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Morning Briefing for pub, restaurant and food wervice operators

Fri 19th Feb 2016 - Multi-site operators brand BBPA beer duty cut calls ‘morally flawed’ in open letter to Chancellor
Multi-site operators brand BBPA beer duty cut calls ‘morally flawed’ in open letter to Chancellor: Leaders of eight multi-site operators have sent an open letter to the Chancellor of the Exchequer branding the British Beer and Pub Association (BBPA) Duty Campaign “morally flawed”. In the letter they welcomed any further duty cuts but that brewers impose “increases every January on retailers and then ask the government to reduce duty in March”, adding: “If they really cared about jobs in the sector – and if they really had any influence over it – they would be holding or reducing prices to create that momentum.” The letter is signed by Paul Wigham, chief executive of All Our Bars, Tim Bird and Mary McLaughlin, owners of Cheshire Cat Pubs, Nick Griffin, managing director of Pleisure, Tim Westlake, director of Victoria Inns, Peter Borg-Neal, chief executive of Oakman Inns, Kevin Sammons, managing director of The People Pub Company, Dave Day, managing director of Golden Lion Group, and Toby Brett, managing director of Banwell House Pub Company. The letter reads: “We the undersigned, as operators of a substantial number of retail bars and public houses across the country, have read with interest the recent campaign from the BBPA for another duty cut claiming that this has led to a further 19,000 jobs and £1bn of investment in our sector. As operators we welcome the duty cuts and ensure any cuts that reach us are either invested in our businesses or passed directly on to the customer. You will be aware that the hospitality sector employs two million people in the UK with around one million in the licensed sector, and hospitality is responsible for one in six new jobs for 18 to 24-year-olds. The vast majority of these jobs are in the retail end of the sector and the minority – estimated at 13,000 to 14,000 – are in the brewing part of the sector represented by BBPA. We have gladly received duty freezes and cuts in the recent Budgets and for that we are grateful to you and your government. However, we do feel that this recent appeal for further duty cuts by BBPA, whilst welcome in principle, is somewhat disingenuous and belies the facts that surround beer pricing of which you should be aware. The recent history of beer prices reflects global economic issues. Between 2010 and 2012, grain prices were inflated by the ‘Russian grain crisis’ and the brewers imposed significant increases to counter the rising input prices of raw materials used to make beer. In 2012 to 2013, the price of crude oil rose to c.$118 per barrel and so we received increases to counter the rising cost of delivery and energy used in production. However, over the last two years, the environment is very different. a) Grain prices in 2014 and 2015 were approximately half of what they were in 2012 and remain so today. b) The price of oil (and consequently petrol and energy) fell dramatically since mid-2014 and remains at a low today of less than $31. c) We are operating in a low inflation environment, particularly in regard to wages. Whilst we recognise the coming of the National Living Wage, this is an issue for the retailers and is unlikely to affect the brewing industry where wages are generally in excess of the level set for 2016. d) We are operating in a low-interest environment where investment is a cheap and effective use of cash. Against this backdrop, the brewers imposed significant increases in January 2015 – between 3p and 4p a pint on average. In January 2016, the brewers generally (with the notable exceptions of Greene King and Adnams) have imposed more price increases, averaging 3p to 4p per pint. We can see no justification for these rises and indeed, against the economic facts that have prevailed in the last two years and prior increases when the economic factors were less helpful, one might reasonably ask why we did not see brewer price reductions in order to encourage job opportunity and investment in the retail part of the sector that actually does the job creation and makes the investment that the BBPA refers to. One might argue that there is room to negotiate in terms of the prices but, as you will doubtless be aware, many of the UK pubs are subject to tied product agreements where either there is no negotiation with the tied brewer or the pub-owning companies simply pass on the increases under the terms of the tied agreements. Given the claim that the duty cut has created 19,000 jobs and £1bn of investment, one can only assume these above-inflation, and, in our view, unjustified price rises will not only negate these benefits but have a negative impact on job creation and investment. We struggle to understand the jobs and investment claims when the net result to the retailer is above-inflation increases at the beer pumps. With these facts in mind, we look at the BBPA duty campaign and consider it to be morally flawed. You will have no doubt spotted the trick here – the brewers impose increases every January on to the retailers and then ask the government to reduce duty in March – at the fiscal expense of other tax raising – in order to mitigate the outcry and demand. If they really cared about jobs in the sector – and if they really had any influence over it – they would be holding or reducing prices to create that momentum. Surrounding this, allow us to give you some context. The average price of a pint of 4% ABV beer in pubs and bars in the South of England – containing 2.27 units of alcohol – ranges from £3.60 to £4 and we imagine that this reduces by up to 50p as one heads out of cities and north. We provide a safe, controlled environment where we can regulate consumption and its effect on customers. In Tesco today, a standard 11% ABV bottle of wine – containing 8.25 units of alcohol – costs £3. Once past the till, this can be consumed anywhere and by anyone with no regulation whatsoever. Anyone financially pressed will consider their purchase decision with this in mind. While brewers make beer even more unaffordable at the licensed retail end, this simply exacerbates the on-trade/off-trade price difference with consequent social and health impacts. As operators of bars and pubs, we are proud of the role we play within our communities but feel we now need to have our voice heard. Whilst we appreciate the duty cuts, sadly they are not the panacea the BBPA makes them out to be if they are not being passed down to the retailer and consequently the customer. The BBPA are lobbying hard on behalf of brewer members but the decrease they seek is not effectively passed down to those that make the investment and employ the people. Worse still, they are not saving a single pub with their actions and none of the duty cuts are making their way into the voters’ pockets. Consequently, whilst we fully support cuts in duty we do not support the BBPA campaign under these circumstances. We would respectfully ask that you address the matters we raise with the BBPA and urge the brewers to reconsider their actions in the light of the discussion on duty, to ensure the net effect is not to simply provide profit to the minority employer at the expense of those who create jobs and invest.”

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