Diageo struggles to accept the facts

Diageo can’t seem to make up its mind over pricing, if its latest salvo to the government is anything to go by.

In backing the ban on below-cost selling, the world’s biggest drinks company effectively admitted that it is prepared to bow to public pressure over health concerns without accepting the concerns might in fact be justified.

In its submission to the Home Office consultation on a proposed overhaul of licensing laws, Diageo UK managing director Simon Litherland said: "We’ve always maintained that we do not support pricing interventions on alcohol, because there is no evidence globally that it is an effective measure in reducing alcohol-related harm.

“Increasing the price of alcohol, by whatever means, also unfairly penalises those who drink responsibly.”

However, he followed this up with: “[Banning below-cost selling] seems to be a response to public concern that is worthy of closer examination".

His statement was backed up by Mark Baird, corporate social responsibility manager for Diageo UK, who said the move is designed to “address the public perception of alcohol rather than because we believe price is connected with alcohol-related harm."

What is becoming increasingly evident in Diageo’s approach to this matter is its apparent ignorance of – or at the very least refusal to accept – global data which shows there is a definite link between pricing and consumption.

Even other alcohol companies have accepted that the cheaper a drink is sold, the more it will be consumed.

Nick Lakin, head of corporate responsibility at Molson Coors, said: "Extremely cheap alcohol prices are not good for society and we believe some form of pricing intervention may be required. Price point is important, we agree there is a connection between price and consumption."

Government action over the issue – be it through minimum pricing or a ban on below-cost selling – looks unavoidable given the amount of column inches and parliamentary debate on the issue, but Diageo runs the risk of seeming at best stubborn, and at worst out-dated and out-of-touch with modern attitudes – this from a company which prides itself on its “responsible” approach to alcohol consumption and retailing.

There is no doubt that the most “responsible” step in tackling problem drinking in the UK is going to come in pricing solutions.

Rather than bury its head in the sand and say “we can’t hear you” to the overwhelming evidence to the contrary, Diageo should instead be looking to lead the way in finding a solution.

Interestingly, the company has also called for taxation on beers, wines and ciders in the UK to be brought into line with those on spirits.

At present, wine is taxed at £1.69 a bottle, which contains 9 units at 12% abv – the equivalent of around 18.8p a unit, while duty of 49p on an average pint of lager works out at around 21.3p a unit. That compares with duty of £6.24 on a bottle of spirits, the equivalent of 22.3p a unit.

The company says it wants to see "full equivalence" across all alcoholic drinks, so that one unit is taxed at the same rate regardless of the liquid. The strongest drinks would therefore pay the highest level of tax.

Diageo believes the move is an alternative to political pricing intervention on drinks such as alcopops and strong cider, which are typically targeted by health campaigners for encouraging binge drinking.

Diageo says that bringing the tax rate into line across all alcoholic drinks will bring in between £524 million and £1.9 billion a year to the government’s coffers.

However, let’s take a quick look at where Diageo makes its money in the UK. Guinness aside, it can’t really claim to have too much of a stranglehold on the beer or cider markets. It makes its money from spirits such as Smirnoff, Johnnie Walker and Gordon’s, and therefore it is all too easy to cast a sceptical eye over its call. It is also no surprise that the Scotch Whisky Association, of which Diageo chief executive Paul Walsh is also chairman, backs the move.

Would Diageo be calling for the same thing if the boot was on the other foot?

Alan Lodge, 01.09.2010