Why the price of a pint of beer in the UK is through the roof

LONDON – The average price of a pint of beer in the UK has risen 70% since 2008 – well above inflation – and some Londoners are bidding as much as £8 ($9.70) for 568ml of the amber nectar.

According to figures from consultancy CGA, the average cost of a pint has risen from £2.30 in 2008 to £3.95 in 2022, although prices vary widely by location. Average prices rose 15p between 2021 and 2022, an increase of almost 4%, one of the largest year-on-year increases since 2008.

The average price of a pint in an unnamed London pub this year reached a whopping £8.06, the highest CGA ever, while the lowest nationally was an average of £1.79 at a pub in Lancashire, in the North West from England.

Inflation in the UK hit a 40-year high of 9.4% in June and is expected to rise above 13% in October. Thursday.

Many bars and restaurants fear that consumers will increasingly stay at home.

Paul Bolton, customer director for GB drinks at CGA, told CNBC that a combination of supply chain problems, staff shortages, rising energy costs, lingering pandemic-era debt and generally high inflation are increasing cost pressures from suppliers, which must then be endured. on the consumer.

Raw materials and energy

Francois Sonneville, senior beverage analyst at Rabobank, told CNBC that prices are rising across the value chain, starting with barley.

“Barley price has risen and doubled since 2021. There are two reasons for this: one is that the harvest in North America was very bad, driven by a bad climate, so there wasn’t much stock to start with – and then” Of course we had the conflict in the Black Sea,” he told CNBC’s Arable Gumede.

A pint of Adnams Ghost Ship Citrus pale Ale. The Suffolk-based brewer says a combination of rising energy, labor and raw material costs is putting pressure on businesses and pushing up the price of a pint.

Geography Photos/UCG/Universal Images Group via Getty Images

Historically, when grain prices rose, farmers would compensate by planting more the following year, but broader agricultural inflation is also putting pressure on farms, even exceeding the UK’s 40-year high of 9.4%

“Where our normal inflation rate is 8.9%, the (agricultural) inflation rate for our businesses is somewhere above 22.23%,” explains Richard Hirst, owner of Hirst Farms in Suffolk.

“Obviously that’s a function of oil prices, fuel – our tractor diesel has gone up more than three times in price, which is relatively much more than the price of road fuel.”

Hirst said the farm is also facing significant increases in labor costs, with shortages hitting the agricultural sector across the country, along with fertilizer costs.

“Fertilizer costs will triple next year – we are now buying three times as much fertilizer as we were last year. Our chemical inputs are going up and just the cost of machinery, whether it’s spare parts or really just the cost of buying machinery. That’s all a lot increased more than the 9 or 10% of normal inflation.”

However, barley is not the main cost item during the brewing process – in fact it only contributes about 5% to the price of beer on tap. The biggest costs, analysts and business leaders told CNBC, come from labor, packaging and energy.

“I think if you look at the brewing process itself, it consumes a lot of energy — and the energy price has gone up, as we all know, when we stop at the pump — but the most important one is probably the packaging,” Sonneville said.

“Packaging accounts for about 25 to 30% of the cost of beer, and glass containers, glass bottles, consume about 25% of their energy costs, so with gas prices now 10 times higher than two years ago, that has a huge impact. at the expense of a brewer.”

Labor of love

His comments were echoed by Andy Wood, CEO of Suffolk-based brewing and hospitality company Adnams, who told CNBC that the energy price hikes the company is seeing are “absolutely eye-watering.”

“Brewing beer or distilling spirits involves a lot of boiling water, so it takes a lot of energy to get to that state, although we’ve made quite a few innovations over the years to mitigate its impact,” he explains.

Wood said in the wake of Brexit and the pandemic, a tightening of the UK labor market is also putting upward wage pressures, likely to be exacerbated by the country’s escalating cost of living crisis.

“The biggest expense we have is our payroll, because the hospitality part of that business is a people-driven business,” he added.

In addition, the geopolitical headwinds facing businesses across the supply chain are unlikely to abate anytime soon.

“So we have the Russian invasion of Ukraine, we have the energy crisis that caused that, we have the food supply crisis, grain, cooking oil, things like that, and then… we hear in the media that China might be looking longingly at Taiwan, so I think the geopolitical situation isn’t getting any easier, so I think these things are permanent,” he said.

The question for businesses, according to both Wood and Sonneville, is how much of these costs they can absorb, how much should be passed on to consumers, and how, in the midst of a cost-of-living crisis, they can maintain margins without forcing consumers stay at home and jeopardize volumes.

Brewers usually have long-term contracts and hedges to ensure contingency plans for future price increases, meaning not all of their costs are fully reflected at this point and therefore not immediately passed on to consumers.

“I think if you look at the price of beer that you and I pay, there’s a risk that it’s going to go up because there’s a lag effect of costs at the brewery because of those long-term contracts,” Sonneville said on Monday.

“The hope I think there is with brewers is that prices will come down. We haven’t seen that with gas – we’ve seen more sanctions there and gas prices have actually gone up in the last three days – but we’ve seen that grain the prices have come down a bit, and the hope is that they will continue to do so.”

Shifting trends

Wood noted that consumer sentiment and behavior have already begun to change in the face of higher prices at the bar.

“We’re definitely seeing people come out earlier in the evening, have a drink, eat and then go back home,” he said.

“We’re seeing people maybe having two courses instead of three courses, and maybe a glass of wine instead of a bottle of wine, so we’re seeing some changes in consumer behavior, there’s no question about that.”

This was reflected in CGA’s latest consumer analysis, which found that premium products and locations that offer particularly unique experiences increased their share of the hospitality industry.

CGA’s Bolton told CNBC that venues offering darts, ax or cricket fared well, while brands offering premium drinks fared better in the wake of the pandemic, as spending was less about volume and more about experience.

“It’s really about making sure the consumer understands that they’re going to get a real experience when they go out, and so they’re happier paying that when they go out because we know consumers have told us they’re going to get priority.” give to food and drink in terms of disposable income over things like vacations, over things like clothing,” Bolton said.

“So we know there’s a real appetite to get back out there and spend money.”

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