A Marginal Existance

I was talking to a local pub landlord recently and during the conversation, was disappointed, but not surprised, how in winter particularly, when it is pissing down as it often has been in recent months, just how many times he had to make recourse to his reserves to pay the bills as the pub was so empty.  Now you might liken this a bit like when you pay your monthly ransom to the power companies, using the excess built up in the so called warm months, to offset the cost in the chilly winter months, which if you are like me, you'll consider that is most of them. But you'd be wrong. it isn't really like that. Let's have a look at it. 

It’s Friday night, the local is packed. The place is going like a fair and the atmosphere is just what you want on a good night out. To the casual observer, it looks like a gold mine. You’d be forgiven for thinking the landlord is currently scouting for a second home in Marbella. But talk to anyone behind the pumps, and you’ll find a much grimmer reality. The "busy pub" is becoming a bit of a mathematical mirage. Here is the sobering truth about why that bustling atmosphere isn’t making the boss a fortune.

Input Costs

While the price of a pint has crept up toward the £6 or £7 mark (and beyond in that there London), the landlord isn’t seeing the benefit of that extra few quid. He or she has to think about the fixed costs of the operation. That is the things that can't be avoided, or discarded: 

Energy: It’s not just the lights. Cellar cooling, glass-washers, heating, kitchen appliances are all energy-hungry beasts. For many, standing charges and unit rates have doubled or tripled since 2022. And nobody wants a cold pub, though you like me, will have noticed plenty of times when the pub isn't as warm as it should be. If your pub is cold, it is likely that cost which makes it so.

The Beer: Barley, hops, wages and more suffer from inflation too. Brewers have had to pass on their own rising costs, meaning the "wet rent" (the price the pub pays for the cask or keg of beer has continually increased to its present high level..  

The Chancellor's Cut: This is where things really bite. The UK has some of the highest Beer Duty rates in Europe. When you buy a pint, you’re effectively paying a stealth tax. and unlike the supermarket where you buy your cans of lager, pubs have to pay 20% VAT on every pint, snack and plate of chips sold. 

Business Rates: The system is archaic. Pubs are often taxed based on their "fair maintainable trade" (basically, how much they could make), which penalises successful, busy locals.  It also makes the somewhat unrealistic assumption of how much of turnover is profit.

Dry Rent: What you pay to occupy the building. Typically, there will be an initial deposit then a monthly rent, agreed for (say) a three to five year term.

The Minimum Wage & Staffing Costs: Nobody should grudge hardworking bar staff a decent wage, but it all costs. A busy pub needs bodies. With the National Living Wage rightly increasing to support workers, the wage bill for a fully-staffed shift has ballooned and of course, that doesn't just apply to busy Fridays. The irony is that to serve the crowd that makes the pub feel alive, you have to hire more staff, which often eats the very profit those customers are generating.

Back to my landlord friend. Everything costs more he tells me and people need to be enticed out of their homes to come to the pub. A musician for example, will often attract customers and fill the pub, but the £300/£400 bill for that needs a hell of lot more drinks to be sold, just to break even. It is done though to make the pub more attractive,  and in the hope the customer will like it and come again at other times, but ......

Supermarkets- the elephant in the room: One of Tim Martin of Wetherspoon's pet hates, this is where the "pre-drink" or "instead of" culture is the enemy of margin. In the 90s, the gap between a supermarket beer and a pub pint was a manageable jump. Being very old, I can remember when that gap was tiny and hardly game changing. Today, it’s a veritable chasm.   If a customer stays for two pints instead of four, either because they can't afford more, or because they drank a cheap few cans at home first (or intend to after) to offset high pub prices, the pub still has to pay the same fixed costs for the heating, the live band and everything else.  

And then there is food. Pubs often rely heavily on food sales to survive, but food carries additional and  higher overheads  - chefs, wastage, supply chains with their own struggles - and of course VAT. No wonder so many have decided that game isn't worth the candle, but maybe, looking on the bright side, the pub snack may make a comeback as seems to be happening in some cases? Filled rolls and Scotch eggs anyone?

Margins in the hospitality industry used to hover around 10% to 15%. Now, many independent publicans are operating on a knife-edge of 3% to 5%. One broken glass-washer or gas boiler, or a quiet rainy midweek is enough to wipe out the profit from a successful weekend.  While brewery owned pubs and national chains have different issues, it all is very costly for them too. Debt is everywhere in the pub trade since the Beer Orders.

These are just some of the issues which vary from pub to pub depending on size, location, local authority, type (managed/ leased/free or whatever) and so much more, but fixed costs are a killer. 

The type of beer sold has different costs and margins, so that affects things too. It all boils down to margins being squeezed and viability on a knife edge. If you can just about come down on the right side, then you are surviving at least.

So, next time you see your local packed to the rafters, don't begrudge them that extra 40p+ on a pint. Most of them aren't getting rich; they’re just trying to keep the lights on, preserve tradition and hopefully make a few bob so we all have somewhere to go when want a bit of conviviality rather than drinking alone in the house.

 

This is just a brief dip into what is a very complex area.  Price of a pint? You tell me. It varies so much, as there are so many factors to take into account.

What is also for sure is that the drinker has to get value out of their experience too and that isn't helped by pricing them into the supermarket.  The government has to make its mind up here. Do they want to preside over more and more closures? Chances are they will continue to screw hospitality and just hope for the best, so probably.

Apologies too for the Ai photo use, but I felt the Mr Macawber definition needed suitable illustration.