Minimum Unit Price for Alcohol in Scotland
After 5 years of legal challenge the Supreme Court ruling today has paved the way for the Scottish Government to Introduce a Minimum Price per Unit of 50p.
There has been much discussion today about who the winners and losers will be, the general consensus is that people on low incomes will be disproportionately hit, especially those who regularly drink alcohol; some would argue that this is precisely one of the demographics this law seeks to impact.
We are going to look at how this will affect business.
What is Minimum Pricing
A minimum price per unit is not a tax, it is a benchmark price which retailers will not be able to fall below based upon the number of units in the product they are selling. Therefore where prices have to go up to meet the minimum price, it is the retailer’s margin which will increase.
So firstly we need to understand the system for calculating a Unit of Alcohol:
Volume of Liquid (ml) x Strength (%abv) x 0.001 = No of Units
A standard bottle of Wine @ 14% abv. The calculation would be 750 x 14 x 0.001 = 10.5 Units
With the minimum price per unit set at 50p this equates to £5.25
- A standard bottle of Vodka @ 40% abv. 750 x 40 x 0.001 = 30 Units; The Minimum Price would be £15
- A Pint of Beer @ 4.5% abv. 568 x 4.5 x 0.001 = 2.56 Units; The Minimum Price would be £1.28
- A Can of Beer @ 4.5% abv. 440 x 4.5 x 0.001 = 1.98 Units; The Minimum Price would be £0.99
It is not difficult to see that bars & restaurants are not going to be affected by the introduction of the Minimum Price per Unit.
Who are the Winners and Losers in Business
I suspect the winners here will potentially be smaller shops and the on-trade (bars, restaurants etc).
The big impact will be on the very low end alcohol sold mainly in supermarkets and their multi-buy deals. Where a 2 litre bottle of 8% abv white cider can currently be bought for £3 – 4, under the new minimum price per unit this will jump to £8; I suspect we will simply see these products disappear from sale of have their strength dramatically reduced.
On a visit to Tesco today, I looked for the cheapest products on sale and calculated how prices would rise as result of this ruling:
- Bottle of wine £1.10
- Can of Beer £0.16
- Bottle of Vodka £3.06
These are however the very cheapest brands on the shelf and the majority of products will not be affected.
However as the supermarkets tend to be the cheapest outlets, the legislation means that their cheapest brands will need to be sold at a higher price, reducing the price differential to the smaller shops who do not benefit from the same bulk discounts from wholesalers and the on-trade.
However don’t expect the supermarkets to take this lying down and it will very much depend on how the legislation is written, as to how effective it will be. Given half a chance, supermarkets will soon be offering free bottles of tonic, bags of crisps, branded glasses and any other incentive they can get away with, in order to maintain a competitive advantage; unless the legislation is water tight.
What will help all retailers big and small is the extra margin this could bring. This is after all not a tax, but rather a minimum price so any additional margin goes straight back to the retailers, in theory some of the cut throat competition especially in the supermarkets will disappear, as each will be selling alcohol at the same minimum price.
Who are the Losers in Business
I suspect the big losers will be the brewers and distillers if this has the predicted / desired impact. Their margins are thin and they rely heavily of volume, any dent in that volume from a reduction in sales will damage their margins.
Some brands will I suspect simply become unviable, will people buy a two litre bottle of white cider when the cost is equivalent to 8 cans of beer?
Who are the Hidden Losers in Business
There will be some hidden problems here, particularly where the alcohol is sold indirectly as part of a package, although I suspect that the law will easily resolve that issue in a similar way to the Mandatory Condition introduce in England & Wales regarding the ’Permitted Price’.
However those offering promotions such as ‘Bottomless Prosecco’ with brunch will have to re-examine these promotions, to ensure that customers do not drink more units than they paid for…
What about England & Wales?
The Welsh government have already given a strong indication that the same legislation will be introduced in Wales; now that the Scottish case has been resolved.
I would be surprised if England does not follow soon afterwards, David Cameron wanted to introduce minimum pricing and the Home Office have repeatedly said they are waiting on the outcome of the Supreme Court; suggesting they were not discounting the idea. I would not be surprised if they hold off for a while to see if it has any effect in Scotland first, but with the Welsh and English share a Licensing Act, it would seem simple to introduce minimum pricing of alcohol by replacing the existing Mandatory Condition on ‘Permitted Price’.
While that is discussed and potentially implemented there will be a new front opened for the booze cruisers of Scotland, crossing over to England to stock up on cheap alcohol; it will be a good time to have an off-licence in Carlisle, Berwick-upon-Tweed, Cornhill-on-Tweed and other border towns…
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Author - Peter Mayhew is the Managing Director of Beyond the Blue Training & Consultancy. He delivers training courses and provides expert opinion on alcohol & entertainment licensing for individuals, organisations and public bodies. Peter is a frequent contributor to industry publications.
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Page Updated: 15th November 2017