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Fri 26th Jul 2013 - Friday Opinion
Subjects: Eating out market challenges, the retail challenge of beer, an open letter to Dr Sarah Wollaston MP
Authors: Simon French, Martyn Cornell and Paul Chase

The challenges in the UK eating out market by Simon French

Consumer confidence is improving when it comes to the UK’s eating out market. After a very torrid 2008 period confidence stabilised and is now on a gradually improving trend. The important thing to note is that the consumer is getting a lot more resilient for two reasons: job security and wealth. In terms of job security, unemployment, after an initial spike, has been relatively stable at around 2.5m. That, of course, hides a half million decline in public sector workforce and a one million increase in private sector workforce in the past two years. And the net effect of that is that you arrive at the more important statistic of 29.8m people in employment currently, which is a record. The second factor is wealth – and consumer confidence here could well be attributed to more positive media coverage around rising house prices, which always makes people a little bit more confident to go out and spend. I think the government’s ‘help to buy’ scheme will lead to a medium to long-term rise in house prices. In terms of wealth, the payday element is becoming more and more interesting. Supermarkets and late night operators are all tailoring promotions around payday. So whether a big family lunch promotion on a Saturday after payday or trading up the drink menu on a Friday night – there are big opportunities here. One of the other things I keep an eye on is the Asda Income Tracker. The latest data shows that after 11 months of rising disposable income, in the last two months (May and June) we have seen a bit of a fall. When people have less money they will have to give something up in order to eat out, so expectations from a restaurant establishment is high, which means it is still a pretty difficult backdrop for the trade. Ongoing factors such as very slow wage growth are preventing any real gains to discretionary spending power, and the squeeze on household incomes has returned in 2013. The coalition government is working on ‘cost of living’ initiatives to provide some boost to consumers. Petrol is the largest consumer expenditure after mortgage and rent costs – petrol prices have broadly stabilised but there is potentially a short term rise coming that’s worth flagging – I think we will see some fairly chunky increases. What does this mean for consumer behaviour? It can get psychologically damaging when you see the prices going up and up. And in terms of consumer behaviour – you see out of town retail parks responding better than high streets. At some point there has to be a re-balance to stop driving people out of the town centres. It means that we are adopting a more American mentality, where we visit supermarkets, cinema or ten pin bowling and a meal – all activities are done in one place, which is causing a problem for many operators out there.

We will have to wait until September until we get a better understanding of where we are. But I think we will be pleasantly surprised. I do think things are getting better – rising house prices and low mortgage rates as well as cost of living initiatives are all helping. Food is one of the major cost pressures for this sector and food cost inflation has risen ahead of cafe and restaurant price growth over the last few years. Gross margins are increasingly under pressure because of this. It’s no surprise that the independents have been forced out of the market more than the branded. The industry has done incredibly well to survive these price increases so far. National minimum wage has undoubtedly helped the industry. It has helped stimulate spending as there are more people with a disposable income. Regulation is also an issue.

Alcohol duty is still high on the agenda for the government, restaurants and food-led pubs will be affected by the Late Night Levy and I am very much against this and hygiene is also of growing importance. A consumer understanding of food standards and Scores on the Doors is growing. Convenience continues to be an important trend and it encompasses a plethora of issues. The consumer has never been more in control – they can decide how, where and when. The most obvious example in the UK is 24 hour opening of quick service restaurants. People are starting work earlier and finishing later and traveling more. Travel areas, such as trucker stops, are becoming more important in retail terms. Breakfast is increasingly eaten less at home and people are cooking less in the evenings. It’s notable that some operators are moving into convenience takeaway such as PizzaExpress and Harvester. Drinks-matching is another important trend, tapping into consumers’ interest. Byron for example, matches draft craft beers with its burgers and Fuller’s has redesigned its packaging to go on tables like wine. There is an anti ‘big brand’ trend happening in London. People don’t necessarily want to go to Pret or Eat because there is a whole next wave of artisan places. It takes years for trends to move out of London and it’s by far the most competitive market. But it’s only a market of five or six million people – and we have to remember the remaining 56 million-strong market across the rest of the country. I am cautiously optimistic. There have been lots of openings in the last three years. The economy has remained remarkably robust and eating out within that. It’s never been so dynamic and competitive but winners are easier to identify due to social media. Generally, I think we are through the worst.
Simon French is a leisure analyst at Panmure Gordon

The beer scene in 2013 – great for drinkers, not so much for retailers by Martyn Cornell

At least two well-known British beer writers, Ben McFarland and Pete Brown, have declared 2013 to be the best time ever to be a beer drinker. They point to the explosion in choice, not just in sheer numbers of different brewers (and London alone has seen more than 30 new breweries open in the past four years) but in styles, range and availability. Beers that were once obscurities limited to little-known parts are now on the lips of aficionados – the smoky, bitter Grodziskie from Poland, for example, or the sour Gose, from Leipzig. (And if you’ve still not heard of either, don’t worry, you will soon.) Alongside these are beers never before seen on the planet: “double IPAs”, and even “triple IPAs”, rammed full of American hops, with overwhelming floral and fruity aromas; cask-aged beers, designed to pick up flavours from whatever was inside the cask, giving stouts matured in old whisky barrels, for example; beers brewed entirely with obscure and unusual yeasts; beers made with coffee, with unusual herbs, with new varieties of hops; beers made to recipes 150 years old or more, using ingredients (such as malts prepared in particular now obsolete ways) that have had to be reinvented. A whole new style of outlet has arrived, the craft beer bar, staffed and patronised by people in their 30s, selling not just “real ales”, but the type of beer best described for a UK audience as “craft keg”.

“Craft keg” beers would be “mainstream” craft beers (if that’s not an oxymoron) in the United States, from brewers such as Stone, Rogue and Sierra Nevada, but are rejected by the Campaign for Real Ale for being served under pressure, rather than from the cask. However, these beers, full of flavour, very different from the much-hated keg brands of the past, such as Watney’s Red Barrel and Ind Coope Double Diamond, rarely suffering from the quality and handling problems that dog traditional British cask beer, or “real ale”, are increasingly popular among a particular demographic in Britain, and increasingly being brewed by British “craft beer” brewers who previously would have stuck strictly to traditional cask ales.

But while this is great for beer drinkers (and beer writers, who have a constantly changing and evolving market to write about, and an audience thirsty for information on the latest developments in the world of beer) it’s not so great for retailers. You knew where you were once, running a pub: you accepted (assuming you were a tied house) what the brewery sent you (a mild, a bitter, bottled brown ale and stout and, as the 1960s rolled on into the 1970s and trousers flared while hair grew long, one of those new “lagers” they suddenly seemed so keen to push), and your customers accepted what you sold. Nobody demanded a Belgian gueuze or a Bavarian wheat beer, and if they had you’d simply have barred them, which would have settled their hash straight away.

Even in the 1990s and the early years of the current century, it was still relatively simple for someone running a pub: you ordered the best-selling lager and bitter from your pubco, or maybe the second best-selling if you wanted to compete on price, topped the bar-top offer up with Guinness and perused the offers from Brake Brothers. If you felt up to it, you might include a cask ale for the small minority who liked that sort of thing. But gradually you found that the pressure to widen the offer, to compete with the pub down the road that had more unusual lagers, and a regularly changing line-up of cask ales, both local and from far away, was causing increasing problems.

Today the old verities are changing: once the men and women who ran pubs could be certain that the Italian restaurant two doors along, or the French bistro at the end of the road, might serve better food than they could manage from their kitchens but no foreign restaurant would ever compete with any pub over their beer selection. Now, however, importers are able to offer a range of boutique beers from France and Italy that rival, in their variety and quality, anything the British or Americans can do. Meanwhile the “craft beer bar”, a trend that started in the provinces and only properly reached London around 2010, is offering a range of different draught and bottled beers never seen before together on British bar tops. Sure, they only attract a minority of the beer drinking public, and at the prices they generally charge this isn’t too surprising. But can the ordinary British pub afford to completely ignore the trends that have made this the best time ever to be a beer drinker?

Mintel recently put out figures showing that in the United States, “craft beer” – which, admittedly, means something different in the US to what it does in the UK, indeed, you’ll find it hard to get any two British beer commentators even to agree on what the phrase “craft beer” means – anyway, craft beer in the US appeals to 49% of “Millennials”, that is, people born in the 1980s and early 1990s and now aged 33 to 21, and 40% of “Generation Xers”, that is, people born in the late 1960s and 1970s and now aged 49 to 34. If those figures translate at all into the UK market, they should frighten the big brewers to their white wellington boots, and cause some very hard thinking among British beer retailers. Here’s the magazine Marketing Week:

“Volume sales have fallen for the eighth year in a row in the UK, with 381 million fewer pints drunk in 2012, according to the British Beer and Pub Association. By contrast, over 2,000 of the country’s pubs and clubs have added a craft beer to their stocklists over the past year and supermarkets are offering increased shelf space, according to CGA Strategy. Sales of boutique beers such as Blue Moon and Doom Bar are set to grow 43% by 2015, the insight firm adds.”
Martyn Cornell is managing editor of Propel Info

An open letter to Sarah Wollaston MP by Paul Chase

Dear Sarah

On the 15th July The Guardian published an article by you headlined “Big tobacco has got its way – now let’s find what big alcohol is up to.” This was a reference to the government’s decision not to introduce plain packaging for cigarettes and to drop minimum pricing for alcohol, which you later described as a “day of shame” for the government. You wrote: “Public health measures such as this deserve better than death by lobbyist.” Actually, they don’t. They were only given life by lobbyists in the first place, and their death by lobbyist – if that is what has happened – seems to me entirely appropriate.

I am not a smoker, and I hold no brief for the tobacco industry. Indeed my father, who was a heavy smoker, died from lung cancer just over 33 years ago. But he didn’t smoke because he enjoyed tobacco; he smoked because he enjoyed nicotine and the social rituals of smoking. The attempt to reduce harmful smoking by banning advertising and sponsorship, hiding tobacco displays and raising tobacco duty can only get us so far. Meanwhile a vast illicit trade in cigarettes that defies policing and denies further revenue to the Exchequer has sprung up. And plain packaging is clearly regarded by the public as a ban too far, which is why the government was so nervous about it.

So, Sarah, I have a question for you: how might we move beyond the bans and restrictions beloved of the public health lobby, and mount an effective public health campaign in relation to smoking? Well consider this: whilst you’ve been busily engaged in your efforts to infantilise adult decision-making, there has been a quiet smoking revolution going on. I’m referring to the development of electronic cigarettes. These work, as you know, by vaporising liquid nicotine which is then inhaled by the user from a cigarette-like tube. As the government’s chief medical officer, Dame Sally Davies put it: “Smokers are harmed by the deadly tar and toxins in tobacco smoke, not the nicotine.”

Some 1.3 million of the UK’s estimated nine million smokers now enjoy nicotine through the use of e-cigarettes, as do six million of the 40 million smokers in the United States. And this level of market penetration – 14 to 15% – has happened without fanfare, and, crucially, without the bossiness of socially-accredited experts nannying, nudging, hectoring, lecturing, legislating, regulating or taxing them into it! And what has been the response of the public health lobby to this development? At best it has been ambivalent, and at worst downright hostile. On the one hand they fear that e-cigarettes will ‘re-normalise’ smoking and act as a ‘gateway product’ to tobacco. On the other hand, if it is used as a treatment that will lead to total abstinence – well that’s alright then, provided it is controlled by doctors! 

The intention now is to regulate e-cigarettes as a medicine. Now, I’m not against regulation to ensure purity and consistency of product, but as a medicine? The public health movement has always had a strong puritanical element to it. It’s OK to take something to relieve suffering, but not to experience pleasure.

As a high-profile advocate of public health, and an MP, I invite you to publicly endorse the e-cigarette revolution. Why don’t you ask the following question of the health minister in the Commons: “Minister, could you clarify that the use of e-cigarettes in public places, such as pubs and bars, is not illegal under the Smoking Regulations, and would you join with me in encouraging local authorities, who now have responsibility for public health, to contact local pubs and bars to encourage them to allow this practice? Many lives could be saved as a result.” Now, prove me wrong, but I somehow doubt that you will do either of these things. The electronic cigarette is a private sector solution to a public health problem – and I suspect that is the reason why many of your public health colleagues don’t like it. It’s so much easier to resort to stereotypes and invoke 19th century folk devils like ‘Big Tobacco’ and ‘Big Alcohol’ isn’t it?

Which brings me to the alcohol industry and minimum pricing. You refer in your Guardian article to the “clear evidence from Canada that minimum pricing works”. The Canadian research you refer to suggests that a 10% increase in minimum price resulted in a 32% drop in alcohol-related deaths in British Columbia. This is pure fantasy. The figures are based on a mathematical model not real mortality figures. Why did these partisan researchers not use the actual price and mortality statistics? Because they didn’t support the conclusions they wanted to reach. In fact actual alcohol-related deaths in British Columbia rose most years between 2002 and 2009, and no year saw a lower total than 2002. No wonder the UK Government remains sceptical about the ‘evidence’ for minimum pricing.

You also stated in your article that minimum pricing “wouldn’t raise the price of alcohol in the pub by a penny….” A minimum price of 45 pence wouldn’t raise pub prices, that’s true. But here’s what researchers at Sheffield University predicted if minimum pricing was introduced at this level: “Revenue to retailers is estimated to increase by £201.1 million in the off-trade and decrease by £62.2 million in the on-trade.” In other words, people have only so much discretionary income to spend on alcohol. A minimum price would mean they would buy less from the off-trade but spend more money buying it. This leaves less money for them to spend in pubs and bars whose income would fall by £62.2 million a year. So much for the proposition that minimum pricing will benefit pubs. For the avoidance of doubt Sarah, this report comes from the authors of the Sheffield Alcohol Pricing Model – which you quote as ‘evidence’ in support of minimum pricing.

The response of the public health lobby to the government’s decisions on plain packaging and minimum pricing has been a predictable outcry, combined with the resignations of high profile public health organisations, like Public Health England, from the government’s food responsibility deal.

We need to move beyond a concept of ‘public health’ that seeks to ban and restrict and towards one that enables and expands choice. I think the choice for public health lobbyists is a stark one Sarah. Support private sector solutions to public health problems by engaging with industry; or refuse to engage, defend your ideological purity and risk being marginalised as a hard-line sect. If you choose the latter course that really would be a “day of shame”.
Paul Chase is a director of CPL Training and a leading commentator on on-trade health and alcohol policy

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