Wetherspoons released their colourful half year statement last week with rosy reports, despite a backdrop of continuous tax aggravation. With operating profit margins up to 8.1% against 2016 at 6.3% and revenues increasing to not an insignificant £801.4M, I am sure that Tim Martin, the Board and staff can be delighted and hopefully well rewarded for their efforts and maintained standards. With tax featuring very heavily in the commentary it suggests that government still sees pubs as a problem rather than the answer.
‘The biggest danger to the pub industry is the continuing tax disparity between supermarkets and pubs in respect of VAT and business rates’ so rumbles the campaigning voice of Mr Martin. There is a detailed justification of the weighty tax burden in the reports sent out with the half-year financials all of it well justified.
And there is no doubt about repeated Chancellors slippery handling of Duty, the second biggest burden listed on the Wetherspoons tax role call.
The Chancellor slipped the rise into the speech thus
“I can confirm that I will make no changes to previously planned upratings of duties on alcohol and tobacco”. Gordon Brown did the same thing a few years ago where he announced no changes to the previously reported regime (the duty escalator at the time). Either way it amounts to the same thing announced in underhand ways – it hardly fosters trust.
The UK bears one of the biggest alcohol tax burdens in Europe, and the irony really is that as duty is held or reduced revenues go up. In 2015/16 wine contributed an extra £139M and spirits £125M after the former’s duty was held and the latter’s reduced. In a further ironic twist as central government increases duty, so it increases the motivation for the malevolent fraudsters. So it is a blunt and, at best, misunderstood tool at the heart of government that has a reverse correlation with effectiveness.
What has been more effective has been the education tool, which has been in full force for more than 10 years and now sees youngsters treating alcohol differently, by and large, and alcohol consumption reducing as a nation.
In tandem with that is the consumer movement to increasingly treat alcohol as an occasion drink and to become more educated about how it is made and where it comes from. Sparkling wine sales are through the roof with the Prosecco bubble on the rise and rise, the average price of wine is increasing with the independent sector now more buoyant than in many years, where niche has become vital to understand. Equally the pricier and more interesting craft beer and spirit movement is everywhere and consumers are bailing into these products in ways that we couldn’t have predicted 20 years ago.
So it is our attitudes that lead to changes in use and purchasing behaviour as opposed to straight cash. Therefore is it that tax is the issue for pubs or creating the occasion for their consumers where they seek out special, different, unique?
A few years ago supermarket chief Justin King described the issue with our high streets becoming vacated as retail closed down and made an observation that we needed to be more creative with the use of the space, not merely accepting that we have redundant space. And so it may be with pubs, clearly not the busy Wetherspoons varieties but in the wider community there are valid reasons to be taking a creative approach.
Could pubs become centres for business to business networking, pilates classes, bridge clubs maybe even carefully prescribed after-school clubs, and who knows the extent of the ideas as opposed to ‘ghettoising’ them as alcohol dens; then maybe they become the centres of community again.
After all this is what they had become up until 30-40 years ago. Up until then pubs were a great way of regulating alcohol in an unobtrusive way, where local society dictated how you should behave. But increasing regulation and political resentment, along with consumer free for all habits meant that many have become unwelcoming venues catering for a few die-hards.
Standards of some also need to be raised. Wetherspoons achieved a significant position in the top 20 food chains for hygiene standards in the UK under the FSA scheme and are a beacon in the industry. There are many other pubs where, frankly I would be wiping my feet on the way out not in, and certainly not eating there. As consumers we need to trust where we go to offer high quality, without doubt hygiene and cleanliness standards.
Muirfield Golf Club overturned its men only policy earlier this week and whilst this the thin end of the wedge, many pubs are not particularly welcoming to women. In this era of equalisation, what initiatives could be brought to bear to allow for pubs to be equally welcoming to both (and all) genders?
Overall whilst the tax regime is clearly uneven and pubs have had the cards dealt against them in a number of ways possibly leaving the estate with little to invest in at the same time the profit motive is larger in the pub industry than it is in the supermarkets. According to one research body supermarkets make 3.7% profit margin; whereas pubs make 6.6%.
So maybe the opportunity is there to invest in pubs, with the right tax environment and creativity, in order to create venues that people see as centres of the community. Pubs need to have a sense of occasion, albeit as much as a weekly treat perhaps, and maybe the great British public can be persuaded to use these venues as social centres again and the politicians get with the mood and tax them not as the problem. It will take more than just tax though to make this into a movement – industry, creativity and doing it for the right reasons will all play their part. Then hopefully everyone can see that the pub is the answer not the problem.
Alistair Morrell
Hospitality & Catering News, Wine & Drinks Editor