Monday, 19 October 2009

Making Money from Beer

I managed to get hold of a hard copy of The Cask Report. I spend too much time sat at this computer, so I didn't really want to spend more time reading the on-line version, and printing out a heavily coloured PDF uses so much toner. Right, that's my grumbling about it out of the way now I can concentrate on singing it's praises. It is of course one of those good news stories amongst the drinks industry doom and gloom that seems to have dominated the press over the last few years. The basic message is; cask pubs do better, make more money and are less likely to close. The "cask beer value chain" as Pete put's it indicates a whole lot more about pubs that serve cask. I suspect if you are a regular reader of this blog you will have already found the report, if not go to the website now, the report is far better than anything written here.

It does make me think, "value chain" - value means cheap. I can tell the reader is already thinking about arguing with me. Value and good quality don't generally go together in any advertising spiel. Added value gets talked about in marketing, but that to me is something different and is about getting more money. Look around the supermarkets, "value range" what does that tell you? It spells out cheap to me.

The the economics of the industry are far more complex than the general pub observer would like to have us believe. It really is not as simple as reducing the price of a pint and the hoards will flock. In fact, I have observed that this is usually not the case, simply because dropping the price results in corners being cut and so the service drops below the acceptable level. "I wouldn't go in there, the beer is cheap but you stick to the carpet" There are some exceptions and Wetherspoons springs to mind. They focus on providing a value service and do so very well. Their quality must be satisfactory as it is a very successful chain. Of course much of their success is due to economies of scale and integrated purchasing and transport logistics.

I'll digress for a while to bring in another piece of information that has surprised me. It's taken a year for me to really understand this but it parallels the pub industry and the connection is beer. It turns out that it's also extremely hard to make money out of writing about beer. My membership of the guild has put me in touch with lots of great people in the beer writing and brewing world. I've listened to and queried about the remuneration and what I've learnt is it's not great. There are something like 150 members of the British Guild of Beer Writers. Some are employed in other work that touches on beer writing, some are brewers and do contribute to writing about beer, some are beer bloggers or even just licensees interested in supporting the work of the guild. Very few are actually just writers who make money out of writing about beer.

There is a connection here; Beer. All the members of the Guild are passionate about beer. I know a lot of publicans who are also passionate about beer. I know of very few, if anybody, who is really making a good living out of beer and I think I understand better these days why.

There is something else that ties these groups together and that is a willingness to work to deliver beer, or information about beer, with very little reward other than the very reward that beer itself gives.

I am at a stage in my career where I need to start thinking about the future. I have to start thinking about how I am going to pay for the nursing home when I'm old(er) and (more) decrepit. I have to start finding reasons to stay in the beer industry because my previous £40k a year job, with weekends off and 30 days leave a year looks a lot more tempting.

The problem is that the cask report does highlight the fact that cask beer is often cheaper by some considerable amount than it's poorer quality big cousin, the big brand lager. I'd say the average differential is around 20%. That can't be right. Cask ale is a better quality product, generally looked after by better quality people in better quality pubs. Value? if we carry on undervaluing cask ale in monetary terms it'll drive those that care about it out of the industry from shear financial necessity.

Before I leave the subject I'd like to mention one place that intrigues me; The Rake at Borough Market. I'd never been until the other day and I'd have to say I like it. I'm not sure it's that much more expensive than other similar alternatives. It was very busy when I was in there on a Wednesday evening. I did not find the staff at all rude and enjoyed my nice time there. I wonder if the staff have a second sense for identifying customers whose sole aim in life is to find cheap beer? I crumbled and paid money for Nanny State 1.1%, which was an unbalanced hop monster, but the best low alcohol beer I'd ever tried. I'll be back there tomorrow late afternoon as I have a date with a dog later that evening and will need some Dutch courage.


Curmudgeon said...

We have discussed this before, but the reason why keg lager commands a price premium over cask ale is a historical one. Back in the 1960s and 1970s it was a "different" product that stood out from the bread and butter mild and bitter and involved extra costs for cooling and a fancy illuminated font.

Fast forward to today and, when ordering a pint of cask, you are still entering into a quality lottery that you don't when ordering lager. It is hard to charge a premium if you can't guarantee consistent quality.

Tandleman said...

This post is split in two as I have exceeded the maximum 4096 characters. I didn't know there was a maximum! So continued above!

Dave - You seem to equate value with cheap - in fact you say so, but I am not sure that is a universally held view, even as it pertains to beer. A dictionary value in this context might be: "An amount, as of goods, services, or money, considered to be a fair and suitable equivalent for something else; a fair price or return."

Using that definition, you start to get a meaning, not of cheapness, but fairness, or suitability and we begin to get somewhere. The supermarket "value range" is an inappropriate comparison I fear, as it exists for an entirely different purpose than to just give cheapness. It is there to maintain footfall, to undermine the discounters, to increase market share and encourage other impulse purchases etc. etc. Its quality varies, but some of it is pretty good and if you believe all the sites devoted to it, it isn't all cheap rubbish.

Going back to beer, to understand where we are now, you really have to look at a number of things, some of them historical. Firstly cask beer was usually cheaper because it needed less treatment in the brewery and didn't have to support a brewed under licence fee, more expensive kit and an advertising campaign as lager did. Also back in (say) 1973 when I started working, the price of a can of beer and that of a pint, were broadly equivalent, or not so much different that to choose one over another would break the bank. Lager was usually only a couple of pennies dearer. Not so now. The pendulum has swung away from that and when you take into account the far different business models of pubs now and then, plus demographic and lifestyle changes, you can see that there are structural issues that mean it is less than clear what the price of a pint should be. Also relative price margins between ale and lager have shifted, which probably reflects the fact that lager is by far the biggest seller. There was and is more profit by increasing lager price than ale price. Quality didn't dictate that, economics did though there are of course arguments about market manipulation.

Tandleman said...

continued from below:

I for one am fairly certain that crowds will never flock back to any old pub, no matter how cheap the beer, but they will and do flock to good pubs, whatever (within reason) the pricing structure. So going back to the assertion that cask beer is under-priced for its quality, you have to be a little careful. Good pubs, sourcing fairly expensive cask beer from beer agencies probably already charge a highish price. They have to, as the cost of buying beer is highish in the first place, though a point to bear in mind is that even in a specialist market like cask, there is only so much the market will stand. To rapidly increase prices without a quality shift upwards as well, will nip the resurgence of cask in the bud and is a risky strategy. That takes us back to the dictionary definition of value and that is against that background and the pubs "offering" that prices must be set: get that bit right and both parties to the deal have achieved value, though unfortunately it isn't as simple as that either, as there are so many variables, such as overheads, local competition etc. etc. I don't say any of this is easy.

Two other points. I have just been listening to a Radio 4 programme about anniversaries and the British habit of referring to them. Here's one: JDW is 30 years old this year. Old Timbo started off then with one pub. He didn't have economies of scale then, just an idea and a business model which clearly has worked for him. He might be on every High St now, but it wasn't always so. It seems to me this is often overlooked.

Final point. Making money out of beer? You only have to look at the amount of beer coverage in the press to deduce that except for a very few, there is little money to be made at the beer writing game, though I don't really agree that there is no money to be made from beer, but it is hard for sure. As an aside here most of the money being made from beer is being made by the "wrong" people. Where you are situated ties one hand behind your back in those stakes. With pubs, like property generally, the three most important things to start off with are "location, location and location." But you know that.

Hope this makes sense - I've dashed this off quick, as I always like to respond to you. Though I don't always agree with your analyses, you do raise interesting issues. Also you clearly care about the trade as do I.

Whorst said...

"Fast forward to today and, when ordering a pint of cask, you are still entering into a quality lottery that you don't when ordering lager. It is hard to charge a premium if you can't guarantee consistent quality."

There is no quality lottery when ordering Proper Real Keg either. Cask ale is an archaic and very primitive method of serving beer. Not entirely by design itself, but because it's so reliant on people. There's the preparation and then there's the sale. If either fall short, warm vinegar ensues. Keg beer should not be frowned upon in this day of age. The UK is the only place in the world where the phrase "keg beer" is viewed with so much disdain. Time to join the 21st Century.

Unknown said...

I thin both Curmudgeon and Tandleman have good points; It's all about quality. My point is the chicken and egg situation. There are more complaints, it seems to me, in the cask world about price than there is about quality. My point is we need to concentrate on quality and then charge an appropriate price. Most of the pressure on the trade is get the price down and so the result is a downward spiral of quality.

Wurst, there are some fantastic keg beers about, but again it is more important to have cheap cask than to have quality keg.

BTW Tandleman, Location, location, location - don't get me started, you are so right on that one.

John West said...

I don't disagree with the thrust of this, Dave, but I would say that Pete Brown doesn't either.

The term 'value' is abused by supermarkets and the like. As you suggest, in the finance world it is *all* about 'adding value' and a 'value chain' as described by Brown does just that, bringing more customers, richer customers and - indeed - customers who do not regard price as the key issue as (crap) lager drinkers do. It's all there in the Nielsen research.

'cask ale drinkers are more likely to buy food in pubs than other drinkers'

'But 68% of cask ale drinkers are
social grade ABC1, compared to 52% of non-cask beer drinkers and 55% of the population as a whole.
On average they earn more - 46% earn more than the national average family income of £30,000, compared to 33% of non-cask beer drinkers.'

Brown adds: 'Cask beer is a premium, crafted product, drunk by affluent, upmarket drinkers. Historically this hasn’t always been the case, so cask ale tends to have a lower price than
lager - even than keg ale.'

He strongly advocates (page 40) a higher price point for quality cask.

It seems there's very little between you!