Stuff the supermarkets manifesto

From TonyBrookes. Owner of the Head of Steam beer company

This document is being circulated to parties interested in the future of the pub trade and the problem faced by our society from binge drinking – to national newspapers / radio / television and their equivalents local to where our pubs operate (Tyneside, West Yorkshire, Merseyside), CAMRA HQ and branches, Association of Licensed Multiple Retailers, pub companies, relevant MPs.

Background

Let us face it – in 2008, pubs and clubs – the on-trade – is in for the roughest ride it has EVER had. Sales will continue to decline, with a switching of drinking from pub and club to the home, rocketing beer raw
material costs bringing large price increases, power costs escalating, the effect of the smoking ban, irresponsibly-low prices for alcohol in the off-trade – the list goes on.

Our customers have huge cost increases too – fuel at nearly £5 a gallon, high mortgage interest rates for over-priced housing, high interest rates on credit cards and fear of the ‘credit crunch’ affecting them, low wage rises and more. Therefore, our customers have ever-smaller amounts of disposable income (money left after all essential costs have been met) – money normally spent on enjoyment, often in pubs and clubs. Those customers are, increasingly, having to make explicit choices about what to spend that
disposable income on. The on-trade has to fight harder for its share of that shrinking pot. The demand for that disposable income is more ‘elastic’ than it used to be – going down the pub and spending £15 with the lads is not an automatic choice; buying a tray of cheap alcohol from the supermarket and
watching the television is an increasingly attractive option.

STUFF THE SUPERMARKETS campaign

Details of our radical STUFF THE SUPERMARKETS campaign were circulated widely several months ago. It is our company’s attempt to challenge the might of the supermarkets and major off-licence chains, which sell alcohol at irresponsibly-low prices. Details can be provided again if necessary.

Our campaign ended at new year and we will publish the results when we have analysed what happened. Why? Because we firmly believe that if the on-trade does not get its act together to tackle the threat of irresponsibly-cheap alcohol sales by supermarket and major off licence chains (the latter themselves being under threat from the supermarkets), the trend towards declining on-trade sales clearly seen in 2007 will accelerate dramatically in 2008, threatening the viability of thousands of pubs.

Our campaign has clearly been successful, but we want the whole on-trade – from massive pubco to individual free house – to join the battle. That is what this is – a battle – and the pub trade needs to adopt military strategies and tactics to win the battle; never has the guidance of Sun Tzu, 2,500 years ago, in his book ‘The Art Of War’, as applied to business, been more appropriate.

The great thing about this is that there is no financial risk here for the pub trade – it can only gain and improve profitability.

For the sake of simplicity, we will lump supermarkets and large off licence chains – who adopt similar price systems to supermarkets – together under the name‘large off-trade’.

Clearly, the approach of increasing duty on alcohol would only harm the on-trade and not affect the large off-trade – those operators would simply absorb the small increases in a bid to stay in front of the pack.

We believe the way to tackle the problem of irresponsibly-cheap alcohol being sold by the large off-trade – and the consequent binge-drinking – is to tackle the large off-trade with the same tactics they use and aim to significantly hurt them financially – this is war and needs to be approached
with proper strategy and consequent tactics.

Fighting the war

The pub trade needs to face current problems on two fronts –
[1] by tackling factors under its own control, by maximising its inherent
advantages, maximising its efficiency and customer satisfaction; and
[2] by tackling the large off-trade directly –
[a] in direct commercial battle; and
[b] by indirect means, using its trade strength.

We feel the pubs at greatest risk are the tenants and lessees of the big pubcos, who pay high rents and get small, if any, discounts. They have little power over some of the major factors controlling their profitability.
There needs to be a lot of advice and information for them – and all other licensees – coming from the trade press and pub-owning companies.

‘Pubs’ – whoever owns them, however big or small – need to plan campaigns across a broad spectrum –

[1] Factors under a pub’s control

Pubs need to do all the basic things they do all the time, as well as
possible – all the things regularly in ‘Publican’, ‘Morning Advertiser’ and
‘BII Business’ about service quality, product quality, promotions, business
building and so on.

A landlord with the power to do so, needs to buy as efficiently as possible
and sell to maximise the gross profit, whilst satisfying customers’ likings.

Pubs should use their customers’ loyalty to the pub to maximise the amount
they buy from the pub, rather than them buying from the off-trade, where it
is economic for the customer to do so.

Pubs carrying on old-style on-going tactics like ‘buy 1 get 1 free’ (ie
selling everything for half the normal price) or ‘3 shots for a quid’ should
be shopped to the local Pub Watch scheme and to the Portman Group – such
activities breach the industry’s marketing code of practice and are as
irresponsible as the large off-trade. Direct complaint to the pub owner, where this applies, would be valid also.

Wastage of real ales can be virtually eliminated by using ‘race spiles’ to prolong the life of beer in cask.

[2a] Pubs tackle the off trade

It is within our lifetime that there were no supermarkets as we know them now.
Alcohol to drink at home was bought from the ‘jug and bottle’ service at the local pub. The on-trade was also the off-trade. The on-trade has largely forgotten that and has given up completely on supplying drink for take-out.
Pubs need to turn that around and take back as much take-out trade as possible – it is there to be had. Our company’s pubs sell lots of drink to take-out. Pub operators need to BELIEVE they can get some of that trade back – and go for it!

Pubs need to find the exact facts about their competition – survey their nearest supermarket or major off licence to find the prices of the items that really influence their trade – ultra-cheap ‘headline’ alcohol case deals, quality British bottled beers, vodka, low – to – medium priced wines.

Wherever there is a product a pub can sell for take out profitably – even at a case rate – for less than the large off-trade, they should consider doing so, and publicise the offers in the pub – marginal costing gives extra turnover and higher profits. However, such deals should only be offered for drinks for take out – offers should not provide cheap drink to have in the pub; that simply dilutes profitability. This is very important.

Pub buying prices should be compared to the large off-trade outlet. They should learn what the basic cost prices of some key items are – just the duty and VAT on the duty. The trade press needs to clarify for everyone in the trade the duty scale and clearly identify the duty band that each brewer
fits into.

Beer duty ranges on a sliding scale from £6.85 (for micro-breweries) to £13.71 (for large breweries) per
‘hectolitre %ABV’ – that is 4.5 to 9.1 pence per pint (inc. VAT) for each percent of ABV of alcohol in the beer or lager. A pub should publicise in the local media when they think the large off-traders are selling at or less than cost, getting as much publicity for the cause as possible.

Pub operators should write to their MP, John Grogan MP, relevant parliamentary committees, the trade press, local press, national press, complaining about unfair and socially-irresponsible practices by the large off-trade. They should write to the pub’s owners also, making them aware of the situation. They should write to the chief officer of the relevant supermarkets asking them to explain specific prices and practices.

They should not be embarrassed – put the boot in as hard as possible.
*** Please see our letter to Asda’s President at the end of this document.
We are waiting for a reply.

Pubs need to develop a strategy like our STUFF THE SUPERMARKETS campaign by working with suppliers to build on-going loyalty schemes to give their customers free stock – always to take home, not drink in the pub – so the customer does not need to buy from the off-trade. This increases the total trade of the pub, as it is an extra attraction that competitors do not have.

Any pub operator – from a single pub to a big pubco – should negotiate STUFF THE SUPERMARKETS deals with lots of their suppliers; many of the independent brewers and others know very well how successful such a scheme can be, by increasing their sales at the expense of a competitor not in the scheme. As the supplier pays for the free stock involved, the pub operator can only gain in trade and esteem from its grateful customers, who are the other winners.

Pubs need to offer products for take-out that supermarkets make a large profit on – like British bottled beers, maybe by the case – at prices which under-cut the off-trade price, using marginal-costing. Extra sales for the pub would directly hit the off-trade outlet where it hurts – on its profitable lines.

Pubs need to offer take-away products that supermarkets and most off-licences cannot offer – like bulk beer and cider for parties, in polypins (20L plastic containers in cardboard box) or casks (9 gallon
firkins – or even 18 gallon kils). Pubs can afford to offer a good discount per pint to customers for this service and still make a very healthy profit.
If you consider that most people would actually CHOOSE to drink the same products at home that they drink in the pub, clearly real ale and real cider offer a great market advantage opportunity to the pub trade over the off-trade.

On the same basis, pubs should offer real ale and cider to take out in four or eight pint plastic containers, for customers to drink at home after they leave the pub. They can be offered free, as the profit from extra sales will easily cover the cost involved.

Again, pubs should offer the new mini-casks (5L) of real ales, like Hop Back Summer Lightning and Charles Wells Bombardier –these are much better than the old Party 7s some of us are old enough to remember! Those cans are another point of difference for pubs.

Pubs need to use the local press as a tool – by keeping putting out press releases about the things they are doing to fight the competition. The press are always interested in a ‘David and Goliath’ story. Not just local media, but trade and national media too may be interested. CAMRA branches should be
kept informed of campaigns and deals on offer.

[2b] Industry tackle the off-trade

There needs to be an on-trade industry-wide campaign to tackle the large
off-trade, led by the trade press. No more needs to be said on that here.

The big pubcos have enormous power in purchasing. The main products on their bars tend to be the products of the big four international brewers – which happen to be the same companies whose products are sold at ultra-cheap irresponsible prices in the large off-trade. The big pubco buyers should
tell their major brewery suppliers that they will no longer put up with unfair competition from the large off-trade, as it is commercially damaging their tenants, lessees and managers (let’s not ignore the managed sector), as well as being irresponsible. It would be valid for a pubco to say that it will dump a major supplier from a particular pub (or even from its entire estate) if it finds that a large off-trader is selling that brewer’s products at what it (the pubco) considers to be a dangerous and
irresponsible price. That neatly by-passes the ability of the brewer to say low prices are not its fault – the cause and effect are before and after it.

We are certain other large brewers, like Greene King, Marstons, Thwaites and the like can hone their offers to fill any gaps – or even estate-wide gaps – if they occur. We would, anyway, recommend such brewers to adopt an aggressive sales policy to the big pubcos along these lines! Why not?!
Nothing to lose and everything to gain.

The big pubcos could consider releasing their tenants and lessees from the tie for certain products that the large off-trade are using as loss-leaders or, at least, selling unrealistically cheaply, to allow the pubs to buy FROM the supermarkets, thus increasing their losses on those products and allowing the pub to make a decent profit on the sale of the products. The price difference can be immense – see text of letter to Asda below.

The big pubcos could be even more pro-active. Some products are sold much more cheaply than even the largest pubco can buy for. Where they would not release their tenants and lessees from the tie, where the pubcos have facilities to do so, they could organise local buying of the respective products from the supermarkets in as big a bulk as they can, again to discourage the practice and create a bigger loss. Supermarkets tend to have limits on individual purchases, but store managers will have targets to hit
(with bonuses, perhaps) and some may be willing to supply large volumes to
maximise sales.

Our company, when we had eighteen pubs, once bought a full trunker (22 pallets) of bitter and lager cans from a local supermarket, paid by credit card (getting 1% cash back) and with the store’s clubcard points saving another 1%, it was a very profitable activity! In the same period, we used to buy all our cigarette requirements from a Victoria Wine off licence, because it was cheaper than any other means available, allowing for credit!

So what is The Head Of Steam Ltd going to do in the immediate future?

We will be continuing to offer the best choices to our customers at minimum price increases. We will tackle the take-out market with increased vigour and will encourage our staff to SELL all the products and services we have on offer.

We have an invisible ‘magic money-sucking machine’ over each doorway, which aims to take every penny out of a customer’s pocket while in the pub, such that they leave with a big smile on their face, intending to come back for more tomorrow!

We plan to have a second phase of our STUFF THE SUPERMARKETS campaign in spring, leading to the summer party season – and we would encourage everyone
in the on-trade to do the same.

WHERE TO BUY ESSENTIAL ‘TOOLS’

2.5 and 5 litre plastic containers can be purchased from Involvement
Packaging Ltd,
0870 6064686

10 and 20 litre polypins can be purchased from A. Latter & Co, 0208 3100123,
admin@alatter.co.uk

20 litre plastic casks can be purchased from Cypherco, 01432 343340,
info@cypherco.com

‘Race spiles’ can be purchased from G. S. Dye & Son, 01609 778437

Regards
Tony Brookes
The Head Of Steam Ltd

Tony Brookes receiving, from the Huddersfield ‘The Head Of Steam’
pub Manager, David Robertson, some of the 529 collector cards (each for 2 free Black Sheep brewery bottled beers) which were completed and claimed at the pub during the campaign. Black Sheep were the top performer in the campaign.