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?