Tesco, the puritanical alcohol retailer

The best businesses have a knack of reading the political mood music and adapting fast. This was graphically illustrated last week when Tesco, Britain’s biggest supermarket group, suddenly announced it supported the new Coalition government’s intention to tackle irresponsible drinking by addressing the issue of loss-leader alcohol pricing in the off-trade. Sir Terry Leahy, the group’s long-serving chief executive, said: “We welcome the new government's commitment to act on below-cost selling of alcohol and I pledge that we will support Government-led action to make this happen across the UK. We will also support any future discussions on a minimum price for alcohol.” Sir Terry said the action must be government-led, not because retailers were “unwilling to play their part in tackling this important issue”, but because competition laws prevent them from discussing prices. This is a big change from the almost universal stance previously adopted by the supermarkets that they did a great job in delivering fantastic prices for its customers, be it on baked beans or beer. At the same time as Tesco was saying it would like to charge its customers more, it was still pumping out Carling, Carlsberg and Strongbow at two cases for £16, or 69p per pint. Although whether this is below cost or not, who knows? The ALMR accused Tesco of stunning hypocrisy. Nick Bish, its chief executive, said: “We would like to see Tesco put their money where their mouth is and actually stop selling alcohol as a loss leader. “Beer should not be cheaper than water or milk.” Tesco has emerged as one of the best consumer-facing companies in the world in the past decade for a number of reasons, such as taking time to build an intimate understanding of its customers. It has also triumphed by taking time to understand the political environment. That the supermarket group, which I’m told has an inordinate number of people working in it public affairs and communications department, has reacted in this way is the clearest indication to me that this government is utterly committed to tackling this issue. And that is good news for the pub sector. I don’t subscribe to the view that price is not important. Anyone who says it isn’t is talking patent nonsense. The UK is over-pubbed but the growing price differential between supermarkets and pubs has been one of the reasons why the latter are closing in record numbers. Quite how “below cost” is determined by the government remains to be seen The real question is will a ban on below cost be enough to deliver what the government wants? A straightforward minimum price may be the real answer. Douglas Jack, an analyst at Numis Securities, said: “This is a small step in the right direction. When the government realises its policy fails to curb binge drinking, it will have to consider a proper cure: minimum pricing.” Minimum price is something that an increasing number of pub groups are cautiously calling for, albeit with the important caveat that the crafting of legislation needs proper care and attention, in order to avoid unintended consequences. Rooney Anand, chief executive of Greene King, said: “We would urge the government to explore further the minimum pricing route, which, if targeted at appropriate products, would ensure that the pensioner enjoying a glass of sherry would not be penalised….we need to ensure a level playing field for all who sell alcohol. Responsible retailers should have nothing to fear.” Clubbed to death? It just gets worse for nightclubs and late-night venues. This new coalition government also plans to permit local councils to charge more for late-night licences to pay for additional policing. Given the way the UK nightclub market has performed during the recession – 13% of UK clubs closed in 2009 – they should probably be eligible for tax breaks, if anything. As I have written before, Britain’s biggest nightclub group, Luminar, has not escaped the crushingly tough trading environment. Amid like-for-like sales declines of almost 20% the stock market appears to have placed a real questionmark over the group – as to whether it can survive in its current structure. Shares in the group closed at 18p on Friday as it emerged that the group had approached landlords asking for a 20% reduction in rents. It had closed or was selling a further nine clubs, leaving it with an estate of 78. The reversion to landlords smacks of similar moves by other groups in the late-night space before they undertook restructuring exercises, to the detriment of shareholders – and sector sentiment. Let us hope that Luminar can trade its way out of this.