Saturday, September 22, 2018

Beer Duty: why it matters!

Beer Duty is paid to HMRC by the brewer and forms part of the wholesale price of beer. 

When a Pubco applies their markup to the wholesale price the effect of Beer Duty is magnified.

For example if a pint of beer costs £1 wholesale and the Pubco applies a 54% markup then the cost of that pint to a tied tenant is 154.0p*.

If duty goes up by 1p/pint then the 101p wholesale price becomes 155.6p to the tenant.

Doesn’t seem like much of a difference does it? Except that the UK on-trade (pubs and bars) sold 3.64bn pints in 2017!

What do you think happens when duty goes down by a penny?

The wholesale price becomes 100p again. The pubco price becomes 154.6p also down a penny but now they make 54.6p for every pint they resell, rather than 53.9p.

This is the reason the British Beer and Pub Association (BBPA) - the Pubcos lobby group - wants duty lowered.

Beer Duty reductions make little difference to customers and brewers but are extremely profitable for the like of Punch Taverns, Ei Group, Marstons and Star Pubs and Bars (Heineken). Their clamour for this reduction can be seen in the current ‘Long Live the Local’ campaign in which the BBPA and its members claim to be supporting the very same pubs that their anti-competitive ‘Beer tie’ is wiping out at a rate of 12 a week.

* We know what a brewer charges for beer and we know what the Pubco resells it for. Pubcos seem to operate a Gross Profit of at least 35% which equates to a 53p markup on a pint. Punch Taverns accounts show their typical GP to be a whopping 43%, a markup of 75p on a beer costing £1!

1 comment:

  1. I think your argument is flawed.

    When duty goes up by say 1p, the brewer increases his price by 1p.The pubco also increases their price by 1p.The mark ups in percentage terms fall, but in cash terms remain the same.

    Conversely when duty falls the mark up in percentage terms goes up, but again in cash terms remains the same.