Following the announcement of the autumn Budget last week, it appears the future of beer pricing is still far from certain, with factors such as Brexit an ongoing concern for many in the industry.
Previous price increases for beer have left more and more consumers believing that going to the pub is now a luxury. A recent study by the British Beer & Pub Association (BBPA), revealed that the average pint of bitter has climbed to over £3 for the first time, with a pint of lager also reaching a record high of £3.58.
The BBPA applauded the response of the Chancellor Phillip Hammond in the Budget to freeze beer duty, despite recommending a reduction, a move which they calculated is worth £117 million to pub-goers this year. It also welcomed the decision to extend the pub-specific £1,000 rate relief, and to move Retail Price Index increases to the Consumer Price Index. Beginning two years earlier than planned in April 2018, the BBPA estimates the move will save pubs around £37m a year.
‘When beer duty was cut or frozen, between 2013 and 2016, we saw beer prices increase at their lowest levels since the 1980s. Since then, beer prices have has been rising, and whilst rises in beer taxes are not the only factor, the Chancellor should not add to the pressure on pubs and pub goers, with yet another duty increase,’ comments Brigid Simmonds, chief executive of the BBPA.
‘The duty increase in March cost the industry £130m, this in turn affects capital investment in pubs at a time when quality of surroundings and service are so important to customers,’ she adds.
‘I would like to see a root and branch change in business rates and excise duty, a post-Brexit strategy that stimulates beer consumption in pubs’ Jonathan Neame, chief executive of Shepherd Neame brewery
The current economic climate is creating a depressing environment for the pub trade, as one-third of the price of a pint is swallowed up in tax, and the resulting hike in prices has a knock-on effect. Deloitte’s Leisure Consumer report for the third quarter of 2017 showed that drinking out in pubs alongside cafes and restaurants declined by 5%. These findings correlate with BBPA figures for the same period, which found that beer sales suffered a 3.6% drop, the worst for five years.
Opinions on what can be done to reverse this situation vary across the industry. ‘It would be churlish not to say it’s a positive move by the Chancellor, and in the context of the national challenges it’s welcome,’ says Jonathan Neame, chief executive of Shepherd Neame brewery, reflecting on the Budget. ‘Three successive duty cuts and a rate freeze previously spawned job creation and confidence. Overall, pubs pay 2.8% of all business rates for 1% of all turnover.
‘Since then, excise duty and rate increases have been damaging, pressuring the cost base. I would like to see a root and branch change in business rates and excise duty, a post-Brexit strategy that stimulates beer consumption in pubs.’
Neame also views the situation from an international angle, pointing out that as a small- to medium-sized company, the Shepherd-Neame brewery would usually pay £30m in beer taxes per year, compared to £2m for a similar sized company in Germany.
During the years of the Beer Duty Escalator, between 2008 to 2013, the BBPA estimated that 7,000 pubs were lost. The current pricing structure has effected wet-led pubs in particular, which have no alternative sources of revenue aside from selling drinks.
‘Wet-led pubs need to diversify if they are going to survive. They need to tap into other revenue streams which offer healthier margins,’ says Mark Reynolds, co-owner and founder of Three Cheers Pubs, a small pub group, with a collection of venues across London. ‘I think it is inevitable that more pubs will close, but on a positive note the rate of closure is slowing, casual dining chains are coming under pressure, and the great British pub is fighting back,’ he adds.
Reynolds argues that a tax reduction is necessary, alongside increased competition amongst small breweries and global breweries to help keep price increases down. ‘Local brewers and smaller brewers will be keen to sell their beers so look to work with them to offer a good value pint, which the customer will enjoy,’ he advises.
The Blacksmith Arms of Rothwell in Lincolnshire is an independently owned pub, and until recently relied on beverage sales only to keep business afloat. ‘We have lost most of our drink trade, and we survive solely on food now, we used to have a core drinking clientele but that evaporated two years ago. Habits change, people but beer cheaply from supermarkets,’ says owner Nigel Royson.
‘The Government can help me with a business rate reduction – and also if I was allowed to buy a barrel for half the price from any brewery,’ he continues. ‘If prices don’t come down, more and more pubs are going to close, as they won’t be able to make ends meet. It’s a really hard environment out there.’