BEER / PUBS: Inn sickness and inn health

British pubs are in a state of flux. Jonathan Goodall assesses the damage and asks what brewers can do to help

Every month 56 pubs close permanently in the UK while 20 to 30 new pubs open, according to estimates by the Campaign for Real Ale. If these estimates are correct, that’s a net loss of about 30 pubs per month, which, seeing as we have 58,000 left, means the last British pub will serve its last pint in about 160 years’ time. Okay, things won’t get that bad, but the trend is hardly encouraging for smaller, independent pub operators – or for the brewing industry as a whole.

“There’s been a huge churn in the sector,” says Jonathan Mail, Camra’s head of policy and public affairs. He cites “liberalised planning laws governing the night-time economy” as an important factor in the significant demise of rural and suburban pubs, while city-centre and high-street pubs, many of them new-builds, are on the rise. It seems the focus is on the lucrative urban weekend market while pubs in the green belt and beyond are struggling.

The strength of the property market is working to the advantage of the bigger pub operators such as Punch Taverns, JD Wetherspoon, Mitchells & Butlers and Greene King, whose shares have been rising steadily based on the increasing property value of their estates (or should that be real estates?). Meanwhile, this same upward trajectory of property prices has made it increasingly attractive for developers to snap up independent pubs and sell them on as highly desirable residential accommodation. Again, it’s the smaller, quirkier, what Camra calls “community” pubs that are being crushed by macro economics while the chains tighten their grip on the high street.

The Laurel Pub Company, owned by property tycoon Robert Tchenguiz, for example, is on target to expand its Slug and Lettuce brand to 100 sites by the end of this year through a mixture of organic growth, conversions and acquisitions.

Homeward bound
The last decade has seen a seismic shift towards the off-trade driven by a well-documented and growing list of factors. Changing attitudes towards drink driving are hitting rural pubs hard. Rock-bottom beer prices charged by supermarkets and cross-Channel smugglers aren’t encouraging trips to the pub, especially when the creature comforts at home (DVDs, satellite and cable TV, video games and the internet) are multiplying and becoming increasingly sophisticated, a trend known as “cocooning”. Then there’s the pending indoor smoking ban and the decreasing acceptability of men nipping out for a swifty while “wifey” stays at home, though both of these trends can be to the benefit of forward-thinking publicans.

Let’s look at some of these in turn, starting with what most observers feel is the most significant factor, supermarket pricing. The playing field in which supermarkets and pubs compete is now so un-level as to resemble the Somme battlefield. In an article called Supermarkets Where Drink is Sold Like Water, The Daily Telegraph (June 6) reported finding Foster’s lager for sale in Tesco at the equivalent of 43p per pint. Bottled water was found for sale in supermarkets at the equivalent of 49p per pint – and water, as we all know, is not subject to excise duty as alcohol is. Mike Benner, Camra’s chief executive, said: “The ridiculous practice of the major supermarkets selling below-cost alcohol to out price each other is reckless, irresponsible and dangerous.” In January, the Competition Commission criticised supermarkets for selling alcoholic drinks as “loss leaders”. So concerned is John Grogan, chairman of the all-party Parliamentary Beer Group, that he has just tabled an Early Day Parliamentary Motion urging supermarkets to end their “irresponsible” promotions for beer.

Conversely, the British Beer & Pub Association (BBPA) has established a code of practice for responsible promotions for its members, outlawing cut-price deals such as happy hours that might encourage binge drinking, and the police make a point of targeting pubs that flout this code. Spotted any kinks in the playing field yet?

Fool’s rules
It wouldn’t be quite so ironic that supermarkets are now giving beer away if it wasn’t for the fact that the government effectively ended the big brewers’ ownership of pubs in the late 1980s with the introduction of the Beer Orders. Of the six national brewers identified by the Monopolies and Mergers Commission in 1989, only Scottish & Newcastle still operates a pub estate (just over 1,000 tenancies on behalf of The Royal Bank of Scotland). The government of the late ‘80s was concerned that six national brewers controlled 75% of beer production, but the government of today seems to have missed the fact that almost half of all alcohol, not just beer, is sold by the six leading supermarkets, which also account for 75% of the total grocery market. It’s a funny old world.

Hopefully, there are some grounds for optimism over the imminent smoking ban. It seems that for every prophet of doom, there’s a still, small voice of calm. David Trunkfield, head of leisure at PriceWaterhouseCoopers LLP, says businesses such as bingo halls and wet-led pubs “where smoking is inextricably linked to the leisure activity” could see “a revenue decline of up to 15% … with many taking more than three years to recover to pre-ban revenue levels”. But Rooney Anand, chief executive at Greene King, which has 297 managed pubs in Scotland where the smoking ban is already in force, says, “In the worst cases, where pubs are small, without outside space [to accommodate al fresco smokers], sales are down double digits, but in venues with gardens and better food offerings, sales are up double digits.” Take your pick. Where pubs with gardens are smartening up their acts and improving their food to attract families and female customers everything, it seems, is rosy.

Jim Clarke, finance director at JD Wetherspoon, says: “Since the ban in Scotland we are finding new customers, people who previously didn’t visit pubs. If we can make a decent coffee, the margins are similar to beer. Overall, the sales going down are for beer.” No cause for the brewers’ concern there, then.

Paul Hegarty, communications manager for Coors Brewers, ruefully observes, “Top-end pubs are doing very well. People are going to them, but often to eat, and with wine.” This is why, he says, so many brewers are promoting beer with food, as is the BBPA within its multi-faceted Beautiful Beer campaign.

In 1980 the on-trade/off-trade split in the beer market was 88/12. It currently stands at 59/41 and is expected to reach 50/50 by the end of this decade. According to the BBPA, draught beer (all on-trade, obviously) accounted for 54.7% of the total beer market in 2005 (down 44% on 1992), while packaged beer grew its share to 45.3% (up 47.5%) over the same period.

A touch of theatre

Seeing as the on-trade is still (just) the biggest and most profitable sector for the beer category, are the big brewers taking any steps to assist the pub sector and stem this decline? Many are working to improve the “theatre of dispense” (the drinks business, April 2007) to help pubs come as close as possible to pouring the perfect pint.

New font technology is enhancing the drinkers’ experience through increasingly sophisticated control of temperature and speed of serve while bringing a little pizzazz to the process. In terms of product innovation, most of the main brands are now available in extra-cold formats, which are currently driving the category.

Coors Carling C2, at only 2% ABV, is aiming to put more bums on pub seats by expanding drinking occasions. The plan is not only to increase pub traffic and profits for Coors but also to increase the average spend per visit. “When consumers currently want less alcohol their options are limited,” says John Holberry, Coors sales director. “Some resort to soft drinks, some to nursing one pint all night and some would rather not go out at all if they can’t have a beer. Carling C2 is pioneering the mid-strength category, allowing consumers to enjoy a great tasting 2% lager from the nation’s biggest lager brand, and landlords to increase their profits by opening up new drinking occasions [like lunchtimes] and extending existing ones.”

Paul Hegarty at Coors says, “Flavour has held these products back in the past, but with C2 we think we’ve got a significant lead. After about 1,000 different recipes we think we’ve achieved one that tastes like a proper pint.”

Buying a tinny and taking it home, rather than drinking a beer in a pub, is the equivalent of renting a DVD rather than going to the cinema, and it’s even sadder drinking your tinny at home when there’s a big football match on. This is the principle behind Carlsberg UK’s Sports Viewing Club… probably. There’s no doubt, though, that the symbiotic relationship between beer, pubs and football is mutually beneficial. Gareth Roberts, head of sponsorship and media relations, says, “With Carlsberg’s exclusive partnerships with the FA/England team, we are able to utilise these rights to create football theatre, themes and unique money-can’t-buy activities.

“Carlsberg works with our sports-led outlets to create the right ‘feel’ to the outlet, the right service levels and experience.” This might include floor service during the match and enhancing the food offer, possibly with a barbecue, to retain customers afterwards.

Sitting comfortably
A slightly more unusual approach adopted by Carlsberg features the Danish concept of “hygge” (pronounced hoo-ga), which, Roberts explains, is based around “socialising and comfort”. In essence, he says: “Leather seating is placed in a circle … It’s comfortable, warm and very sociable and allows a fairly large group of friends to enjoy a night out in the right surroundings. Assistance with the furniture and room placement encourages the customer to give a different feel to parts of his bar areas rather than a straightforward pub experience.” One could think of it as a branch of feng shui developed for the on-trade – pub shui, perhaps.

The Campaign for Real Ale’s annual Community Pubs Week, its campaign to celebrate pub culture, is now in its fifth year, and the organisation continues to lobby vigorously on behalf of the industry. “We’ve lobbied for local authorities to give rate relief to pubs,” says Mail. “In 2002 the government introduced mandatory rate relief for rural public houses. We’re calling for urban rate relief, but we’re not there yet,” he admits.

He also suggests that the government could introduce different rates of excise on draught beer (served in pubs) and packaged beer (in shops). “The consumer pays the same 17.5% VAT on beer whether it’s bought in a supermarket or in a pub, but in a pub it’s 17.5% of a much higher price,” he reasonably argues.

This could lead to cheaper on-trade beer prices and would certainly help pubs to compete with The Great Supermarket Give-away. Sounds like a vote winner to me.

© db July 2007