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27-03-2023, 14:31
Visit The Pub Curmudgeon site (https://pubcurmudgeon.blogspot.com/2023/03/the-34-solution.html)
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYGslh3nXjR8k3miJHYnmfI8aDdkAL27paSWYoai_rLd smA_TJToqOo9fE4cKQxUv757zsOhICJFvLkv4jxUEDA77_CV7V Ef64FDk5BJFl5CBOmZtBOd3DG-FbDjw0YCsKw1A8GDtttrzIv7RCQ6bi2iAT1J9yEFgeSo8QqvKK dZBR-YXcA6A4jNOH/s200/brakspear-bitter.jpg (https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYGslh3nXjR8k3miJHYnmfI8aDdkAL27paSWYoai_rLd smA_TJToqOo9fE4cKQxUv757zsOhICJFvLkv4jxUEDA77_CV7V Ef64FDk5BJFl5CBOmZtBOd3DG-FbDjw0YCsKw1A8GDtttrzIv7RCQ6bi2iAT1J9yEFgeSo8QqvKK dZBR-YXcA6A4jNOH/s592/brakspear-bitter.jpg)
It’s perhaps surprising that it’s as long ago as 2011 that the government halved the rate of duty for beers of 2.8% ABV or below. However, this proved to be a perfect demonstration of how changes in tax rates won’t carry the public with them if they don’t want to go. Although there was an initial rush of interest, as I wrote here (https://pubcurmudgeon.blogspot.com/2012/02/dipping-low.html), it rapidly became clear that it was difficult to brew palatable beers at such a low strength, and people didn’t want to drink them anyway, even if they were cheap. About the only remaining evidence on the beer market are Sam Smith’s keg Light and Dark Milds and Alpine Lager, which retail at a very low price (I think £2.40 a pint) and were only about 3.0% before anyway.
However, as part of the general restructuring of alcohol duties that comes into effect on 1 August this year, this threshold will be increased to 3.4%, which obviously creates a very different situation. It’s much easier to brew enjoyable, palable beers at that strength, and indeed many popular beers already qualify, such as Holts Mild and Bathams Mild, which are both 3.2%. The very tasty Brakspear Bitter (now ridiculously renamed as “Gravity”), which back in the days when it was brewed at Henley I would have classed as one of my Top Five beers, is only 3.4%. On the other hand, I do note that many of the beers perceived as “light” are actually 3.5%. There are a lot fewer low-strength milds and light bitters around than there once were.
The savings under the new regime are certainly not to be sneezed at. On looking at the detailed figures (https://www.gov.uk/government/publications/changes-to-alcohol-duty-rates/alcohol-duty-rate-changes), the lower-strength duty is not half, but only 44% of the full-strength one. For draught beer, there is a saving of 24.7p on a 3.4% pint, which with typical pub mark-ups equates to 50p across the bar. It’s 21.1p for a 440 ml can, taxed at the slightly higher packaged rate, making 84p on a four-pack and £4.20 on a 20-can slab. No doubt these savings will be partly absorbed by brewers and pub operators, as indeed they should be, rather than being entirely passed on to the drinker, but they’re certainly pretty significant.
Price elasticity in the beer market does not work in an entirely linear way, though. It is broadly divided into standard and varying grades of premium, with no significant discount sector. Drinkers generally won’t go for beers just because they are cheap, and will be even more reluctant if they’re relatively weak too. People will generally look for cheaper places to buy their favourite brands rather than trading down.
In the on-trade, the impact of lower prices is reduced by the prevalence of round-buying. If people do feel the pinch, they will shift from the craft bar or brewery tied pub to Wetherspoon’s. In the off-trade, while there is cut-throat competition on major brands, supermarket own-brands have never gained much traction. They’re fine if you’re drinking alone, but if a friend comes round and you offer them an Aldi clone rather than a Punk IPA or Carling they’ll think you’re a right cheapskate.
It’s always difficult to make predictions on changes like this, and it should be remembered that measures such as the lower duty for 2.8% beers and permitting two-thirds measures have been damp squibs. However, the savings available are so great that it’s hard to imagine that the beer market will sail on little changed.
Surely it will be a no-brainer to reduce existing beers positioned at 3.5% by a single point. This would include Taylor’s Golden Best and Hook Norton Hooky Bitter, and locally Hydes Dark Ruby and 1863, and Lees Dark. The same would also probably happen to Bud Light, and very likely also the 3.6% smooth bitters such as John Smith’s and Worthington. Robinson’s have already introduced a new 3.4% beer called Citra Pale to compete in that category, although in my experience it’s a thin, lacklustre product and not a patch on the 3.7% balanced bitter Wizard which is being withdrawn.
I can’t really see established products around the 4.0% mark such as Carling or Holts Bitter having their strength reduced. But brewers of beers in the 3.6-3.8 range will be carefully considering their position. Of course if you do reduce the strength of a beer you need to take your customers with you, although a substantial price reduction might help persuade them. We may well end up in a position where there’s a yawning gap in the beer market between 3.4% and 4.0%. And who would introduce a new beer at 3.6% even if they think that’s the ideal strength for it? It will also be interesting to see if Sam Smith’s nudge up the strength of their 2.8% kegs by a few points.
Introducing new, weaker versions of existing products is something that doesn’t have a good track report, and it also serves to dilute the perception of the core brand. But it’s possible that brewers may consider launching entirely new beers that don’t identify themselves as “light” to take advantage. And it’s worth noting that in Scotland Greene King and Caledonian seem to have had success with Belhaven Best and Caledonia Best, relatively new keg and canned beers in the traditional sweet, malty Scottish style, both of which come in at a mere 3.2%. I have to saw I have never even seen these beers on a bar or supermarket shelf, let alone tasted them, but they will certainly receive a big boost from the lower duty rate. And, under Scottish minimum pricing of 50p a unit, 4x440 ml cans of 3.4% beer at £2.99 is an attractive price point.
I have to say that in principle I don’t favour systems of tiered alcohol duties (or any similar taxes), as they inevitably produce perverse edge effects and distort the market. In my view there should be a single scale of beer duty proportionate to alcoholic strength. But brewers and drinkers can’t look a gift horse in the mouth, and any cut is better than none. It will be very interesting to see how this plays out in the beer market.
More... (https://pubcurmudgeon.blogspot.com/2023/03/the-34-solution.html)
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYGslh3nXjR8k3miJHYnmfI8aDdkAL27paSWYoai_rLd smA_TJToqOo9fE4cKQxUv757zsOhICJFvLkv4jxUEDA77_CV7V Ef64FDk5BJFl5CBOmZtBOd3DG-FbDjw0YCsKw1A8GDtttrzIv7RCQ6bi2iAT1J9yEFgeSo8QqvKK dZBR-YXcA6A4jNOH/s200/brakspear-bitter.jpg (https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYGslh3nXjR8k3miJHYnmfI8aDdkAL27paSWYoai_rLd smA_TJToqOo9fE4cKQxUv757zsOhICJFvLkv4jxUEDA77_CV7V Ef64FDk5BJFl5CBOmZtBOd3DG-FbDjw0YCsKw1A8GDtttrzIv7RCQ6bi2iAT1J9yEFgeSo8QqvKK dZBR-YXcA6A4jNOH/s592/brakspear-bitter.jpg)
It’s perhaps surprising that it’s as long ago as 2011 that the government halved the rate of duty for beers of 2.8% ABV or below. However, this proved to be a perfect demonstration of how changes in tax rates won’t carry the public with them if they don’t want to go. Although there was an initial rush of interest, as I wrote here (https://pubcurmudgeon.blogspot.com/2012/02/dipping-low.html), it rapidly became clear that it was difficult to brew palatable beers at such a low strength, and people didn’t want to drink them anyway, even if they were cheap. About the only remaining evidence on the beer market are Sam Smith’s keg Light and Dark Milds and Alpine Lager, which retail at a very low price (I think £2.40 a pint) and were only about 3.0% before anyway.
However, as part of the general restructuring of alcohol duties that comes into effect on 1 August this year, this threshold will be increased to 3.4%, which obviously creates a very different situation. It’s much easier to brew enjoyable, palable beers at that strength, and indeed many popular beers already qualify, such as Holts Mild and Bathams Mild, which are both 3.2%. The very tasty Brakspear Bitter (now ridiculously renamed as “Gravity”), which back in the days when it was brewed at Henley I would have classed as one of my Top Five beers, is only 3.4%. On the other hand, I do note that many of the beers perceived as “light” are actually 3.5%. There are a lot fewer low-strength milds and light bitters around than there once were.
The savings under the new regime are certainly not to be sneezed at. On looking at the detailed figures (https://www.gov.uk/government/publications/changes-to-alcohol-duty-rates/alcohol-duty-rate-changes), the lower-strength duty is not half, but only 44% of the full-strength one. For draught beer, there is a saving of 24.7p on a 3.4% pint, which with typical pub mark-ups equates to 50p across the bar. It’s 21.1p for a 440 ml can, taxed at the slightly higher packaged rate, making 84p on a four-pack and £4.20 on a 20-can slab. No doubt these savings will be partly absorbed by brewers and pub operators, as indeed they should be, rather than being entirely passed on to the drinker, but they’re certainly pretty significant.
Price elasticity in the beer market does not work in an entirely linear way, though. It is broadly divided into standard and varying grades of premium, with no significant discount sector. Drinkers generally won’t go for beers just because they are cheap, and will be even more reluctant if they’re relatively weak too. People will generally look for cheaper places to buy their favourite brands rather than trading down.
In the on-trade, the impact of lower prices is reduced by the prevalence of round-buying. If people do feel the pinch, they will shift from the craft bar or brewery tied pub to Wetherspoon’s. In the off-trade, while there is cut-throat competition on major brands, supermarket own-brands have never gained much traction. They’re fine if you’re drinking alone, but if a friend comes round and you offer them an Aldi clone rather than a Punk IPA or Carling they’ll think you’re a right cheapskate.
It’s always difficult to make predictions on changes like this, and it should be remembered that measures such as the lower duty for 2.8% beers and permitting two-thirds measures have been damp squibs. However, the savings available are so great that it’s hard to imagine that the beer market will sail on little changed.
Surely it will be a no-brainer to reduce existing beers positioned at 3.5% by a single point. This would include Taylor’s Golden Best and Hook Norton Hooky Bitter, and locally Hydes Dark Ruby and 1863, and Lees Dark. The same would also probably happen to Bud Light, and very likely also the 3.6% smooth bitters such as John Smith’s and Worthington. Robinson’s have already introduced a new 3.4% beer called Citra Pale to compete in that category, although in my experience it’s a thin, lacklustre product and not a patch on the 3.7% balanced bitter Wizard which is being withdrawn.
I can’t really see established products around the 4.0% mark such as Carling or Holts Bitter having their strength reduced. But brewers of beers in the 3.6-3.8 range will be carefully considering their position. Of course if you do reduce the strength of a beer you need to take your customers with you, although a substantial price reduction might help persuade them. We may well end up in a position where there’s a yawning gap in the beer market between 3.4% and 4.0%. And who would introduce a new beer at 3.6% even if they think that’s the ideal strength for it? It will also be interesting to see if Sam Smith’s nudge up the strength of their 2.8% kegs by a few points.
Introducing new, weaker versions of existing products is something that doesn’t have a good track report, and it also serves to dilute the perception of the core brand. But it’s possible that brewers may consider launching entirely new beers that don’t identify themselves as “light” to take advantage. And it’s worth noting that in Scotland Greene King and Caledonian seem to have had success with Belhaven Best and Caledonia Best, relatively new keg and canned beers in the traditional sweet, malty Scottish style, both of which come in at a mere 3.2%. I have to saw I have never even seen these beers on a bar or supermarket shelf, let alone tasted them, but they will certainly receive a big boost from the lower duty rate. And, under Scottish minimum pricing of 50p a unit, 4x440 ml cans of 3.4% beer at £2.99 is an attractive price point.
I have to say that in principle I don’t favour systems of tiered alcohol duties (or any similar taxes), as they inevitably produce perverse edge effects and distort the market. In my view there should be a single scale of beer duty proportionate to alcoholic strength. But brewers and drinkers can’t look a gift horse in the mouth, and any cut is better than none. It will be very interesting to see how this plays out in the beer market.
More... (https://pubcurmudgeon.blogspot.com/2023/03/the-34-solution.html)