Why the price of a pint of beer in the UK is skyrocketing

LONDON – The average cost of a pint of beer in the UK has soared 70% since 2008 – well before inflation – and some Londoners are parting with £8 ($9.70) for 568ml of 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 from place to place. Average prices rose by 15 pence between 2021 and 2022, up almost 4%, one of the biggest year-on-year increases since 2008.

The average price of a pint at an unnamed pub in London hit £8.06 this year, the highest CGA on record, while the national low was £1.79 on average at a pub Lancashire, in the North West of England.

UK inflation hit a 40-year high of 9.4% in June and is expected to exceed 13% in October, deepening the country’s historic cost-of-living crisis and prompting the bank of england at Thursday implement its largest interest rate hike since 1995.

Many pubs and hospitality venues are concerned that consumers are increasingly staying at home.

Paul Bolton, client director for GB Drinks at CGA, told CNBC that a combination of supply chain issues, staffing shortages, soaring energy costs, lingering pandemic-era debts and generally high inflation increase cost pressures on suppliers, which must then be passed on to the consumer.

Raw materials and energy

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

“The price of barley has increased and doubled since 2021. There are two reasons for this: the first is that the harvest in North America has been really bad, due to bad weather, so there is no there wasn’t a lot of stock to begin with – and then, of course, we had the conflict in the Black Sea region,” he told CNBC’s Arabile Gumede.

A pint of Adams Ghost Ship Citrus Pale Ale. The Suffolk-based brewer says a combination of soaring energy, labor and raw material costs are squeezing businesses and driving up the price of a pint.

Geography Photos/UCG/Universal Images Group via Getty Images

Historically, when grain prices rose, farmers compensated by planting more the following year, but broader farm inflation is also putting pressure on farms, even topping the 40-year high of 9.4% inflation. globally in the UK.

“Where our normal inflation is 8.9%, our business (agricultural) inflation is over 22.23%,” said Richard Hirst, owner of Hirst Farms in Suffolk.

“It obviously depends on the prices of oil, fuel – the price of our diesel tractor has more than tripled, which is a lot more, relatively, than road fuel has gone up.”

Hirst said the farm is also facing substantial increases in labor costs, with shortages affecting the agriculture industry nationwide, as well as fertilizer costs.

“The cost of fertilizers will have tripled next year – we now buy fertilizers three times as much as last year. Our chemical inputs are increasing and only the cost of running the machines, whether spare parts or just the cost of buying machinery. All of that has gone up a lot more than the normal 9 or 10 percent inflation.

However, barley is not the main cost incurred during the brewing process – in fact, it only contributes around 5% of 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 uses a lot of energy – and the price of energy has gone up, as we all know, when we stop at the pump – but most importantly is probably the packaging,” says Sonneville.

“Packaging is about 25-30% of the cost price of beer, and glass packaging, glass bottles, using about 25% of their cost in energy, so with gasoline prices that are 10 times higher today than two years ago, this has a huge impact on the cost of a brewer.”

labor of love

His comments were echoed by Andy Wood, CEO of Suffolk-based Adnams brewery and hotel, who told CNBC the increases in energy prices the company is seeing are “absolutely mind-boggling”.

“Brewing beer or distilling spirits involves a lot of boiling water, which takes a lot of energy to get to that state, although we have implemented a number of innovations over the years to limit this. impact,” he explained.

Wood said that in the aftermath of Brexit and the pandemic, a tighter UK labor market is also putting upward pressure on wages, which is likely to be exacerbated by the escalating cost of living crisis in the UK. country.

“The biggest cost we have is our payroll, because the hotel part of this business is a people-driven business,” he added.

Additionally, the geopolitical headwinds facing companies along the supply chain are unlikely to subside anytime soon.

“So we have the Russian invasion of Ukraine, we have the energy crisis that caused, we have the food supply crisis, grains, cooking oils, that sort of thing, and then …we hear in the media that maybe China is looking at Taiwan with envy, so I think the geopolitical situation is not getting any easier, so I think these things are here to stay,” he said .

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

Brewers tend to have long-term contracts and hedges in place to ensure contingency plans for future price rises, which means that all of their costs are not fully reflected at the current time, and therefore not immediately passed on to consumers.

“I think if you look at the price of beer that you and I pay, there is a risk that it will increase, because there is a cost lag effect at the brewery due to these long-term contracts,” Sonneville said on Monday.

“I think the hope that there is among brewers is that prices will come down. We haven’t seen that in gas – we’ve seen more sanctions there and gas prices have actually increased over the past three days – but we’ve seen that grain prices have come down a bit, and hopefully that will continue.”

Changing trends

Wood noted that consumer sentiment and behavior had already started to change in the face of rising bar prices.

“We definitely see people going out earlier in the evening, having a drink, having dinner, and then going home,” he said.

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

This was reflected in CGA’s latest consumer analysis, which found that high-end products and venues offering particularly unique experiences were increasing their share of the restaurant market.

CGA’s Bolton told CNBC that sites offering darts, ax throwing or cricket were booming, while brands seen as offering premium drinks fared better in the aftermath of the pandemic, as expenses were becoming less tied to volume and more to experience.

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

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

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