How will 2017's price increases affect the trade?

It is that time of year again. Brewers put their beer prices​ up, citing increased production costs and pressure on the beer market. Licensees are outraged because they will have to either absorb the costs or increase the price of a pint to the consumer.

For many licensees, they have to make crucial decisions as to whether to increase their prices now to maintain margin or wait for the Budget in March.

A duty increase​ could mean the price of a pint would need to be hiked up again.

It might seem like Groundhog Day – and it is for many operators who remain outraged by the annual increases.

This time last year, eight influential multi-site operators with more than 100 sites between them wrote to the then Chancellor George Osborne describing the brewery price increases as “unjustifiable” and damaging to the industry.

Signatories to the letter included Tim Bird and Mary McLaughlin, owners of Cheshire Cat Pubs & Bars; Paul Wigham, CEO at All Our Bars; and Nick Griffin, managing director of Pleisure Pubs.

Moreover, it would seem, despite the letter and the concerns raised, very little has changed a year later.

The latest price changes from brewers have been unveiled and they are increasing yet again​.

Molson Coors, which includes beers such as Doom Bar, Carling, Staropramen and Coors, raised the wholesale selling price on the majority of its draught products by 2.4% from Monday 9 January. It said it had been working to manage a range of different costs associated with the production and supply of its beers.

AB InBev, which has Budweiser, Corona, Bass, Boddingtons and Stella Artois in its stable, will increase prices by 2.3% on average from 1 February. It says this is a reflection of the ongoing pressures on the beer industry.

The next to announce its pricing for 2017 was Carlsberg, which also boasts beers such as Tuborg, Tetley’s, Holsten Pils, Skol and San Miguel in its portfolio. Its price increases were unveiled at 2.6% on average across the board. Vice-president of independent free trade Per Svendsen says the company was unable to absorb all the costs of imported brands and raw materials.

Lastly, Heineken says it has increased prices and has absorbed as many of the costs as it could before passing this on to trade customers.

It revealed an average price increase of 6p per pint across its brands with a 6.6p increase for Foster’s or a 3.6% increase. As well as Heineken, its brands include Desperados, Kronenbourg, Deuchers IPA and John Smith’s.

Call for Government action

Meanwhile, the British Beer & Pub Association (BBPA) says it will not get involved in company pricing decisions but does highlight the issues facing brewers and had urged the Government to consider a duty cut​.

“Beer in the UK is made predominantly using domestic raw materials,” says BBPA chief executive Brigid Simmonds.

“However, the depreciation of sterling certainly means there will be some inflationary pressures through increasing costs such as raw materials, packaging, energy and transport as well as employment and the other cost ressures all businesses face.”

The consumer champion, the Cam-paign for Real Ale (CAMRA), has called for a duty cut in this year’s Budget.

CAMRA national chairman Colin Valentine says: “It is a shame that so many large breweries are planning to increase their beer prices this year, which will have a huge impact on consumers at the pub.

“This is why we are calling on the Government to cut beer duty in the Budget, which would go some way to alleviating the price hikes.”

Nevertheless, despite these arguments and explanations, licensees and multi-site operators remain unimpressed.

Seven-strong Cheshire Cat Pubs & Bars owner Tim Bird argues there is a complete disregard by brewers for the pubs that sell their beer.

“I am part of a group of industry people operating small independent pub businesses concerned that prices are going up yet again as an annual habit,” he states.

“The problem for the trade is that it doesn’t matter how much the prices of fuel or raw materials go down, the brewers never reflect these changes in their prices and never hold prices or bring them down.”
The brewers, he believes, have “no respect” for the ‘end’ customer, which is the consumer.

He says: “We are the brewers’ customer and we present their beer to our customers. We are working hard at selling their beer and our reward for doing this is another annual price hike.”

He says the timing of the announcements at the beginning of the year are also unhelpful for operators and customers alike.

“Why should customers pay an extra 10p to 20p a pint just a month before the duty price increases are announced?” he argues.

Focus on longevity

And while the big brewers are strong on their sponsorship of big sporting events, he believes this has little benefit to the majority of the trade.

He controversially suggests that they should spend less money on sponsorship and focus on creating value for pubs, which will create longevity for their brands.

“In the end, we will all walk away and they will be left with only their own pubs to sell their brands in,” he says.

Another campaigner against the beer price increases is Paul Wigham, CEO of All Our Bars, the 14-strong pub group, who says the latest prices are another “nail in the coffins of traditional pubs and beer sales”.

He argues that the brewers are being “short sighted” because these increases, combined with business rate hikes, staff cost increases and the apprenticeship levy are putting significant pressure on the pub sector.

“This is obviously a far greater issue in tied sites where there is no price protection against rises, little alternative product and no competitive supplier choice. Pub companies profit from brewer rises while tied tenants suffer,” he says.

“MRO (the market-rent-only option of the pubs code) has only served to make the pub companies more aggressive and the creation of pub company managed house divisions will swallow the good pubs that are capable of survival with tenants in this climate. That may not be the panacea they think it is – these were in leased estates and not large company managed estates for good reason.”

Meanwhile, Nick Griffin, managing director of Pleisure Pubs, the eight-strong pub chain, argues the brewer increases are “outrageous”.

“The increases are way above inflation and CPI,” he says.

“They burnt their bridges last year when we knew the costs of production and distribution fell. Peter has cried wolf once too often. They are killing the goose that lays the golden egg.”

One key issue that is hiding the real costs of the price hikes is that the brewers are applying their increases to the duty element, he argues.

“This is not theirs to apply to,” he says. “Brewers should not be adding increases based on taxation. If you strip out the duty and apply the inflation then the customer is paying so much more.”

He says the situation has become so bad that many pubs would have to stop selling these brewers’ products.

“Brewers need to engage brains first and not accountants,” he warns.

And what next? While the brewers have unveiled their price increases, there is still the next challenge for both freeholders and tied tenants.

Freehold pubs will have to decide whether to renegotiate their supplier deals with existing or new brewers. While tied tenants will be waiting for the next challenge – how their pubcos will interpret the prices and how they will pass this on. This would seem to be Groundhog Day yet again.