Subjects: The mess we’re in part two, using loyalty programmes can help avoid ‘sneakflation’, the key to understanding Generation Z drinking culture, how to make the most of a winter of sport
Authors: Paul Chase, Glynn Davis, Sophie Abrahamovitch, Jean-David Thumelaire
The mess we’re in part two by Paul Chase
The position of many pubs, bars, restaurants and other hospitality businesses staring down the barrel of colossal increases in the price of gas and electricity is one of existential threat. When faced with a looming catastrophe, people and businesses look to the government of the day to fire a big state bazooka – to find a solution that wards off the evil day when some sort of Armageddon hits us. After all, the reasoning goes, they did it with covid and found lots of money to keep businesses and households going during the lockdowns and periods of restricted trading – so, why not now?
The problem with this approach is that it’s difficult to think of any short-term solution to these huge price increases that isn’t going to make the long-term inflationary outlook even worse. As I argued in my previous article, the government’s wanton money printing during the pandemic is why we have an inflation crisis now. And on top of that, we have a cost-of-living crisis caused by supply chain problems exacerbated by the war in Ukraine, leading to these huge, sectoral price increases for energy. It’s not possible to have double-digit inflation without a cost-of-living crisis, but it is possible to have a cost-of-living crisis without double-digit inflation because of sectoral price increases. The trouble is, we have got both.
Short-term gain versus long-term pain is a perennial political problem – now more than ever. The famous economist John Maynard Keynes is credited with having said: “In the long-term, we’re all dead”. Today’s politicians and Bank of England economists seem to have adopted this as their governing principle, and short-termism is, in part, why we’re in the mess we’re in. The government is going to have to take some radical monetary measures to ward-off catastrophe – but how to do it in a way that doesn’t kick the can down the road and store up even more problems for the future?
I don’t believe personal tax cuts are the right approach. We need direct monetary help to people and businesses now, but the colossal scale of the money needed to protect everyone from energy price rises is too big, in my opinion, for government to contemplate. The government is going to have to choose winners and losers.
There are two aspects to this: help to households and help to businesses. The government needs to provide help through the benefits system to those on Universal Credit – many of whom are in work in low-paid jobs. The bottom 20% of the population have no savings, nothing to fall back on and struggle to make ends meet from one week or month to the next. If these people have to choose between heating and eating this winter then a lot of people will get very angry, very quickly. I don’t consider it alarmist to say there will be riots if help isn’t channelled to these people.
In terms of help to businesses, the government needs to target SMEs and industries such as hospitality that have the greatest potential to contribute to economic recovery. Abandoning the green levy on energy bills and acknowledging there is now no realistic chance of us hitting zero carbon emissions by 2050 would be a good start. A short-term reduction in VAT pending a much-needed reassessment of the tax gap between supermarkets and pubs and bars should be carried out at pace. I’m against price controls in general because they stop pricing from doing its job of sending the right signals to the market – that energy producers need to produce more energy and consumers need to buy less of it. This is the best way to ensure a return to lower prices and price stability. A temporary business rates holiday would help too.
But the issue is how to pay for this support without printing more money, or the government borrowing from the banking system that will stoke future inflation. One way forward is to enable energy companies to borrow from banks to directly subsidise their customers – not their household customers, but their SME ones. These loans could be guaranteed by the government and could be paid back over ten years by a premium added to bills in two years’ time, when hopefully we will see an end to the war in Ukraine, and measures taken to increase our domestic supply of energy by reopening coal mines, allowing the development of the new one in Cumbria, granting new licences for North Sea oil development and allowing fracking.
A combination of temporary, selective financial help and longer-term supply side measures would, I believe, be the best way of squaring the circle between short and long-term considerations. But to do any of this, we need a functioning government in place. This political hiatus is hugely damaging and needs to end sooner rather than later.
Paul Chase is director of Chase Consultancy and a leading industry commentator on alcohol and health
Using loyalty programmes can help avoid ‘sneakflation’ by Glynn Davis
When checking in online for a flight this summer, I realised the carry-on baggage allowance I’d been expecting with the ticket I’d bought had been changed from the pre-covid-19 levels of a small suitcase to more like handbag-sized proportions.
We could call this ‘shrinkflation’, as it reduces the size of what you used to receive for your money, or it could even be described as ‘sneakflation’, because it seems to be yet another tactic for the airlines to sneakily extract extra revenue from customers while keeping the headline (i.e. most visible) price intact.
Whatever you want to call such activities, they are not unusual in the airline industry, or any other sector right now for that matter, because as the cost-of-living crisis bites ever harder, companies of all descriptions are reducing the size of their products and adding in extra charges wherever they are able. It’s a route to grabbing margin while avoiding increasing prices, because there is only so far you can go with this before a customer becomes an ex-customer.
We’ve seen pretty much every branded goods company shrink their package sizings, and all the major supermarkets reduce the portion sizes of their ready meals. Most unusual on the sneakflation front is the manoeuvre by BMW to bring in subscription-type monthly charges for various add-on elements such as the use of the heated front seats in its cars and the heated steering wheel, and incredibly, you can also pay a monthly fee to have the engine sound played inside your car.
Things aren’t quite so radical in the hospitality industry, apart from the appearance in some restaurants in the US of a ‘kitchen appreciation fee’, which is in addition to the tip. On my travels, it’s been the more mundane things like ice cream cones being charged as an additional cost in some venues in London. Ketchup, mayo and other sauces are being charged as extras by frite sellers in Belgium, while at Burger King, the ten-piece nuggets option has been reduced to eight, and that old stalwart of complementary bread in restaurants is now becoming a rarity.
Such activity has resulted in shrinkflation being increasingly mentioned in reviews on Yelp, with inflation-related experiences having jumped 38% year-on-year at casual restaurants, and 36% at other food businesses in the US. Restaurants focused on popular, low-cost dishes such as burgers and pizzas generated the most shrinkflation-related complaints.
Of course, this re-engineering of products to fit a specific price point has been the business model of retailers like Poundland for many years. They have constantly adjusted the number of batteries, cappuccino sachets and After Eight mints within the packaging in order to hit the £1 price tag.
But in the hospitality industry, such practices invariably have a high risk tariff attached to them, and so it is maybe no surprise that we are also seeing a more intelligent approach being taken to handling pricing, which involves tailoring it more to individuals. Whereas the airlines, hotels and theatres have been able to offer a panoply of different prices to customers, because they use a variety of channels and third parties, this has not been easily possible for restaurants.
But with the proliferation of digital channels and loyalty programmes, the ability to deliver personalised offers and pricing to specific individuals is now a possibility. Whereas national promotions are a blunt instrument – with everybody gaining, including those who would have paid more money – the use of loyalty programmes to target select people with tailored offers or recommendations is a very powerful dynamic.
The delivery of these highly targeted promotions is helping bump up frequency rates and average spends at a growing number of operators who have recently launched loyalty schemes, including McDonald’s, Chipotle, Ole & Steen, Burger King, Leon and Pret A Manger. It’s this engendering of loyalty and the associated increasing of frequency and basket size that is so critical right now.
With the ability to pull so many more levers than simply changing national prices, reducing portion sizes and adding in dodgy extra costs, the digital-based loyalty programme looks set to be an incredibly important weapon through the cost-of-living crisis, and I’m therefore expecting to see many more companies investing in such tools.
Glynn Davis is a leading commentator on retail trends
The key to understanding Generation Z drinking culture by Sophie Abrahamovitch
We’ve all heard the tired trope that Generation Zers, or ‘generation sobriety’, are drinking less. We’re inundated with advice on how best to market these teetotallers with alcohol-free fun. We’ve been listening to trend forecasting that chalks this behaviour up to 18-25 year olds seeking to ‘live to a higher level’. But what if we’ve not been completely right about them?
Like every generation before them, alcohol remains at the heart of Generation Z culture, and data collected by DUSK – the UK’s biggest nightlife app with 800,000 Generation Z users – shows that this demographic are going out for alcoholic drinks three times a week. While there are times and occasions when Generation Z will opt for no-and-low, it seems that for the most part, they’re not so different from the generations that came before them. Hospitality should take note before plunging into marketing campaigns that might fail to connect. Generation Z drinking culture does differ, but in other ways.
Introducing Generation Z’s ‘night luxe’ aesthetic
Our data reveals more than just a misconception around Generation Z abstinence; it shows that expensive nighttime activities have become a major sink for Generation Z’s spare cash. Going out is cool again. This is the age of the ‘night luxe’ aesthetic. Night luxe is seeing Generation Z drinkers ditching watered-down, pound-a-pint lagers and house whites for better quality drinks – cocktails and expensive brands – and they’re picking up quite the tab because of it, with Generation Z spending £29 on average for every night out.
Besides contradicting much of what we’ve been told, this paints a picture of a generation prepared to open their wallet when it comes to quality, even if it’s less frequently than Millennials before them. Has this trend emerged as a result of Generation Z experiencing lockdowns when they should have been experiencing their first nights out? Restrictions barred them from the early 20s they had hoped to have, but many on low graduate salaries had the opportunity to save money, and it’s clear they’ve now found a good place to spend it.
The midweek drink renaissance
This concept of night luxe extends beyond Friday and Saturday nights too. Generation Z is seeking new horizons, and they’re pushing their leisure hours south into the working week.
It’s another unique effect of the pandemic fallout. In the months following the UK’s lockdown, between July and December 2021, DUSK users redeemed most of their drinks on Tuesdays. Data now shows their going out habits have stabilised, with 36% of Generation Z drinking taking place on Wednesday and Thursday nights. The weekend remains evergreen in popularity, but mid-week drinks have become the new normal alongside them. Generation Zs want to make the most of their freedom. Weeknight or weekend evening, who cares? They want Friday night beers, and they want them on Wednesday and Thursday too.
The growing trend for the night luxe mentality could also be linked to growing demand for the four-day working week. Generation Zers, who want a better balance between work and life, were principal supporters of this concept; all that time spent in the office must be balanced out with a healthy social life. Midweek drinking feels like a direct result of that, and we can expect it to stick around if more workplaces intend to introduce a three-day weekend.
For hospitality businesses, it’s time to re-evaluate everything you think you know about Generation Z. They’re still drinking alcohol, they’re still partying, but they’re looking for change. They want to lead more fulfilling lives beyond a nine-to-five desk job, and for many, that change doesn’t come in the form of reduced alcohol consumption.
Let’s not think about it as a so-called ‘sobriety shift’, but rather a ‘vibe shift’. The pandemic may have accelerated its arrival, but it’s here. Generation Z is a high-spending, midweek drinking generation, extending the weekend and dabbling with no-and-low. The industry has an opportunity to recognise that and better serve their demands.
Sophie Abrahamovitch is the founder of night-time app DUSK
How to make the most of a winter of sport by Jean-David Thumelaire
This year, we’re set for a bumper winter of sport, with the FIFA World Cup kicking off in November. Personally, I’m very excited for the upcoming fixtures and being able to enjoy the matches in the pub with my family and friends, particularly after a few years of lockdown restrictions. But what does the winter of sport mean for pubs and bars across the country? How should they prepare for an influx of sports fans as the nights draw in? And what are the trends they should be aware of, as people across the country come together to share in sporting history?
The opportunity in bringing people together
TV sporting occasions have always brought people together in pubs and bars. Here lies a huge opportunity for publicans across the nation, as sports fans spend 90 minutes longer in the pub than the average customer, boosting the rate of sale by 10%, according to 2020 research from CGA and MatchPint. National tournaments have a much wider appeal and bring in customers who may only watch football when national pride is at stake. During the Euros, half (50%) of people polled by Budweiser said they visited a pub to watch at least one of England’s matches.
Last summer, sports fans across the country celebrated the return of national sporting tournaments, and pubs opening their doors again, by raising a glass in their local. The Euros was a huge driver for on-trade sales, with an estimated 14 million pints sold on the day of the final match alone. After two years of cancelled and postponed sporting events, people are more excited than ever to come together to cheer on their team and celebrate – or commiserate – in the pub. But gearing up for the World Cup is going to feel very different this year, with the long-awaited tournament kicking off in November rather than during the height of summer. Pubs and bars are going to have to keep the Christmas decorations in the box a bit longer to make way for flags from all over the world, and crowds coming together to enjoy the World Cup.
Beer is still preferred
Much like previous years, we expect the football to boost beer sales during matches as beer continues to be the most popular drink during football tournaments, with 41% of pub-goers choosing to buy beer when watching England matches.
Looking at draught beer and cider category patterns during last year’s Euros, lager was the clear winner for fans enjoying a pint with the game. In particular, premium 4% was the favourite category, suggesting that consumers were looking for premium brands with a lower ABV. The draught world lager category was the next in line in terms of popularity, both before and during the game.
Although beer is still a firm favourite during football matches, there is a clear shift among consumers towards moderation, with 63% opting for a no-or-low alcohol alternative at least once. This is part of a wider trend towards no-or-low alcohol beers, which has grown from strength to strength both in the on and off-trade. That’s why ahead of match day, it’s important for publicans to not ignore no-and-low alcohol options.
Hungry sports fans
When it comes to match day, food is just as important a consideration as drinks. For consumers, the choice of where they go to watch the match may come down to which pub has the best food options. Almost half (43%) of pub-goers were more likely to choose a pub that serves food when watching international football, which means food offerings are more important than ever.
During the 2021 Euros, nearly three quarters (72%) of pub-goers purchased food during matches. As well as enticing hungry sports fans through the door, a strong food offering can also encourage them to stay longer and spend more. When it comes to national games, which have a broader appeal and bring in more than just the die-hard fans, sharing platters are a big pull for consumers. Over a quarter (26%) of pub-goers buy sharing platters to enjoy with friends and family as they watch the match together. This is an opportunity not to be ignored by venues, as we enter the winter of sport.
Jean-David Thumelaire is on-trade director at Budweiser Brewing Group UK&I