Last week I watched a feature on the BBC highlighting the losses British Airways had suffered, (fourth quarter losses for 2009 were fifty million pounds, pre tax losses for the nine months to December were 342 million pounds). An analyst remarked that these losses could be attributed to BA utilising a business model which was no longer appropriate for the existing market.
The commentator cited a number of factors to support his arguement, most notably the fact that BA was now losing substantial amounts of business to cheaper competitors such as Ryan Air and Easy Jet. He concluded that the company needed to adapt in order to meet changing customer preferences and habits.
Well if BA thinks it has problems with cheap competition then all I can say is 'welcome to my world'. My outlet is located in Birmingham city centre with both a Sainsbury's and Tesco in close proximity. Here, as I am sure you are all aware; you can currently purchase two cases of beer (48 bottles) for £15.00
Now let's think about this for one moment; imagine the following scenario if you will. A group of six individuals decide to have a few drinks one evening; they have several options open to them; they can go down to the supermarket and chip in £2.50 each to get a couple of cases of beer, (or of course go online and get it delivered) alternatively they could go to the pub where they will be required to part with £20 each for the same amount of drink. It's a tough call.
The bottom line is that we find ourselves operating in a market where the price of our product far exceeds those of our competitors. BA is addressing this problem through a radical restructuring of its business, coupled with a cost cutting programme which has brought it into conflict with the unions.
What are we doing? I don't know about you, but my prices will be going up next week in response to the latest round of seemingly endless price hikes.
If, as government intimates, they have concerns relating to both alcohol abuse and the social and health problems that arise from it, then you would think they would be only too quick to address the root cause, namely the availability of cheap alcohol?
In a recent letter published in the Daily Telegraph, directors of public health in the North East called upon the government to "introduce a minimum price per unit of alcohol to tackle cheap drink, which is having a devastating effect on our region."
The letter went on to point out that "alcohol is available for as little as 12p a unit, cans of lager for just 22p and a two-litre bottle of cider priced at less than a loaf of bread." The letter concluded that with £6.24 in their pocket - the average level of pocket money in Britain - "young consumers can buy enough alcohol to drink twice the recommended daily limit for an adult male, every day of the week."
Ministers might wish to contrast their seemingly indifferent stance with that adopted by their Scandinavian counterparts. Some years ago the Swedish government implemented a system specifically designed to combat many of the drink related problems that have unfortunately become increasingly familiar to us all.
Systembolaget, (literal English translation the System Company), is a government owned chain of liquor stores in Sweden. It is the only retail store permitted to sell alcoholic beverages above 3.5% ABV.
There are several laws governing how Systembolaget stores operate:
• All products are taxed on alcohol content not on price.
• All products are sold with the same profit margin.
• All products, including beer cans and bottles are sold individually, not in cases as in other countries.
• Discounts, such as "Buy 1, get 1 free" and "One can £1.50, two cans £2.50" type deals are prohibited.
• Beverages above 3.5 % ABV cannot be sold to anyone under the age of 20.
One of the primary reasons for the existence of the Systembolaget is to ensure enforcement of the age limit. (Research conducted in Sweden showed that food shops often sell drinks with 3.5 % ABV to people below the age limit, currently set at 18).
In addition, this controlled and regulated environment has been remarkably effective in eliminating binge drinking and is in marked contrast to the 'free for all' environment which has come to epitomise the off trade in the UK.
Prices are set to ensure that alcohol is sold responsibly and this rigid pricing structure also ensures that the marked disparity in price between the on and off trade in the UK is not replicated in Sweden.
Whether or not such a system is either workable or for that matter desirable here is open to question. What is apparent however is that politicians have yet to show a willingness to do anything other than to ensure that the on trade is subjected to stifling regulation; this despite the fact that it is not the primary cause of many of the highly publicised problems we see on our streets today.
The BBPA have made it clear that they oppose minimum pricing; some would argue that such a stance merely highlights the conflict of interest that occurs when a body such as theirs purports to represent both the on and off trade.
The consumer on the other hand is understandably very happy with the current arrangement and would quite sensibly argue that he/she should not be required to pay more simply because a few unruly individuals resort to unacceptable behaviour when they have had a few too many; i.e. punish the guilty not the innocent.
What is also clear is that customer habits are changing. Many of the younger generation who used to be frequent visitors to my pub now openly admit that at weekends in particular, they prefer to pre load at home with friends and then go to a club, thereby eliminating the pub from the equation. This appears to be an increasing trend and if the price gap continues to grow we could very well permanently alienate the next generation of drinkers.
Do I foresee a point in the future whereby supermarkets will increase their prices voluntarily? The short answer to that is no. Why? Because they don't need to. Alcohol sales constitute a very small percentage of overall takings and the much publicised offers available on alcohol are little more than a strategy designed to attract additional footfall.
So what is the way forward? Your perspective will undoubtedly be shaped by the type of operation you run. If you are FOT then you are likely to be very happy with the availability of cheap deals, if tied then clearly much less so.
I am an advocate of evolution rather than revolution and recognise that, in common with all businesses, pubs need to evolve to reflect the requirements of a changing market place. As licensees, I would hope we all continually assess our business model and look for ways in which we can develop and improve it.
Partly with these issues in mind I am in the process of initiating discussions with my pubco with a view to asking for an FOT agreement. This will inevitably impact upon my rental premium; it is just a question of deciding whether or not the figures add up and whether the pubco are happy to proceed down that path. Two years ago I don't think they would have agreed; now I'm not so sure.
The one certainty is that if it does go ahead, Tesco and Sainsbury's will be seeing rather a lot more of me than they do at present. No prizes for guessing which part of the store will be my first port of call!