Thursday, January 17, 2008

Cheap Booze

Tyler knows someone who's in the pub business.

I'm not at all surprised, you say. But hear me out: this chap is not a bartender. No, he runs a chain of pubs, bars and restaurants. And just before Christmas, he made me choke on my mince pie.

You see, like most entrepreneurial types, he's immensely sound on the need to cut taxes and downsize government. Immensely sound. But over the seasonal fayre he said he wanted the government to intervene in the operation of the free market.

Specifically, he wanted a ban on supermarkets selling booze below cost.

Ah well, I said, that's just because you don't like competition.

Not at all, he said. But booze plays a key role in the supermarket sales strategies. It's a KVI - a Known Value Item - and supermarkets ruthlessly use it as a loss leader to tempt people in. It's completely unfair to the responsible licensed trade. Oh, and it also fuels drunkeness on the streets as well.

I recalled this conversation as I listened to today's recriminations and buck passing over the terrible murder of Gary Newlove (see this blog). Cheap supermarket booze was clearly implicated.

So just how cheap is it? And is it sold below cost?

To find out, I conducted a field trip to a South London Asda, looking at lager prices.

And wow! We are certainly talking cheap. The entry level product is Asda Smart Price Lager, priced at £2.64 for twelve 440ml cans. That's just 28.4p per pint.

Is that less than cost? Almost certainly. Because when you subtract the VAT of 4.3p a pint and the Excise Duty of 23.7p, you're left with just 0.4p per pint to cover everything else- materials, brewing, canning, distribution, and retailing.

Now admittedly, Asda Smart Price Lager is only 3% alcohol, but when I were a lad, 3% would have been superstrength. And you could move up to luxury grade 4.1% Carling for only 64p per pint. Or why not just neck three times as much Smart Price for virtually the same price (9% equivalent)?

Now I don't like government interference in commerce. I don't like it one little bit.

But it does make you think.


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