Friday, 19 August 2016

Mind the gap

The recent closure of the Waterloo was discussed on a Stockport-related Facebook group, and inevitably the old chestnut came up that pub closures were largely down to low supermarket prices. As I’ve discussed before, this is for the most part a complete canard. There are plenty of other reasons for the decline of the on-trade vis-à-vis the off trade that are nothing to do with relative 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.

Many of the customers of the Waterloo were people who visited at lunchtime from local businesses. They haven’t stopped because they can get a can of Stella for a quid from Tesco. Indeed, many pub visits happened, or used to happen, on occasions where people were out of the house and the alternative of a cheap off-trade drink simply wasn’t available. And how often do you really think “now, should I go out to the pub tonight, or stay in with a few bottles or cans?” People won’t go to the pub unless they have a good reason for doing so.

If you are someone with one or more of a job, a mortgage, a driving licence, family responsibilities and some concern for your own health, can you honestly say that you would drink substantially more beer in pubs if it was cheaper? In general, the main factor limiting how much people drink in pubs, or indeed in total, is not price. Lower prices would no doubt attract more custom from those with more time than money, but they wouldn’t bring the better-off flooding back. And simply raising the price of off-trade drinks, as would have happened under the now canned proposals for minimum alcohol pricing, would not give people a single extra penny to spend in pubs.

It’s also very wide of the mark to claim, as people often do, that supermarkets routinely engage in loss-leading on beer or other alcoholic drinks, although it’s all too easy to jump to that conclusion. Yes, they drive a hard bargain with suppliers and sometimes pare margins to the bone. But you’re simply not going to make money if you’re selling things that make up more than a tiny proportion of the average trolley-load at a loss.

There is something in it, of course, because it’s undoubtedly true that, over the years, the gap between on- and off-trade alcohol prices has considerably widened. Clearly this must have an effect at the margins. But I’ve seen some research (although I can’t put it to hand at the moment) showing that off-trade alcohol prices have in general risen in line with the overall movement in the RPI, but on-trade prices have increased by much more. If there’s a problem, it’s not low supermarket prices, it’s high pub prices.

And there’s a serious and potentially uncomfortable economic truth behind this. Over time, as living standards increase, the price of labour will obviously increase relative to that of goods. You might not feel it, but on average people are much better off than they were twenty or thirty years ago. Just look at the rise in car ownership and long-haul holidays, satellite TV subscriptions and the amount of electronic stuff in the average home.

The price of a pint in the pub includes a much greater labour element than that of a can or bottle in the supermarket, so really it’s inevitable that this relative divergence will continue. The same can be seen in the differential between the prices of supermarket ready meals, and those in pubs and restaurants. Pubs have to offer something more than just being an alcohol shop, although often that can be just the totally intangible benefits of atmosphere and companionship.

And this week we’ve also had people moaning that beer in pubs was too cheap. You can’t win!

21 comments:

  1. Very well put Mudgie. People often forget just how prices are made up and the costs of delivering the same thing in different environments have a huge impact on prices.

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    1. Thanks. I was taken to task from some quarters earlier this year by pointing out that the Natoinal Living Wage would inevitably have *some* effect in pubs in either increasing prices or reducing staffing. That doesn't make it wrong overall, but money doesn't grow on trees as some seem to think.

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    2. People are all too ready to forget that the cost of everything involves paying someone's wages, so while they want higher wages themselves (and who wouldn't?) they forget that the people providing services to them have to be paid as well, and of course, have overheads to cover.

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    3. It's also the case that most pub businesses are run by individual freeholders, tenants or lessees, who are often not exactly minting it themselves, and can't simply absorb cost increases.

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  2. Excellent piece. The other truth often ignored is that Wetherspoons get a lot more value out of their overheads compared to bigger pub chains, let alone free houses. Been to a dozen or so Spoons in last couple of weeks at all hours and all busy enough. Even those cheap breakfasts and coffees help pay the rates and Head Office costs, which helps five us pints at £2.50 rather than £4.

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  3. Good observations and a comprehensive post as far as price is concerned. Some of the aspects you mention also relate to factors other than price that influence beer purchase patterns. In my opinion, the overall trend is swayed by the relative *total effort* requirement where off-trade is gaining advantage e.g. distance to outlet - incl. home delivery, etc.

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    1. Of course most people will now pick up beer for drinking at home with the rest of their weekly shop, so it takes hardly any extra effort.

      A big factor is mass car ownership - without a car, fetching large quantities of beer back home becomes much more like hard work.

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  4. Because of the increase in labour costs most pubs - along with other retail outlets - tend to be significantly understaffed. Which reduces the pleasure of going there and encourages home drinking. The days of being greeted with "what will you have sir" when you entered a pub are long gone. These days you are more likely to see a bar with no one behind it or a singled harassed youth trying to cope with a press of customers.

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  5. alcohol prices & rpi ? There's this https://www.ifs.org.uk/bns/bn124.pdf, showing on and off prices diverging: On-sales rising above rpi, off below rpi.

    "Given these price trends, it is not at all surprising that overall alcohol
    consumption has shifted from the on-licence sector to the off-licence
    sector." say the IFS.

    Now, that's a bit old news by now, but it suggests that (on this particular point) you're wrong (at least during the first decade of this century).

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    1. I was referring to something I've quoted in the past - I'll have to try to dig it out.

      You are correct that, on those figures, the price of on-trade beer remained fairly constant in real terms until about 2001, but then fell. It would be interesting to see if it has risen since due to the duty escalator.

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  6. I recently wrote on B&B's blog that "in 1972, I was paying 13p for a pint of bitter and 11p for mild. Using the Bank of England inflation calculator, such sums now equate to £1.55 and £1.31". It's not the first time I've made this point, but I think it tends to support your suggestion that it is the on-trade that has become more expensive rather than off-trade becoming cheaper.

    As for the idiots pleading to be charged more, they live in a capitalist system but haven't a clue how it's supposed to operate. Presumably if Eddie Gadd was offered a £1000 voucher off a new car, he'd say: "We can't build a great British motor industry on cheap cars, so I'm shredding this."

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    1. Excise has significantly increased since then too - although it still only accounts for approximately 50p per pint.

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    2. Around that same time I was paying 7p for a mars bar. Whatever, it's interesting to note that on-trade prices have fairly closely tracked average earnings rather than rpi. So a pint is approximately as affordable now as it was then. This, of course agrees with what mudgie is saying about labour costs having such a large effect on the price. This is a good thing. Or did you want an increased standard of living for everyone except those working in the industry? Or just you?

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    3. Who are those questions addressed to?

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  7. Pint approximately as affordable now as then:
    I compared the increase in the price of beer between 1972 and 2010, and the increase in average disposable incomes for the same period. Beer price multiplied 10.30 times in that period, while disposable incomes 2.23 times.

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    1. I'd be interested to know your source for that. It looks like average wages have risen by a multiple of something like 13 over that period. (varies a bit with various sources, can't really be arsed wading through the national archives right now). Not inflation adjusted of course. Incidentally, in 1970 you could buy a Range Rover for £1,998. Or a house. Or several, where I was living. House prices have gone mental 25+ times(?) which obviously impacts your "disposable income". But beer's an essential, right, so that's not relevant.

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    2. Also Jon, I'd guess that their is a big difference between disposable income and average wages. You can have a rise in wages, but if prices are outstripping that, then disposable incomes will fall.

      The Treasury calculator gives that some credence surely?

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    3. Of course I meant "there" not "their"

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    4. @Tand, I don't know what source Nev is using so it's not easy to see where the problem lies. I don't know (either) if there's a confusion between disposable and discretionary income. I don't know why we'd factor in price rises, when [heavy emphasis] it's a price rise we're talking about. I do know that there's a tendency see our youth as a Golden Age when beer was cheap and everything was super, while the present is full of over-priced muck and so on. But that's simply not true.

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    5. @Nev - I think you're getting real terms and current money terms mixed up there.

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