the overall price elasticity of beer in pubs being well below 1. If you increase the price by 10%, you may lose some custom, but it will probably be considerably less than 10%. So, as I said in my recent post about Wetherspoon’s business model, over many years it has been tempting for the pub industry in general, in response to higher costs, to increase prices by just a little bit above the prevailing rate of inflation. They lose a bit of sales volume, but protect their margins. However, the end result of this is that eventually you wake up and realise that, in real terms, a pint costs twice as much as it did fifty years ago. This is a kind of “tragedy of the commons”, whereby individual pubs make decisions that seem sensible for them taken in isolation, but it has a highly negative effect on the industry as a whole. Many people now simply find drinking in pubs unaffordable.

The relatively low price elasticity of beer in pubs cuts the other way too, of course. If you cut your prices by 10%, you’re very unlikely to grow your trade by the same amount. As I wrote back in 2016, there are plenty of reasons for the long-term decline of on-trade beer sales that are nothing to do with price. If anything, it’s because, for a variety of social and legislative reasons, the range of occasions when people will even consider a visit to the pub, except if having a meal, has drastically reduced. People just don’t weave the odd one or two pints into the pattern of daily life like they once did. Reducing external cost pressures will put pubs in a healthier financial situation, but it won’t necessarily do anything to increase their trade.

In the early days of CAMRA, there was often an inverse correlation between price and beer quality. The keenest prices tended to be found in the tied houses of independent family brewers who had not invested in either expensive, ephemeral pub renovations or large-scale marketing campaigns. This is much less true nowadays, as many of the remaining family brewers have moved upmarket and concentrated on food-led pubs. Around here, Robinson’s and Lees no longer offer a cheap pint and seem to have largely given up on working-class boozers. Some of the smallest brewers such as Batham’s, Holdens and Donnington do still offer low prices, however, and Samuel Smith’s, despite several price increases since Covid, are in the North still usually cheaper than anywhere else apart from Wetherspoon’s if you can actually find one of their pubs that hasn’t been closed down.

Now, pricing seems to depend much more on the social status and spending power of the pub’s location. Some pubs deliberately use high pricing as a means of customer selection, while in less affluent areas there will be “value pubs”, often keg-only, with notably low prices and clientele to match, either independently run or offshoots of major pubcos. Some of the worst and most expensive cask beer is found in upmarket food-led pubs, where a row of colourful pumpclips on the bar adds to the atmosphere even if they don’t actually shift much of it. I’m not exactly on the breadline, but I have to say that finding a pub that is charging well above the odds for their local market is something that sticks in the craw, and is very often a signifier of the kind of “up itself” pub I’d prefer to avoid. There is no automatic correlation between more expensive and better. On the other hand, a commitment to reasonable (not dirt-cheap) prices often indicates a generally positive attitude to customer service.

There does, however, sometimes seem to be a naïvety about pricing amongst independent operators, who fail to understand that what customers are willing to pay is just as important as what the product actually costs. I recently read of one modern bar in a Northern city who were complaining that they couldn’t make any money despite being packed out all the time. In this situation, surely adding 20 or even 40p a pint across the board would hardly be noticed, but go a long way towards solving the problem.

Over the years, very much unlike supermarkets, the pub industry has demonstrated a general reluctance to compete overtly on price. There has been a kind of gentlemen’s agreement not to rock the boat. A major factor in this is that, if they were to go for a low-price strategy in their managed houses, they would undermine the business of their leased and tenanted pubs. This provided a market opportunity for Wetherspoon’s, who were new entrants solely operating managed pubs and did not have to consider the interests of tenants. While many pubs offer happy hours and midweek discounts, it is very rare to see them promoting themselves as offering consistently low prices across the board.

And while we’re on the subject, surely the time is long overdue for pubs to clearly display draught beer prices at the point of sale. They must be about the only type of retail outlet where this doesn’t happen. That way I could avoid a shock like being asked £3.15 for a half of 3.8% house beer in a very ordinary pub in Chester city centre. Wetherspoon’s do this, most craft bars do, so why can’t the general run of pubs?

Part of the Union

At the beginning of last year, Carlsberg-Marston’s announced that they were discontinuing the use of the Union sets at their Burton brewery, which were used to brew Marston’s Pedigree. This decision was met with a certain amount of wailing and gnashing of teeth but, as I said at the time, “it must be remembered that Carlsberg-Marston’s are a commercial company, not the custodians of a brewing museum.” They will have made a hard-headed decision that the additional costs involved in operating the unions outweighed any additional kudos that they conferred amongst consumers. The fact that many beer enthusiasts tended to sneer at Pedigree can’t have helped the case for their retention.

However, later in the year, Thornbridge Brewery in Derbyshire managed to obtain one of the Union sets and proceeded to put it into service for brewing. They must have concluded, reasonably enough, that there was sufficient regard for the process amongst enthusiasts to make it a commercial proposition. They started off with a Union-brewed version of their iconic Jaipur IPA, and then went on to brew a specific beer called The Union, in more of a classic English style, at a hefty 7.0% ABV.

In my end of year review, I suggested that “maybe they could also consider brewing a 4.5% Burton-style pale ale that would be a direct replacement for Union Pedigree”, and indeed this came to pass earlier this year in the form of the 4.5% 1838.They were offering a mixed case of four of each beer, so I thought I would get my hands on one and give them a try. Both are bottle-conditioned beers, a technique that Thornbridge seem to have mastered to produce consistent results.

First up was The Union (7.0% ABV). Thornbridge describe this as follows:

The Union is a classic British style IPA, created using the very best ingredients we can get our hands on and then fermenting it in our Union set. For our base malt, we have used Maris Otter from Norfolk, where the sandy soil and maritime climate is perfect for growing the variety. We've also added a touch of Simpsons' best crystal malt to add a touch of colour and rounded sweetness and some of the special (and expensive) "Brewers Invert No. 2", sugar from Ragus, which will add notes of caramel and toffee while helping to keep the beer's body in check. The all important hops are British grown Goldings and Northdown, which gives us some gentle berry flavours and rounded cedar-like hop aromas to balance the maltiness. We've pitched two of our yeast strains, namely our fruity British cask ale strain and the California ale yeast, which is fairly neutral in flavour and ensured the attenuation we were looking for.

My tasting notes were: Pale colour, no problem with pouring it clear. Not gassy, but gentle spires of carbonation rising in the beer. Hoppy, but not so much so as Jaipur. Initially light, but the alcohol heft comes through later. A fairly, subtle, restrained beer for its strength. Their openness about the use of invert sugar, something that is integral to the character of this style of beer, is worth noting.

I then moved on to the 1838 (4.5% ABV). Thornbridge say of this:

Named after the year the Burton Union system was patented by Peter Walker, 1838 is brewed exclusively on the set at Thornbridge. 1838 combines the best British malt, Maris Otter, with the finest Goldings hops for a full-bodied, premium pale ale with a light amber hue. This beer delivers sweet, biscuity malt flavours balanced with floral hop notes and a crisp finish.

My tasting notes were: Pours clear, good carbonation, dense, rocky head. Slightly darker than The Union, probably mid-way between Jaipur and Pedigree. Definitely hoppy, but with a firm malt base and a hint of sweetness. Another subtle yet complex beer. and very drinkable.

These are both very good beers, and demonstrate that there can be a successful niche market for a product that enthusiasts valued, but was no longer considered viable in the mainstream. However, in a world of heavily-hopped New World IPAs, the question must be asked whether these relatively understated beers in a classic English style will make a mark. Ordering online, these beers came to almost £4 a bottle, so they are probably something better regarded as an occasional treat rather than a regular drink, especially when Jaipur can be obtained from Morrisons at 4 for £7.

Reinventing the pub

Last month, Wetherspoon’s announced that they were removing steaks, gammon and mixed grills from their menu. This resulted in a predictable outbreak of grumbling, but it’s the only the latest example of a long record of discontinuing supposedly popular menu items. One of the most notorious was dropping Sunday roasts in 2016. Later they discontinued traditional Christmas turkey dinners. It is another example of the company taking a somewhat ruthless attitude to revamping their offer to increase their profitability. They must have decided that steaks were a declining market and required too much time and effort in the kitchen.

This month, the pub trade will experience a massive increase in costs, with swingeing hikes in national insurance and business rates, and a rise in the minimum wage well above inflation. The stagnant general economic climate means that customers don’t have the money for large price increases. The inevitable result is that pubs will struggle, and a fair number will end up closing. But it’s a good bet that Wetherspoon’s, while they will experience the same pressures, will manage to weather the storm.

The first pint I ever bought in a pub cost me 21p in 1976. The Bank of England’s official inflation calculator* reckons that the current equivalent price would be £1.39. But, in reality, a similar pint in a pub around here today would cost at least £4, almost three times as much.

It’s often not recognised that buying a pint of beer in a pub is primarily buying a service, not simply a physical product. The wages of the staff and the overheads of the premises also have to be taken into account. Over time, as real wages increase, while manufacturing efficiencies reduce the price of physical products, the price of services rises vis-à-vis that of goods.

It is generally acknowledged that the price elasticity of a pint a beer in a pub is well below 1. If you increase the price by 10%, you will lose some sales, but almost certainly well below 10%. So, over time, it has always been tempting for the pub industry in general, in response to higher costs, to increase prices by just a little bit above the prevailing rate of inflation. They lose a bit of sales volume, but protect their margins.

This makes sense in the short term, and I do not blame any pub operator or individual publican for doing it. But it has a cumulative effect, and suddenly you realise that a pint is twice as much in real terms as it used to be, and increasingly unaffordable for many people. To try to break this vicious circle, Wetherspoon’s have ended up reinventing the pub model from the ground up. The fundamental point is that the underlying cost assumptions of the pub trade should not be taken as fixed.

This wasn’t something that was in place from the beginning. Tim Martin started out by converting former shops to offer something that most London pubs at the time didn’t – cask beer, food service, consistent opening hours and a comfortable, welcoming, unthreatening environment. In the early days, they weren’t markedly cheap compared with the competition. It wasn’t until the mid-90s that they started expanding outside their initial South-East base – the Moon Under Water in Manchester city centre opened in August 1995.

But it is an approach that has evolved over time. Every aspect of the pub cost base has been challenged in the quest to make a lower margin viable. A key aspect of this is the “pile it high, sell it cheap” approach. Wetherspoon pubs are markedly larger than the average, so the overheads are spread over a larger sales base. Over time, they have disposed of many of the smaller premises acquired earlier in their history. They may make less profit for pint, but they make more in total.

As the largest single on-trade purchaser of alcoholic drinks, beer in particular, they are in a position to drive a hard bargain with suppliers. Over the years, they have had several high-profile disputes with suppliers over costs, most notably ditching virtually all Heineken brands three years ago. While some micro-breweries have a long-term relationship with them, they are trading margin for security, and others won’t deal with them because they don’t find the prices they are willing to pay acceptable.

As I mentioned with the menu changes, all aspects of the operation are constantly reviewed to maximise efficiency and drive out costs. The idea that the popular Wetherspoon App does this may seem counter-intuitive, as it introduces table service for drinks, but in fact it automates the ordering process and makes managing workflow much easier, this smoothing out the peaks and troughs. They also constantly review their property portfolio to weed out poorer-performing branches and eliminate expensive leases. If an apparently busy Wetherspoon pub is unexpectedly disposed of, it’s probably because the lease cost was deemed excessive.

The pricing is finely tuned between different locations, often in a seemingly perverse way. In particularl, they charge a substantial premium in the centres of larger cities, where they have a more captive and less cost-conscious market. They are also often not quite as cheap as people imagine. Pretty much everything on the drinks menu is priced below the nearby competition, but the differential on cask beer is greater than that on kegs and lagers because that is the figure most often used to make price comparisons.

They have also tried to eliminate many of the aspects that make pubs unattractive to customers. Most of their premises are conversions from other type of business rather than former pubs, and where they have acquired existing pubs they have typically totally remodelled the interior. They are largely open-plan without nooks and crannies, and have a large windows on the street so you can see in from outside. There is never a fear of going in the wrong side.

They, in general, avoid features such as live and piped music and TV sport, which do appeal to some but on the other hand can be seen as divisive. People are never going to say “I don’t want to meet up at Spoons because of X” – in a sense they are a kind of lowest common denominator pub. Food and drink menus are put out on all tables so you know exactly what is available and how much it will cost. They also open, and serve food during, long and predictable hours, so that potential customers have the confidence they can go there without worrying about unexpectedly finding it closed. The whole process of a pub visit is made as painless and risk-free as possible.

The overall result of this is that their premises can often come across as large, impersonal and soulless. They lack the intimacy and character often associated with traditional pubs. While they often occupy architecturally impressive buildings, they fill them with cheap, generic loose furniture. You rarely feel cosy in Wetherspoon’s, and I suspect there is an unspoken objective to prevent customers feeling too settled and minimise dwell time.

Cask beer is a key aspect of their appeal, and their association with CAMRA in the form of discount vouchers gives them valuable low-cost publicity. But the standards of cellarmanship vary widely – some branches are consistently good, others much less so – and all too often the beer, even if in decent nick, gives the impression of having been drawn through a very long pipe. They also have a knack of having eight or ten handpumps on the bar but still offering an oddly unbalanced range.

Wetherspoon’s are often accused of having an exploitative attitude towards their staff, but this largely comes across as an exercise in sour grapes. They offer conditions equal to or better than other major players in the market, and have all the benefits and well-developed human resources policies you would expect from a large company. They also offer the opportunity of career progression from an entry-level job, which is not the case for someone doing bar work in an independent pub. The staff are kept busy, but they often give the impression of being more cheerful than those in other chains, and at a recent local CAMRA meeting we were given an impromptu presentation by the manager of one of our branches whose genuine enthusiasm for the opportunities the company had given her was very evident.

In a similar vein, some people object to Tim Martin’s well-documented and public support for Brexit. That is their right, of course, but to boycott a company on political grounds often comes across as cutting off your nose to spite your face, and unless you read the company magazine it is not something you would even notice in their pubs. In any case, the people who are most vocal on this are probably those who would rarely set foot in the place anyway.

But, despite these negative features, it’s impossible to ignore the low prices, and there will be plenty of customers in the typical Wetherspoon’s who otherwise wouldn’t be in a pub at all. Personally, I would rarely use one just for a drink, although I might occasionally call in the one in central Stockport on a midday lunchtime when many other places nearby are closed. I do use them sometimes for food, as even setting aside the value for money it can be difficult to find anywhere else in the vicinity with a comparable choice. I’m certainly not an uncritical cheerleader, but I recognise them as a well-run and innovative company who offer something that a lot of customers want.

Many other pub operators will look at Wetherspoon’s and ask how they can be expected to compete with that. The answer is that, in many cases, they simply can’t. The once-common mainstream pubs offering an unexceptional range of beers and food are much thinner on the ground now in town and city centres. But established pubs have no right to continued existence, and Wetherspoon’s have acted as a classic disruptor in a complacent market.

If you want to compete, you have to offer something that Wetherspoon’s don’t. For example, in the centre of Stockport, there is a keg-only sports boozer right opposite Wetherspoon’s and an award-winning craft beer bar a few doors down, together with a historic pub with a high-end food offer a couple of hundred yards away, all of which seem to do well. Plus the Wetherspoon’s model is essentially to depend on existing footfall in their locality rather than being destination pubs that people will make a special journey to visit. Relatively few of the customers in Stockport suburbs like Heaton Moor or Marple will see the town-centre Spoons as a direct competitor to their local pubs.

The existing major pub operators made a few half-hearted attempts to compete with Wetherspoon’s by offering something similar – the Goose chain created by what was Bass particularly springs to mind. The British pub market has never been a closed shop, and throughout their existence Wetherspoon’s have been able to obtain most of the new licences they wanted. But, while the opportunities were there, the established operators did not take them because they would have undermined their existing businesses, and in the long run they paid the price.

There is a cloud on the horizon, though. Much of what Wetherspoon’s have achieved is the vision of one man, and founder Tim Martin reaches the age of 70 later this month. He’s not going to be around for ever, and the risk must be that the chain ends up going the way of many other once-successful British brands, and loses its distinctive appeal for what no doubt seemed entirely sensible commercial reasons at the time.

* In my view, this understates the genuine rate of inflation, as it has been rebased from RPI to CPI. But even using RPI it would come out as £2.17, so the basic point stands.

Mid-strength midwittery

The Guardian newspaper always has a tendency to regurgitate nonsense on lifestyle issues, and its latest effort is a piece entitled Everyone’s drinking mid-strength – but what actually is it?

A report, published by KAM Insights, has found that, when out at the pub with friends, 50% of UK consumers would rather have two so-called “mid-strength” drinks than one full-strength one. The report, entitled The Mid Strength Opportunity, also finds that 13% of consumers are “coasting”, meaning they’re drinking more mid-strength drinks throughout the evening, so they can stay out for longer and keep tabs on how much alcohol they’re consuming.

However, as the report admits, this research has been funded by an organisation called the Mid Strength Collective, a group of 12 businesses that produce and sell mid-strength drinks, so it’s impossible to avoid the conclusion that they would say that, wouldn’t they?

An obvious problem is that these products simply aren’t visible in the market place. They conjure up one example of a 2.1% lager, but frankly these are products that I never come across either in pubs or the off-trade. Wine-style drinks in the 5-8% strength range are perhaps more common, but again they only occupy a tiny section of the wine aisle and virtually never appear in pubs. And how many people are going to pay £9.99 for a bottle of 5.5% diluted wine? It’s significant that both are conspicuous by their absence in Wetherspoon’s, who can be regarded as pretty representative of the mainstream pub trade in what they stock.

Some years ago, Guinness launched a 2.8% variant that was explicitly called “Mid-Strength”, but this seems to have fallen between two stools and never achieved much traction. Apparently it retains a following in Irish golf clubs to help customers avoid falling foul of Ireland’s now draconian drink-driving law. Nowadays there is a much wider and better-quality range of zero-alcohol offerings, Guinness being a particular case in point, and if people want to reduce their intake while still have something resembling an alcoholic drink, they are much more likely to go the whole hog.

It is certainly true that, in recent years, there has been a reduction in the strength of alcoholic drinks across large swathes of the market. But this has overwhelmingly been driven by duty savings, not by consumer demand. We have seen all four leading smooth bitters, and one of the three biggest-selling ordinary lagers, cut to 3.4%. 4.6% now seems to be the benchmark for premium lagers, and the budget end of the wine market has settled at around 10.5-11.0%. I’ve written extensively about 3.4% beers, and 11% wines are somewhat similar – they can be palatable enough, but always give the impression of being a bit lacking.

I don’t remember drinkers complaining that 5.0% Stella was too powerful and wanting its strength cut. Drinks producers have been able to get away with this because consumers can only choose from what is put before them, and few people are really going to be bothered to seek out alternatives for a 0.2% difference in alcohol content, even if they were available. There are one or two exceptions to this. There were widespread complaints about some full-bodied red wines creeping over 14% and thus becoming a bit overwhelming, and there is a lot of anecdotal evidence that cask ales above around 4.5% do not find many takers in the majority of pubs. But I don’t think there were any reports of drinkers shunning 5% lagers.

These kind of stories always seem to make the assumption that people are engaging in lengthy drinking sessions and have to find some way of getting through them while retaining a relatively clear head. But that rests on the further assumption that others are happily downing standard-strength drinks throughout. If you have to find a way of surviving it, maybe you need to reconsider your social life. I suspect this might be related to the student experience. The same applies to the reported phenomenon of “zebra-striping”, that is alternating alcoholic and non-alcoholic drinks. And how common is that form of drinking anyway, whether in pubs or at home? At a guess, I’d say that the modal average for the number of alcoholic drinks consumed in a pub visit is one. Yes, prolonged sessions do exist, but they are not the norm.

The conclusion has to be that the idea there is a significant potential demand for mid-strength alcoholic drinks is wishful thinking. If people really don’t want a standard-strength drink, they will choose an alcohol-fee one (or a soft drink) instead.