The cheap shot by supermarkets

There’s a disease rife in our industry. It’s a form of self-abuse that threatens to kill off a significant chunk of players, or at least leave them severely weakened. The people engaged in it know the long-term effects will be devastating if they carry on, but they do so anyway, regardless, because they’re hooked on the short-term hit it gives them.

It’s called screwing suppliers on price.

It began in the off-trade, where it took less than a decade to destroy some of the most powerful brands. The modern beer market was built on big brands created by memorable ad campaigns that made drinkers furiously loyal. When supermarkets got a big enough share of the beer market, they trained consumers out of this brand loyalty and to shop for the best deal.

This meant brewers had to make changes to meet the prices demanded by the supermarkets. After centuries of advances in brewing that focused on increasing the quality of the product, innovation was now about making the product cheaply and getting away with it: brewing with cheaper adjuncts, shortening the brewing process, quietly lowering the ABV, screwing with pack sizes and hoping the consumer wouldn’t notice. Price obsession has put us in the situation where investment in innovation is actually dedicated to making the beer worse.

And, of course, it created a price disparity with the on-trade, which is killing pubs.

It’s not like we hadn’t seen this coming. Cider used to be small scale and local. When some cider-makers got contracts that gave them national distribution, they scaled up. But as this volume came to depend on fewer, larger suppliers, the cider-makers had to give in to price demands. This was a ratchet effect, repeated every year. At first, there was a bit of fat that could be trimmed, but when you keep going, you end up cutting to the bone. Large-scale cider-makers could only maintain the practice by making the product more cheaply. The way you make cider more cheaply is to put fewer apples in it.

Until 2010, there was no legal minimum juice content for cider in the UK. Now there is, it’s 35% (in the US it’s 50%, in France it’s 100%). Producers are not obliged to put juice content on labels, so the UK consumer remains largely unaware that a drink they believe is made mostly from apples is, in fact, water, sugar and other stuff.

The result is squeeze or exit

The lack of education among consumers and the trade guarantees the system can’t be changed.

The obsession with price has stifled what could have been a craft cider revolution to echo the one in beer. Makers of high-quality, high-juice cider try to sell to pubs and supermarkets who say: “Why should I buy yours? I can buy theirs for half the price. You need to match that.” Even without taking into account economies of scale, the only way for a craft cider maker to not lose money on every pint they sell is to make an inferior product. A craft cider boom, if it had happened, would have brought more people into the sector and put more money over the bar.

Craft beer did succeed because there was a big enough core of dedicated drinkers and independent stockists who were prepared to pay more, and to ride out the cynicism about price that’s been trained into Brits. Craft beer costs more for various reasons, but one of them is that hops are expensive, and craft beer uses a lot more hops than mainstream lager, so it’s more expensive to make.

But now, inevitably, even craft brewers are being screwed. Cask ale – Britain’s national drink – is in dizzying volume decline partly because the people who brew it can’t make any money. Many small craft brewers are surviving only because their passion means they will put in far more work than they’re being remunerated for. When you’re as big as Fuller’s, you can’t get do that, so you exit the industry instead.

Anyone who takes a long-term view can see that a single-minded focus on getting the lowest possible price causes irreparable harm. When consumers demand premiumisation and quality, it forces the industry into cheapness and commodification instead.

Supermarkets and pubcos need to kick this destructive habit and go cold turkey. If they carry on screwing suppliers, they’ll eventually screw themselves as well.