Mark Daniels: The Myth of the £2 pint...

If you could sell a pint for £2, would you?

There often seems to be a mantra amongst landlords that if they were freed from their obligations to their pub companies, they would be able to drop the price of their beer and sell at two pounds a pint.

Personally, as a 100% tied licensee, I don't agree that removal of the tie will result in the financial utopia that many think it will but, equally, I don't disagree with people's right to oppose it. There are certainly parts to the Tied contracts that could do with reviewing, and the actions of certain pub companies do seem to be questionable, at best.

If those opposing the Tie can bring some harmony to the industry, I'm all for it, but will it result in lower rents and £2 pints at the bar? I'm not so sure.

Throughout online discussions and personal conversations with landlords, however, I often hear the same thing; I've even heard it said across the bar to customers: "If I could be free of the Tie, I'd be able to sell you your beer for two pounds."

This may be true, but what is worrying is that many people considering selling beer for two pounds often seem to fail to realise the implications this means to the bottom line of their business. And what they would have to achieve in order to make the same amount of money that they currently are.

I've dabbled around with selling beer for £2 on-and-off throughout my time in my pub, with varying degrees of success. Sometimes I've used it to try and shift stock that might not be moving fast enough, other times I've used it in one off promotions for certain events, and it's also been done with the support of my landlords in an effort to help business, and often all you end up doing is giving your regulars the same amount of beer as they would usually drink, but for a lot less.

That's not to say that reducing the price of beer is a bad thing, but how many people have looked at price changes and actually calculated what the effect on their physical cash would be in the event of, say, buying at a lower price and selling at a lower price?

The table (see pic right, click to enlarge) shows a comparison between buying at a tied price and a discounted price, and then the difference between selling at a "normal" price and one at just shy of £2.

In our industry, managing the cashflow is one of the most important things to have control of and the table above demonstrates the difference in physical cash earned between the two prices. The prices I've used are for example only: they don't at all reflect what price you might buy at from your supplier, or what price you might be able to negotiate from a wholesaler; the pertinent figure is that of Margin Cash.

The difference between the Tied Example and the Free Example is 24p; it doesn't sound a lot, but when you are reliant on that 24p to pay your bills, it can make quite a difference. And it makes a difference to your turnover, too.

On 88 pints of lager, for example, it works out as:

• £2.80 a pint = £246.40 turnover / £91.52 cash margin

• £1.99 a pint = £175.12 turnover / £70.40 cash margin

That's a difference of £21.12 and on one barrel of lager a day that means £147.84 less (cash margin) a week. Or £7'687.68 a year. What a difference 24p can make to a small business trying to make ends meet, and it means that just to stand still - to just make the same money you already are - you would have to lift trade on that particular product by thirty percent.

On a scorching summer's day, when everybody's thirsty after the cricket match, that is no doubt feasible, but in these post-smoking ban days when every pub's trade is as irregular as the weather, on a dreary early January night lifting business by thirty percent in order to make ends meet is a tall order.

The above, to some, may sound like I'm teaching grandma to suck eggs; if that's the case, I apologise, but I hope to many more it might shed some light on what is the important figure to look at - and how much difference it can make to your trade. It could even make the difference between being able to pay somebody to stand the bar so you can have some time with your kids, or not.

Certainly, freeing up the Tie or reducing buying prices may help some but, in short, if you have the buying power of Wetherspoons and the volume sales of Tesco, you could make it work, and in towns where competition is rife there may certainly be no other option.

But for small rural businesses and newcomers to the industry thinking the two pound pint is their nirvana, I hope this helps.