Pubs threatened as supermarkets massively undercut trade prices

Head of Steam managing director Tony Brookes questions whether supermarkets are acting irresponsibly, to the detriment of North East pubs.

“The alcohol market is clearly massively out of balance. It would be far cheaper for most pubs in the country to buy their stock from the supermarkets.”

Our company operates a small group of 9 pubs, largely in the north east. We are vehemently critical of the irresponsible alcohol pricing policies of supermarkets, which we believe are  major causes of our binge drinking culture, alcohol-related health problems and the steady closure of the country’s pubs.

In July I raised the question of how Tesco supermarkets held and in some cases reduced  the price of many of their bottled beers after the beer duty increase in March. At the time, Tesco were selling the majority of the British bottled beers they stocked at 4 for £6.00.

Today I checked the same Tesco store, in Hexham, Northumberland, to discover that the price of the vast majority of the British beers they stock had been reduced to £5.00 for any 4, with a similar scheme for imported beers.

This price is absolutely ludicrous. It works out at £12.50 (excluding VAT) for a case of 12 bottles, which is much cheaper than even our company can buy at discount, from industry trade prices. And that is before you consider that pub operators are expected to make a profit by selling at a mark-up to what they pay for their stock.

The alcohol market is clearly massively out of balance. It would be far cheaper for most pubs in the country to buy their stock from the supermarkets.

I checked out the cost structure of a few random beers. Robinsons Old Tom is strong at 8.5%ABV, in 33cl bottles. They are being sold at £1.25 (104.17 pence  excluding VAT) each by the 4.

The duty on a bottle is 69.10 pence. VAT on the price is 20.83 pence. So the government taxes on a bottle are 89.93 pence out of the selling price of £1.25.

So all costs of production, distribution and profit being made by brewer and supermarket come out of 35.07 pence a bottle.  That price – equating to £12.50 (excluding VAT) a case of 12 – is to Joe Public.

But the trade price from the brewery is about £19 a case. Need I use an expletive? A bottle contains 2.80 units of alcohol, so if a minimum price of 40 pence per unit were introduced, minimum price would be £1.12, which is way too low. 50p minimum would make the minimum price £1.40.

Greene King’s Morland Old Crafty Hen is 6.5% ABV in 50cl bottles. They are part of the 4 for £5 deal. The duty on a bottle is 63.41 pence, so the government taxes on a bottle (duty plus VAT) are 84.24 pence.

It is absolutely impossible for pubs to compete with supermarkets when their prices are so low. Selling very strong beers at £1.25 a 50cl bottle is simply morally wrong.

The minimum price of typical bottles of best bitter, say Taylors Landlord or Thwaites Wainwright, both 4.1% ABV, with 2.05 units of alcohol, would be 82 pence if the minimum was 40 pence per unit, or £1.02 if it were 50 pence.

Only 500ml bottles of beers over 6.25% ABV would have selling price affected by a minimum price of 40 pence per unit; this is way stronger than most British beers on supermarket shelves, so such a low minimum price would have virtually no effect on selling prices in supermarkets – or, of course, pubs.