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Morning Briefing Strap Line
Fri 5th Oct 2012 - Friday Opinion
Subjects: supermarket pricing, the funny economist, thoughts from Zurich, the coffee market and creating a service culture
Authors: Tony Brookes, Paul Charity, Ann Elliott, Philip Lay and Simon Wilkinson

Ridiculous supermarket pricing by Tony Brookes

Our company operates a small group of nine 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.

On 7th July 2012, I sent out a press release raising 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 four 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 four. A similar scheme applies to their imported beers. This price is absolutely ludicrous. It works out at £12.50 (excluding VAT) a case of 12 bottles, which is much cheaper than even our company can buy at discount. And 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 per cent ABV, in 33cl bottles. They are being sold at £1.25 (104.17p excluding VAT) each by the four. The duty on a bottle is 69.10p. VAT on the price is 20.83p. So the government taxes on a bottle are 89.93p 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 14.24p (104.17 minus 89.93)? I don’t think so. Is this being sold at below cost price? 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. I’m tempted to use an expletive! A bottle contains 2.80 units of alcohol, so if a minimum price of 40p 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 per cent ABV in 50cl bottles. They are part of the four for £5.00 deal. The duty on a bottle is 63.41p, so the government taxes on a bottle (duty plus VAT) are 84.24p. 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 per cent ABV, with 2.05 units of alcohol, would be 82p if the minimum was 40p per unit, or £1.02 if it were 50p. Only 500ml bottles of beers over 6.25 per cent ABV would have selling price affected by a minimum price of 40p 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.

Pubs just cannot compete with these prices – £1.25 a 50cl bottle equates to £304.80 per brewer’s barrel (288 pints) excluding VAT. Most pub operators in the country could not buy Taylors Landlord, for example, for that price. That applies to dozens and dozens of supermarket beers. The question needs asking – why are Britain’s brewers selling their beers so cheaply to supermarkets that they can be sold for a lower price than a pub operator can buy for? Where does their allegiance lie? With the pub operator or the supermarket?

It is probable that a similar picture would emerge if analysis was to be carried out on imported beers and wines. The same may apply if all the other supermarkets’ pricing was investigated. I suggest the press carry out a detailed investigation and expose of the supermarkets’ dangerous alcohol pricing policies.

The important thing to be clear on here is that it is not just the well known strong cider, vodka, Stella bottles and the like that are thought to be the main culprits when it comes to supermarkets selling cheap alcohol – it is the majority of quality beers that are being sold at irresponsible prices. It is time the government stopped procrastinating about a subject, which is gradually leading to greater problems in British society. The supermarkets need much stricter control in their pricing and promotional methods and a high minimum price for alcohol needs introducing as soon as possible.
Tony Brookes is managing director of Head of Steam

The funny economist by Paul Charity

Most of you will have attended a conference and had your heart sink at the prospect of an over-long presentation by an economist. A week ago in Zurich that sinking feeling hung in the air as Stephane Garelli took to the podium at the European Foodservice Summit. An hour later Garelli, who was managing director of the World Economic Forum for many years, left the podium to rapturous applause – and more than a few delegates offering an ovation from the standing position. During a 60-minute tour de force, Garelli provided a compelling vision of the world today, each telling slide delivered with a massive slug of wry humour delivered in a winning high-pitched Teutonic accent. Space prevents explication of every piece of Garelli analysis, but here’s ten insights from the maestro worth passing on:

1. Today everybody is a leader: Garelli argued that the natural and obvious answer to the predictable interview question, ‘Do you have any leadership experience?’ is: “Yes, I have six people following me on Twitter.”

2. The future has never been so unpredictable: Garelli presented a slide that featured the logos of Facebook, Wikipedia, You Tube, the iPad, the iPod and the Euro. He pointed out that none of these existed a decade ago. He added: “All of them were invented in California – except the Euro. Maybe if the Euro had been invented in California it would work better.”

3. What efficiency actually means: Garelli argued that efficiency is hard to measure but one thing is certain: “There is nothing as inefficient as doing something efficiently that should not be done at all.”

4. Globalisation of local brands: The emerging economies have a strategy, argued Garelli. It is: the “globalisation of local brands”. “In China, 21 of the 22 largest companies are financed by the government,” he said.

5. The simple definition of inflation: The bald Garelli explained that inflation was paying $15 for a haircut that used to cost you $10 – “when you have almost no hair but you used to have lots; you pay more for less”.

6. Consumerism: Garelli said that a feverish “shop until you drop” mentality overtook consumers during the boom years this century. Reflecting on current deflated economic conditions, he said: “Congratulations everybody. It’s happened – at least we’ve achieved something.”

7. The export of (Steve) Jobs: Huge business success stories nowadays create a relatively small number of jobs. General Electric employs 264,000 people whereas Steve Jobs’ Apple has 61,000 employees in the US. “50 per cent of Chinese exports to the US are made on behalf of US companies,” he said. “We have (Steve) Jobs without jobs.”

8. Timing is everything: Garelli pointed out that “it is very wrong to be right before everybody else”. The first low-cost budget airline, Laker Airways, launched in August 1977, flopped - as did the first hand-held mobile telephone, the brick-like Newton, launched in August 1987. Garelli added: “The lesson is obvious – never launch a product in August.”

9. The “Why not?” mindset: Garelli pointed out that a lot of outstanding innovation was borne of the “Why not?” mindset. In such situations it’s not uncommon for naysayers to comment, “You can’t do that”. He argued that the obvious and reasonable response from the bloody-minded innovator is: “Come on, I’m already doing it.”

10. There’s a time for innovation and there’s a time for implementation: Original thinking is naturally followed by a time when the focus is on implementation. Garelli wished delegates a safe flight home but he said that they were to think of him when they strap their safety belts. “Flying back is a time for implementation – nobody wants to be in an aeroplane with an innovative pilot!”

Paul Charity is managing director of Propel Info. His visit to the European Foodservice Summit in Zurich was in association with the Association of Licensed Multiple Retailers and CPL Training

Thoughts from Zurich by Ann Elliott

I felt incredibly honoured to be the only marketing agency allowed to attend The European Foodservice summit in Zurich last week and it was a brilliant experience. I took away masses of insight, which will be useful in helping our clients drive covers.

I have noted some points below just from the presentation of Gottlieb Duttweiler Institute’s David Bosshart, which was the first one in the conference. It was really first class and extremely thought provoking.

1. Not new to any of us but the pace of change is just going to increase exponentially. Product life cycles will become significantly shorter (Google doubles the amount of information it offers, every three weeks. It is also famous for saying, “We know what you are going to want before you know what you are going to want”. David Bosshart’s view was that: “The slower you move, the faster you die.” Speed of implementation after having an idea is critical. All companies are digital now - the key question for them all is: ‘How can we cope with ever-changing technology?’

Technology will either help companies move quicker or it will bring them down - there is no middle route. They have to be mobile, flexible, small and fast. (Note; smartphone users check their phones every five minutes on average and 75 per cent of users keep their phone in their bedroom). Innovation is now about speeding things up.

Life will be about faster eating, living, sleeping, working, regeneration and dying. There is an ‘I want it now’ culture -pay by PayPal directly on TV, for example. “Attention is flowing to our screens and where attention flows, money will follow,” argued Bosshart. Customers want instant gratification.

2. Urbanisation and mega cities will dominate economic development in the future - 112 million Chinese are about to move from the countryside to the city. As countries get richer, the population shrinks, which means a much greater dependency on immigration to supply the workforce. Huge cities are taking increasing proportions of their country’s GDP - Paris is 27 per cent of France’s GDP and the UK would be a third world country without London.

3. We are all becoming bird-like (flight is their way of being in the world) and taking our “places” with us. We are minimising the amount of space we need. “Humans want to be able to do maximise the things they want to do in the minimum amount of space available,” said Bosshard. Living alone is a hugely growing trend.

4. Women are taking over the world and increasingly see men as a luxury accessory.

5. People have no clue how to calculate discount - consumer innumeracy is rife and customers have ‘lousy mental accountancy’. They prefer a three for two offer versus a 30 per cent discount because it’s easy to calculate and understand. Cookies can tell how long someone spends to buy online. If customers are slow to buy, websites can work out that they might need a discount to help them make a decision and they can put one in place before they ‘ click’ to buy. Google maps can determine wealthy areas and charge customers shopping from those areas more for products online.

6. There is ‘speed greed’/ ‘flow envy’ and the time customers are willing to wait for anything is reducing rapidly. Customers have decision fatigue and think they have far less time now to make any sort of decision. Customers are also over informed - 98 per cent of the information they receive, they have already. David suggested buying a book called “Thinking fast and slow”, by Daniel Kahneman ( I think) which explains this situation.

7. Apps have to be very very good to stick- customers only really use very few apps.

A fascinating start to an outstanding conference. 
Ann Elliott is chief executive of Elliott Marketing

The following article appeared last week but a computer glitch meant a few words were scrambled.

Expanding into the coffee market by Philip Lay

People. That was the first word that came to mind when I started to think about what I would write for this column. Mind you, it is generally the first word that comes to mind for most of us in the hospitality sector, most days. They are the opportunity. They are the problem and the solution. They are the most interesting and most important thing that we invest in, no matter what environment we put them in to.

With that thought the most asked question by my peers, following our move into the Coffee shop business, is almost rhetorical - ‘Why Coffee?’ I am most surprised, not by the question but, that so many people think it has been such a bold move. OK, they don’t sell alcohol, but then that actually represents a lower proportion of income in pubs than ever before. Apart from that the environment and core skills have many similarities – most of which are around the people.

We work very hard in the pub sector to deliver excellent, wide ranging experiences for our customers. We recruit and train people constantly and have developed skills to get the right people into the right businesses. Every operator will recognise that if you get that right, the chances of delighting the customer more often are massively increased. The challenge in a pub remains that we are expecting our people to be impossibly good: Great at real ale; pull a perfect continental lager; have a knowledge of wine; be able to know and make cocktails; host a function; deal with a troublesome customer; know the law and be accountable for customers who break it; be great at table service; have full knowledge of food and hopefully, also serve a decent coffee. 

Given all of that then, it should be much simpler to just do the coffee and service bits shouldn’t it? It is, but simpler does not mean simple. 

When looking at the Coffee #1 business we quickly recognised that the business offered us an opportunity to move into a new sector that had great growth potential. It was totally aligned to our company mission statement of ‘Delivering outstanding customer experiences, with pride and passion, across the UK.’ We could see how we could expand the business quickly – much quicker than pubs – as the site criteria was clear, there was plenty of space on the high street and new shops were nothing like as contentious as trying to get a new liquor license. It highlights to me the lack of joined up thinking in government when I can open a new coffee shop within about two months of identifying the site, creating about eight to ten jobs, but if I try to open a new pub creating about 15 to 16, it will certainly take six months and probably a year!

If expansion is the plan, the key limiting factor to doing it successfully is, again, people. We have so far grown the business from 15 shops to 26. This has been delivered over about a seven month period. Although we have a great core team in the business, who are passionate about serving great coffee and experiences in the shop, trying to match the speed of roll out with their uncompromising standards has of course been a challenge. We would never have achieved what we have so far, if the people in the business had not believed in the vision. Growing pains? For sure, but when you keep really focused on a few key things it is amazing what can be achieved.

Have we compromised the offer to grow it? Absolutely not. Winning ‘UK coffee chain of the year’, for the fourth consecutive year is endorsement of that if we needed it, but more importantly our customers remain massively engaged with the brand, helping guide any changes that are needed. The focus on social media in Coffee #1 has helped us understand what we need to do better in the core pub business.

The journey so far has been as exciting as it has exhausting for many of the team, but the pride, passion and enthusiasm for delivering excellent customer experiences will enable us to continue to grow a ‘strong coffee’ business.
Philip Lay is the retail director of SA Brain

Creating a service and guest-focused culture by Simon Wilkinson

During Week One of March 2011, which was the first full week after we took over the separated La Tasca business, there were 85 written complaint letters into the then head office in Luton, 50 from the north and 35 from the south. That, for me, was the highest number of dissatisfied guests I had ever come across in my career, especially for a business with only 65 sites. I thought to myself, “If 85 guests have taken the time and trouble to write and complain, how many pissed off people have not bothered and just never returned and how many had told their friends?”. My other major concern was for how long La Tasca had been getting this volume of complaints and was the damage to the brand repairable?

Seventeen months on, our guest recommend scores average over 90 per cent weekly and in the recent CPL Training Customer Satisfaction Index survey of 5,000 customers we were joint seventh out of 50 brands and top in brands with over 60 sites. This followed on from coming third in the end of year Peach Brand Tracker on service. Is the damage repairable? Honestly, we don’t know for sure, but we passionately believe it is. However, it may be a three-year project persuading many guests to try us again.

There is no golden bullet as to how we have made this progress. It is very much work in progress and complacency can never become part of your culture. But it all started with implementing a “guest-centric culture”, focused and driven by our people from top to bottom. Out went the 80 question customer journey / mystery diner process. It was replaced by an on-line feedback system for every single guest; not a 20-minute questionnaire where you lose the will to live, but a simple survey with two key questions and room for free text.

Negative comments are responded to within 24 hours and every comment is discussed on a Monday conference call - I personally ring a select number of guests weekly. When you give the guest experience this kind of attention it starts to become important. But the real difference starts with the selection, induction and training of our family members and the guest journey experience we expect them to deliver. We have over 53 nationalities within the business - how can they remember 80 steps of service? They simply can’t so we reduced service steps to just four, using the acronym HOLA as a trigger. In fact, our whole culture and training is based around HOLA, Spanish for Hello. I won’t divulge each step except to say it’s easy to remember, whatever your nationality. As well as simplicity being the key, treating every guest like they are in your own home is the easy analogy for what we try to achieve at La Tasca. As well as re-inventing the service steps and the monitoring process, we also introduced an industry leading on-line training system.

Finally you need an ops team who care and are passionate about delivering for every single guest; we now have a team who live and breath that ethos. Obviously the quality of products also plays a big part in the guest experience. We spent a year overhauling the whole menu and supply chain, out went Brakes, in came Fresh Direct. Myself and the Head Chef visited suppliers in Spain personally and struck up direct deals with them, removing middlemen. Our menu change last month is the final piece in this jigsaw. We are all very proud of every single dish and the feedback we have received since the initial changes in March 2012 has been fantastic. The challenge we now have is convincing guests to re-try La Tasca. We are working full steam on that confident that the bedrocks of the business are in place, albeit they will constantly need to evolve in such a competitive landscape.
Simon Wilkinson is chief executive of La Tasca

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