July 2009

Is the Price Right?

The idea that supermarket prices are killing pubs does not stand up to analysis

“THEY’RE SELLING Carlsberg at 30p a bottle at the supermarket down the road,” an aggrieved licensee complained to me. “How can I hope to compete with that?” You can understand her concern, and of course she can’t come close to competing on price terms, but in reality she doesn’t have to.

Throughout my drinking career, alcohol in the off-trade has been cheaper than that bought in pubs. The gap may have widened a bit over the years, but it has always been there. A licensee has to pay business rates, utility bills and staff wages, none of which you include when thinking how much the can or bottle you’ve just got out of the fridge has cost. The overheads a pub has to carry mean that it is always going to be dearer than just sitting at home, and surely all pubgoers realise that. A pub is far more than just an alcohol shop and in reality its main competition for people’s leisure spending is restaurants, cinemas, sports grounds and bowling alleys.

Nobody claims that restaurants are suffering because you can buy ready meals at Tesco for a third of the price of dishes on the menu, so the idea that pubs are suffering because cans of Stella are dirt-cheap doesn’t really stack up. People don’t sit down and make a calculated economic choice between going out to the pub and staying in with a few cans. If they want to go out, they will go out, and going to the pub should be as much about socialising as simply drinking alcohol. Many pub visits happen when people are out of the house anyway, at work, on holiday or shopping, so the option of drinking at home is not available to them. Obviously, if intoxication is the sole objective, the most cost-effective way of doing it is with cheap cider or spirits from the off-licence, but should pubs be targeting people who just want to get drunk anyway? On the other hand, cask beer, which is generally of moderate strength, is a unique selling point for pubs that cannot be replicated in the home.

Of course price can have an impact on the margins, maybe leading people to go out a little less often, or to tilt the balance a little from on to off-trade consumption. But relative price isn’t even the biggest single factor leading people to drink less in pubs. There are many other reasons leading people to drink more at home and less in pubs, such as the decline of heavy industry, the increasing popularity of wine and the tendency of employers to discourage lunchtime drinking by their employees. Lifestyles have changed and society has moved on. And the idea that raising the price of alcohol in the off-trade will do anything to encourage people to visit pubs is totally misplaced.

In Continental countries such as France and Germany, off-trade prices are considerably lower than ours, and the gap between on- and off-trade greater, but they do not have the same problems associated with off-trade consumption as we supposedly do, and in many cases have much more thriving bars. This suggests that the root causes are in social factors rather than simply price levels as such.