Long-term solution lies with families

02 May, 2008

Nielsen consultant Graham Page weighs up minimum pricing on alcohol

Politicians of all parties, backed by the health lobby, have played on public and media concern about binge-drinking and anti social behaviour in recent years and used it to progressively marginalise the alcoholic drinks industry.

Now they are raising the spectre of minimum pricing on alcohol.

The off-trade, dominated by the multiple grocers, runs a business model that pubs and clubs simply can't compete with - indeed, many top pub operators probably wouldn't want to.

The on-trade is definitely feeling the heat and the effects of the smoking ban and recent duty hike have added to its list of woes.

The use of alcohol and its higher price and more premium positioning in the on-trade has been used by the off-trade to move volumes based on low prices - in the case of the grocers, to fill shopping baskets, with drinks just one element of the shopping list.

Off-trade drink is becoming progressively commoditised - especially beer.

Many multiple pub groups have expressed concerns that brewers and ≠grocers are chasing off-trade beer volumes at the expense of price and margin, and this is becoming a major factor in the on-trade beer decline - almost certainly true.

The process is also driven by the widening gap between ons and offs retail pricing.

Nielsen, using Office of National Statistics figures, has seen no real increase in off-trade liquor retail prices over the past 10 years, allowing for inflation, while on-trade prices have grown by nearly three times the Retail Price Index .

While some point the finger at retailers, suppliers also have to take some responsibility for pricing and promotional deals - after all, they own the brands.

Market conditions

The low price of alcohol is a function of market conditions in the off-trade, where different retail groups are ≠becoming ≠increasingly competitive. It's also a function of the multiples' need to force grocery prices lower but move volumes, something which, in part, supports the national drive to keep inflation low.

Consumers are now conditioned to expect and look for low alcohol prices and promotions.

So are suppliers' margins the only ≠losers here?

Yes and no.

The negotiations between suppliers and retailers are private, but clearly retailers want suppliers to hit retail price points which make them competitive.

Deals will be struck on pack sizes, numbers of facings and in-store positions. There will be deals on advertising costs, retrospective discounts if certain volumes are achieved, upfront payments to get promotions into the plan, etc.

All of these elements force retail prices down and squeeze suppliers' margins, but is this any worse than food or other items?

Probably not.

Clearly any government attempts to impose an alcohol minimum pricing regime will not find many supporters in most of the off-trade, though it will be welcomed in pubs and clubs.

Minimum pricing will limit sales and therefore consumption, which of course would be its aim.

It will also increase prices and inflation and reduce government income on duty and VAT - not ideal, although that has not stopped them on tobacco.

The government's attempts to review the minimum pricing of alcohol looks like the same strategy as the smoking ban - the endgame appears to be ≠protecting the nation's health.

My feeling is the current Scottish situation will be the template for what happens in England and Wales. Scotland's health minister has decided they have a health problem, with alcohol the main offender.

Legislation

Scotland is already limiting promotion and merchandising in stores, and minimum retail pricing may be next. My understanding is that legislation exists which could allow UK ministers to move on minimum retail pricing of alcohol without the need for primary legislation, if it is for the public good. But it may conflict with European law, so decisions are uncertain.

Minimum pricing is draconian, hard-hitting, blunt and unlikely to solve the cultural problem when any long-term solution lies with families, with parents and in education.

Consumers and the trade have to decide if the likely loss of commercial and personal freedoms are worth a fight.

Frankly we have no choice.

The legal view: minimum pricing could hit EU barriers

Angus Evans, senior solicitor with the EU & Competition team at law firm Maclay Murray & Spens

Recent proposals to restrict irresponsible drinks promotions in the off-trade, such as two-for-one offers, are viewed as one means of curbing the nation's drink problem. However, there is little hard evidence that price is actually key. The government seems to forget that alcohol prices in the 70s and 80s were also high, yet a binge culture still existed. Culture, not price, is arguably the root of the problem.

Any ban on below-cost sales could conflict with EU laws guaranteeing the free movement of goods and would require a change in UK competition law to be effective. A binding code of conduct for drinks companies would be an option, but is likely to amount to illegal price-fixing. Understandably, retailers will not sign up to such restrictions without a change in the law.

Placing restrictions on alcohol pricing would be both costly and time-consuming.

Imports from countries with low cost bases would be difficult to regulate and, judging by the experience of other countries, restricting below-cost sales would

lead to extensive litigation with no guarantee of success.

The on-trade is understandably aggrieved that, up to now, it has been the focus of much of the government's ire when it comes to binge drinking. Its desire for a level playing field with the retail sector is logical. However, it should be aware that attempts to restrict the off-trade's pricing are likely to encounter significant legal and practical obstacles. More importantly, without major changes in the UK's drinking culture, slapping a ban on discounting will have little or no impact on reducing binge-drinking. Culture is clearly key and this, rather than retail or pub prices, should be the focus of any attempts to reduce binge drinking.




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