Not so h-optimistic

25 January, 2008

After a bad year for the crop, how can retailers deal with inevitable price hikes?

Truly, January is the longest month. After the manic burst of trade at the end of the year, the doldrums of January seem more soporific than ever. But what to do? It's not as though we're about to indulge in some traditional January sales, it's not really a technique of which I approve. Actually, I do have my eye on a rather nice purple velvet Paul Smith jacket in a store in Leeds, but I digress.

In an ironic reversal of the January sales, it seems that the price of everything is gently increasing, particularly good beers from smaller breweries. One would have to have been living up a mountain to have escaped the speculation surrounding the economy in general, and inflation in particular. I think that there is a double (or even triple) whammy in play when it comes to beer. The raw ingredients have become much more expensive, and in the case of some hops, simply unavailable. Garrett Oliver, brewmaster of the Brooklyn Brewery, characterises this not as a shortage, but an outage. The spice of beer is unavailable for any price; it's just been a bad year for hops. Add to this the rise in fuel and utility costs

and it's unsurprising that the price of quality bottled beers from smaller producers is steadily rising.

But as a specialist retailer, how is one to deal with these rises? Should you soak up the price increase

whole, or even in part? It's only natural to worry that a small tweak in prices might lead to a large fall in trade. But let's look at the alternatives :

if you elect to completely soak up the price change, fearful of being seen as too expensive, then you are doing everyone a disservice by handing out subsidies. You subsidise the customers' drinking habits

and the brewers' price increase. Now, I'm not criticising the brewer for passing on increased costs , on the contrary, it is only right that these should be passed on all the way down the line of supply to the end point of sale. I think that it's an interesting and valid test of both the quality of a beer and the loyalty of its consumers. A modest increase in price shouldn't stop people buying a good product.

If the price is truly a reflection of the quality of the product, then a perception of value for money will remain. Bottled beers from the superb Durham Brewery have been consistently good sellers, despite being on average around 30 per cent more expensive than most other British bottled beers. Clearly, the customer is able to discern value for money, despite the higher price. Good value doesn't always have to mean cheap.

Conversely, there is also an argument to be made for capping profits on more expensive products. There are a few expensive wines that we stock because they are classics, they give the shop a certain charm ("Oooh, look darling! Chasse-Spleen!"), and quite simply, I like them. I'm happy to lower the margins on these slightly, because even if we make "only" a fiver on a bottle, then that's the equivalent of a

lot of Carling or

Leffe in a single sale.

Of course, these two points of view are completely opposed to one another. How do you decide where to cut margins

and where to go all-out for full profits? That, my friend, is the secret of successful retailing. Know what your customers want, give it to them

and make sure that they pay for it at a level that pleases both you and them.

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