The principle applies just as much to the global drinks brands that Buffett is famous for investing in as it does to the pint in your local pub.
His words are front of mind as I consider why average beer prices have increased over 25% ahead of the rate of inflation during the past 25 years and consider “do pubs offer value?”
At the Society of Independent Brewers & Associates (SIBA), our members run more than 2,000 pubs, bars and taprooms as well as selling over 80% of our collective production in draught beer into the on-trade.
Beer remains the biggest category in Britain’s pubs and one where publicans should take a disproportionate amount of time in considering what provides the right value for their customers. If they get that equation right, it goes a long way to running a successful pub.
Tax burden v online giants
According to Government statistics, the average price of a pint passed £2 as we moved into the new Millennium. If draught beer prices had simply kept pace with inflation over the past 25 years it would now be nearing £4 so why have beer prices gone 25% beyond that to the £5 recently reported in The Morning Advertiser?
Much has happened in the world over that time. Not least the online shopping revolution that sees billions of pounds of British spending now done with online retail giants who use their global network to pay tax where it suits them best, usually not in the UK. The inevitable consequence of this is that traditional businesses like ours face a higher share of the nation’s tax burden.
Higher taxes mean higher prices so it’s scandalous that pubs and brewers pay tax at three to four times the rate of online companies with only their own interests at heart. Our unified industry lobbying should be for a more equitable tax burden across society. Businesses of all types need to pay their fair share.
While on tax, I am proud that it was independent brewers who persuaded Government to introduce lower duty on draught beer. Tax on draught beer is now 14% lower than it would have been had draught beer duty increased with the standard rate recently. Without this measure, the £5 per pint quoted by would be nearer to £5.50.
By nature of their scale, SIBA members have higher per pint costs than global brewers. They also tell us that passing on price increases for their beer to trade customers is a challenge. We lost 100 independent breweries in the UK last year, partly as a result. Against that, I read of Guinness’s umpteenth trade price rise this week, I am assuming it’s “because they can”. Meanwhile, AB InBev’s latest published global annual profits were $7bn and Heineken’s €3.5bn.
Lust for local
This leads me on to my final point on ‘value’. According to YouGov polls, 75% of beer drinkers consistently tell SIBA they expect to see locally brewed beer on the bar when out with friends and family. Drinkers want to support local brewery beer but many are left disappointed, instead having to make do with a beer from a range often determined by whoever happens to supply the lager (or soft drinks) in the pub.
I saw this first hand on a trip to the Lake District. Cumbrian drinkers wanting to support Cumbrian brewers in local pubs being asked to pay top prices for generic beer brewed 200 miles away.
Think of this another way... imagine visiting the cinema to watch a film by your favourite actor and having instead to pay the same money (or maybe more) for a film the cinema had decided you should watch instead. An extreme metaphor maybe but I hope it makes the point. Where is the ‘value’ in this?
The enlightened exception to my experience was a Greene King pub with a great range of independent local beer and, as a result, by far the busiest pub on the circuit.
Warren Buffet may seem an unlikely figure from which to draw inspiration when deciding beer pricing in your pub(s) but his sentiment offers food for thought whatever your situation.
