A race to the bottom: thoughts on pricing

There are dozens of websites, Facebook pages and publications which we follow in order to stay on top of trends in the pub trade. Recently we joined an online licensees support group, the members of which have been invited by the UK Government to contribute to its consultation on pub company reform.

It makes for grim reading at times. Many pubs across the country are in crisis, but it’s good to see people quick to share ideas and support so that others can maintain their fighting spirit in the face of difficulty.

With us being full of optimism for our future in the pub trade, it has been an eye-opener to hear what can go wrong. After sitting down to re-examine parts of our business plan, we still believe that the micropub business model is the best way to compete, even in this age of austerity.

Here’s an example. A licensee started a discussion in the group by explaining how she was finding it hard to compete with the local working men’s club in her town. Their beer is cheaper (in fact, the club lowers their prices even further on a Saturday afternoon when the football is on). Should she lower her prices and hope to profit from higher sales volumes?

As myself and others pointed out, there are no winners in a race to the bottom. Cutting prices would mean making cuts elsewhere in her budget to maintain profitability (cuts which might put customers off from coming back). Not to mention she might end up attracting the wrong kind of crowd, driving off dedicated customers in favour of fairweather punters only looking for the cheapest pint.

One of the books on our shelf I can recommend is called Running Your Own Pub. Even in 1985, the author points out that supermarkets are selling beer cheaper than pubs. Yet here we are, nearly 30 years later and despite the ever-growing dominance of Tesco, Asda etc there are plenty of pubs doing well. That’s because the best pubs provide an experience that supermarkets cannot match. It’s the same reason people pay to go to the cinema when it would be cheaper to rent the same film when it comes out on DVD. In other words, price is not the only factor when people choose what to do with their free time.

Instead of competing on price, we believe that a pub should compete on quality, choice and the customer experience. It’s not just what you sell, but how you sell it.

It’s also about finding your niche and filling the gap in the market. With Saturday afternoons being quiet when the football is on, someone commented that the niche there is to cater for the football widows, perhaps by doing high tea. You can read more about the importance of the ‘female factor’ here.

Another interesting comment which came up during the discussion is that the licensee has her own branded beers on tap, which she sells as her cheapest offering. As someone pointed out, if these are exclusive to the pub, shouldn’t they be sold at a premium? People are willing to pay more for a product when they know about its provenance, particularly once they realise that is has been especially hand-crafted for the premises.

One final revelation from the licensee is that she sold no real ale or world beers. Here is where a pub can truly make its mark, by selling good-quality beer unlike anyone else’s offering. A night out remains one of life’s little luxuries: something which people are willing to spend that bit extra on if they feel like it’s a treat.

As for us, it’s back to the business plan! Future posts will talk more about other problems facing pubs and how a micropub can compete. In the meantime, you may want to find out more about pubco reform by joining the Fair Deal For Your Local campaign.

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