On-trade v off-trade

Analysis: Are supermarkets killing pubs?

By Oli Gross contact

- Last updated on GMT

Analysis: Are supermarkets killing pubs?

Related tags: Pubs, Alcoholic beverage

Supermarkets are able to sell alcohol at a price impossible for pubs to compete with. Ahead of this month’s Budget, what can be done to close the price gap? Oli Gross investigates.

The differences in prices between on and off-trade are vast — supermarkets have constant offers selling crates of beer and bottles of spirits at rock-bottom prices. For most pubs, competing with this strategy would mean commercial suicide.

Trade bodies have argued that to close the gap the Government needs to rethink tax laws which put pubs at this enormous competitive disadvantage, with the on-trade as a whole paying out an estimated one third of its turnover in taxes.

'Intense scrutiny'

Pubs and bars face intense scrutiny to stick to licensing objectives and fund policing of the late-night economy. Kate Nicholls, chief executive of the Association of Licensed Multiple Retailers, argues there’s “no sense of parity” with the off-trade despite the impacts of supermarket-bought alcohol and pre-loading on problems with the night-time economy.

She said: “Pubs and bars are exposed to legislative and punitive restrictions that are not a factor for large supermarkets which effectively remain unregulated. Targeted and effective support for venues to begin eradicating the disparity between on-trade costs and supermarket costs will help.

“We are dealing with an unfair reality whereby off-trade alcohol can be bought for pocket-money prices and the on-trade is faced with rising costs. Pubs are fighting against a business rates system that is inflexible and unfit for purpose, beer price inflation and increasing wage costs.

“We believe that the pub is the best place to enjoy a drink but, until costs can be brought down, customers will unfortunately gravitate towards the cheaper supermarket alternative.”

Food tax

Licensed retailers also face 20% tax on food, whereas food in supermarkets is mostly exempt. British Beer & Pub Association chief executive Brigid Simmonds said: “If you’re enjoying a drink with food, it is not right that your supermarket meal carries no VAT, but the meal in the pub does.”

Simmonds argued that this makes it easier for supermarkets to absorb alcohol tax rises in comparison to pubs, as drinks are a smaller part of the business.She said the reliance of pubs on wet sales makes a fourth successive cut to beer duty vital in the Budget on 16 March.

Health

Sales of alcohol below the level of duty plus VAT were banned in May 2014, meaning it is no longer legal to sell a can of lager for less than around 40p. But many believe laws haven’t gone far enough to help pubs.

Health experts have backed the trade’s call for the price gap between supermarkets and pubs to close. Director of health and wellbeing at Public Health England, Professor Kevin Fenton, told the PMA of his concerns about the availability of super-cheap alcohol, and called for new restrictions that would only affect the off-trade.

He said there was “growing evidence” to support minimum unit pricing, despite plans being shelved by the Government. “This measure would generally not affect the standard price of alcohol in pubs, clubs and restaurants,” he added.

While there are calls for Government action, some place the burden of responsibility on retailers to change their prices.

'Loss leaders'

John Ellis, licensee of the Crown Inn, Oakengates, Shropshire, said he wanted a ban on supermarkets selling alcohol at a loss. He claimed a local brewer’s beer was on shelves cheaper than the wholesale price.
The PMA asked supermarkets if they adopted this ‘loss-leader’ approach to draw in customers.

A spokesman for Morrisons said it ‘prices sensibly and retails responsibly’. He added: “We are firmly committed to the Department of Health’s Responsibility Deal and all of the relevant pledges on alcohol, which are designed to foster a responsible drinking culture.”

Responsible?

But the difference in price compared with pubs is plain to see. Last week the Morrisons website offered a 70cl bottle of Russian Standard Vodka for £13, or 10x440ml cans of Stella Artois for £8 – equivalent to £1.82 per litre.

And last week a pro-motion on Sainsbury’s website offered 18x440ml cans of Stella Artois for £13. A spokesman said the company took its work with DrinkAware very seriously, and didn’t sell alcohol at a loss.
The Campaign for Real Ale urged supermarkets to consider the wider impact of pricing policies.

Head of communications Tom Stainer said: “If retailers don’t voluntarily adopt pricing policies to rebalance the gap between on- and off-trade sales, then we’d call on the Government to ensure that off-trade prices don’t unfairly impact on-trade business.

"The community pubs minister Marcus Jones has already stated that he agrees with CAMRA that the gap between supermarket and pub prices needs to be addressed.”

Related topics: Legislation

Related news

Spotlight

Follow us

Pub Trade Guides

View more

FREE EMAIL NEWSLETTER

Subscribe to The Morning Advertiser

The definitive voice for the pub trade

Get the latest news, analysis and insights from the uk pub sector straight to your inbox!