High streets, low prices

Mark Stretton asks whether Ted Tuppen was right in saying Enterprise was benefiting from discounting.

Last week Ted Tuppen, chief executive of Britain's biggest tenanted business, Enterprise Inns, spoke about the swath of heavy discounting in high street pubs and bars.

He said price slashing may have helped Enterprise's community pubs because there was anecdotal evidence that cheaper drinks were fuelling a rowdier atmosphere in high street bars, prompting many customers to seek alternative places to eat and drink.

That seems quite lucky. I'm sure for a moment Ted might have been worried that cheap beer served up by managed pub companies might affect his business, or more accurately, his tenants. Because there is no way that Enterprise Inns' 5,200 licensees can compete with the prices set by Barracuda, Laurel, Spirit and of course, JD Wetherspoon. But all this discounting is happening in town centres and, as Ted pointed out, Enterprise pubs don't really compete with those on high streets. "Fewer than five per cent of our pubs are anywhere near what you could call a high street," he assured investors at Enterprise's annual meeting.

That said, 17 per cent of the company's pubs are in town centres albeit in secondary locations. The majority of Ted's pubs are in residential areas.

But Spirit Group recently threw a spanner in the works by announcing a price offer in 230 of its community pubs many of which are bound to compete head on with Enterprise lessees.

Speaking in an article posted on thePublican.com last week Spirit commercial director Andrew Knight said: "We have to move on from the age-old view that pubs can raise prices up every year by a few per cent without consequence." He also said that tenants not being able to match Spirit on price provided an opportunity to drive its business.

Ian Payne of Laurel believes that the pressure on pub prices will continue until there is less of a gulf between the price of beer in the supermarket and the pub. Ted often says that pubs don't just compete on price, and his anecdotal evidence would seem to support that. But I, too, have some anecdotal evidence about discounting on high streets.

Where I live there are a couple of Young's tenancies, a Fuller's pub, and then up towards the train station - on a modest high street - there is a Hogshead.

Trade in the area was affected as soon as Hogshead started discounting. At one point the Laurel-owned chain was offering pints of Stella Artois at £1.65. Postal workers from the local sorting office migrated out of the Young's pubs, went up the road, turned left down the high street, and into the Hogshead. Students in the area also flocked to the cheaper pub. The manager says his weekly volumes went through the roof.

The pub was a bit rowdier - if rowdier means the same as livelier or busier. More people went there because the drinks were cheaper.

Did people drink more? I don't think so - the proportion of pub-goers who drink as many pints as the money in their pocket will allow is probably small. People simply went home with more change than they usually do.

A few weeks later, the Fuller's pub nearby, a managed house, started selling cheap lager in a bid to win back some of the lost trade. Undoubtedly restricted by higher cost prices, the tenanted pubs did not follow suit.

The two managed houses lost a bit of margin, and unfortunately, the two tenancies lost a lot of sales.

Still, I'm sure Ted is right - perhaps everyone went to the Hogshead and then fled to the nearest Enterprise Inn for some peace and quiet.

To argue that cheap beer prices on the high street will drive people away and into Enterprise pubs is a bit much. The market is more price-sensitive than Ted believes, or wants to believe. Some people would not go in a branded pub for all the beer in Britain but price does have a big influence on where many choose to drink.

Tenanted pub companies reap big profits by selling beer to their licensees. It is in Ted's interests to talk down the affect beer prices have on customers. Discounting on Britain's high streets has undoubtedly been driven by tough trading times, especially in that segment of the pub market.

A mere whiff of a downturn will see trade on the high street drop by 10 per cent.

Patrons of local pubs are creatures of habit and community pubs are not subjected to the same volatile swings in trading patterns that town centre pubs are. But no one is immune in unfavourable economic times.

There is little doubt trading is tough. Pub companies such as Enterprise Inns and Punch have not traded through a recession.

Rents and beer prices cannot continue to rise when the growth of the economy stutters. And especially not when lager is 90p cheaper down the road, and up on the high street.