The news that British pub chains are entering the Irish market raises a number of interesting questions. We can presume that their motivation is money: lower property values – particularly for pubs – might mean higher returns on invested capital for the new entrants. It is an interesting twist on an old story: many pubs and bars in the UK are themed or styled in what is supposed to be the fashion of a traditional Irish pub. Indeed, the Irish pub has been a very successful globally exported product.
I have long believed that the business model of the typical Irish pub is far superior to its UK counterpart. While the tradition of the apprentice barman may have faded away, the standards of professionalism of the service offered in most premises here are orders of magnitude better than across the Irish Sea. On match day in Dublin, you can still catch the eye of the bar man (or woman) while standing in a sea of potential customers and be served within relatively short order. In London, I can often be the only person standing at the bar and still fail to get served within the hour. In a Hampstead pub recently, the bar staff out-numbered me two to one but still took a geological age to serve me. One assured me that the kitchen was still open; ten minutes later the other told me it had closed five minutes ago. Maybe it’s me, but these experiences are typical.
It’s usually down to incentives. The dominant model here is still the owner-managed premises. One way or another, the people behind the bar have skin in the game. Even if they are just employees, they know that somebody who cares about the business is watching them. There is an understanding that standards have to be met, otherwise business suffers. Too many pubs in Britain are run by people who have too few incentives to get it right. A bit like investment banks: when they were owner-managed they were well run. Now, their employees run amok, responding to the wrong incentives.
The demise of the pub – premises closing or going bust – is a common story in both countries. The UK’s Campaign for Real Ale (CAMRA) came into existence decades ago when the height of sophisticated beer drinking was to down as many pints as possible of Red Barrel or Double Diamond; the Party Seven was the 1970s equivalent of today’s magnum of Louis Roederer Crystal. As its name suggests, it was a very large tin of seven pints, usually opened with a hammer and a screwdriver (you had to be there).
CAMRA now serves as a guardian of the pub while remaining a lobbyist for real beer: they have recently claimed that the rate of UK pub closures is now 26 per week, sharply up on a year ago. Data from the British Pub and Beer Association is stark and backs up CAMRA: between 1999 and 2012, total beer sales fell 24 per cent. But the split between on and off sales is fascinating: the sale of beer in licensed premises fell by a staggering 41.6 per cent. In off-licenses (specialist retailers and, of course, supermarkets) beer sales rose by 14 per cent over the same period.
Up until the 1970s, virtually all beer sales in the UK were controlled by pubs: they either had an off-license counter or small shop attached to cater to those peculiar souls who wanted to drink at home. This all changed within a decade when supermarkets, mostly, grabbed that slice of the trade.
The trend away from pubs has many drivers, but the principal one is price. Since 1990, the real price of beer consumed in UK pubs and other licensed premises has increased by nearly a third; the real price of beer sold in supermarkets and other retailers has fallen by around a quarter over the same period. Aggressive pricing, including loss-leading, by supermarkets is a big part of the story. People respond to incentives, particularly ones involving price.
The data, of course, show very similar patterns in Ireland. The Drinks Industry Group of Ireland recently reported that 60 per cent of alcohol sold in this country is now done by the off trade and that bar sales of alcohol are down by one third over the past five years. There are regional variations: the problems for pubs seem to be more acute outside big cities.
J D Wetherspoon seems to have coped with all of this very well. Its share price has been very strong. We don’t know much about its intended strategy other than a mention of focussing on central Dublin. But Wetherspoon’s did shake up the British market with aggressive pricing, astute management of its supply chain and interesting marketing tactics. I suspect success or failure will all come down to the price of its pints.
