The price just isn't right - says Andrew pring

Funny old issue, pricing. Every expert tells you people don't mind paying a bit more for their drink, just as long as they like the atmosphere, the crowd, the licensee, the loos or whatever.

Yet ask anyone in the real world if they mind getting little if any change from £20 for a round of five or six drinks, and you'll more often than not get a different answer, however attractive the barmaid.

The big managed pub companies know that. Both Wetherspoon and Mitchells & Butlers try very hard to keep their drinks prices the keenest in the trade. It's not as though they have shabby pubs and low standards and, therefore, can't command higher prices. The complete opposite is the case. But they're in touch with the real world. And they know that for all the talk of affluence and high house values, many people are having to watch the pennies.

They see that interest rate rises are starting to squeeze consumer budgets very hard, and that pay rises for all but the gilded City crowd have been miserly. So they keep their beer price rises at or below the rate of inflation - and they see the benefits. At M&B, for example, beer and cider sales volumes rose by 1% in a market dropping 3%.

The big managed boys are also acutely aware of what's happening in the supermarkets. Prices there are lower now, taking inflation into account, than they were 10 years ago. In the on-trade, they're nearly three times higher.

This growing disparity between on and off-trade pricing is hitting pubs harder each year. But so many licensees are caught in a vicious circle. Losing trade to the supermarkets, and hit by rising utilities and wages, they try to boost falling profits by jacking up prices. Unless they're introducing something new at the same time, the tactic is doomed to failure. So the circle gets more vicious.

National brewers have tried to help by keeping pay rises at inflation levels - only to despair when bar prices rise much higher.

Yet what can the average licensee do? Investing in the pub, as many have done for the smoking ban, can help. But their real problem is that they're paying so much for their beer. Pubcos may be getting £150 a barrel discounts but they've promised shareholders fat returns so have little scope to share more discount with their licensees.

It's a massive problem for the trade's middle ground and below. And there are no easy answers.