Back to Basics: Are your prices right?

Duty rises in the latest Budget must have come as a terrific shock to many publicans - and posed an immediate dilemma - whether to absorb the increases or pass them straight on to the customers.

A poll on ThePublican.com showed a clear majority, 80 per cent, intended to increase their prices as a result of the rise imposed on all alcoholic drinks. But what were the other 20 per cent thinking about?

It highlights a problem in the trade which can get licensees into financial difficulties.

The first question that strikes me is why so many operators still think they only need to change their prices once a year. How many other businesses only change their prices once a year?

Interestingly, pubs frequently change the prices on their food menus but don't do the same for drinks - and this doesn't really make sense. Prices should be reviewed constantly, particularly in a retail site such as a pub where electricity and gas charges are rising, the minimum wage increases every year and other supplies are on the up all the time - not to mention duty.

When supplier prices increase, it is important to maintain your margin. With the Budget increase of 4p per pint it is important to remember first of all that this is an increase of 4p plus VAT, which makes it 4.7p. And if we assume a margin of 50 per cent is required, then 50 per cent of any increase has to be for the retailer. So to maintain margin the increase from the budget should be 4p plus 4p plus VAT, which comes to 9.4p a pint. I would therefore round this up to a 10p increase.

I recognise this won't go down well with customers and it's not easy to explain. But beware telling yourself that the local market won't stand an increase. You have no choice in the long term - unless you are saying that you don't deserve to make a living or that you want to be a charity.

What this does mean, however, is that you now need, more than ever, to make the drink worth the price. In practice this means focusing on quality every time. You need the right glassware, an immaculate bar and staff who have a good knowledge of drinks and are able to give advice on what customers may prefer or even help with food matching.

And even more important is service with a smile - you have to make customers feel welcome and encourage them to come back. Another pricing approach I feel is strange is that a lot of operators price in round numbers - £2.50 or £2.70 a pint and so on. I was told recently that customers were asking a licensee to do this "because they can't be bothered with coppers".

This is an important point. If they don't value the coppers, WHY DON'T WE HAVE THEM?

I have always promoted pricing in even numbers at the 4p and 8p levels. Once the 10p barrier is broken you go to the 4p level. So, for example, if the price that makes you the correct gross profit comes out at £2.52, then you might as well make it £2.54.

The point that some people make is that they do not want to have to count the pennies. But they are your pennies! As long as you have rounded up for your benefit, then, apart from the VAT, it is all extra. Who doesn't want 3p a pint on the 30,000 pints an average pub might sell in a year?

An added bonus to this is that I find that the customers who don't want the small change tend to donate it to our charity collections. This is definitely a win-win situation - especially if you make a point of displaying how much you raise for the worthy cause. It creates a feelgood factor for all.

Your pricing strategy should always be focused on the pub. Your prices are relative to your customer base and the customers you want. As I've already highlighted, higher prices can be justified if the site and the customer experience meet the expectation created by the price.

Consider the fact that if customers feel they are taken for granted by the pub, it is this - rather than the cost of the drinks - that will cause them to change their local. And it's not always the customers you have now who are going to make you a success, but the customers you are going to attract in the future.

And the final reason is simply because you are worth it!