“Young people are just not buying into pubs as a concept”

“Ireland’s future economic model is going to have to be heavily export-driven and within that, food & beverage is going to have to be a major player" - Jim Power. “Ireland’s future economic model is going to have to be heavily export-driven and within that, food & beverage is going to have to be a major player" - Jim Power.

Last December economist Jim Power pencilled in growth of at least 4.5% for 2016. Pat Nolan first interviewed him nine years ago, just before the recession hit. He speaks to him again here to compare today’s environment for the licensed trade with that in 2007.

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Talking Trade

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30 May 2016 | 0

So far, economist Jim Power remains confident that his barometer indicates economic momentum remaining strong: consumer spend continues to improve, car sales up 28% in just three months, construction activity coming back, export performance up 7.5% in the first two months – and public finances continue to improve; such economic litmus paper suggests that this growth remains promising barring some external disaster.

And he still sees the drinks industry as an important gauge of economic health, a net contributor to ‘Ireland plc’.

“Clearly when the economy went into freefall back in 2008 a lot of people cut back on anything resembling discretionary spend and the pub trade got brought into that category,” he recalls, “The collapse in pub sales certainly reflected (among other things) the deterioration in the economy. But these sales are picking up again. The consumer is getting into a better frame of mind, discretionary spend is up and we’re seeing it in car and pub sales.”

But all this doesn’t take from the fact that there’s a structural issue around the pub trade itself, he reminds me.

“Young people are just not buying into it as a concept. But that apart, there’s a very definite improved mood in the economy translating into a pickup in pub sales.”

 

Domestic growth

At the macroeconomic level if you believe – as Jim does – that the economy is going to continue to gradually pick itself up you’ll increasingly see the recovery translating into more money in people’s pockets.

“As the personal tax burden is gradually reduced all those factors should drive the pick-up in pub sales generally,” he says while admitting that there’s an ongoing serious issue for the rural trade.

“As the economy recovers it’s being totally driven by Dublin. Rural Ireland has certainly seen nothing like Dublin’s recovery. There, the pub trade’s still struggling; it’s also the case that the ability to pass on price increases to the consumer is very limited.”

 

Craft growth

The noticeable increase in the number of brewpubs, microbreweries and craft distilleries over the last few years should spell sustainable employment increases in the industry.

“The volume of drink is going to continue to grow over the next five years” he believes, “assuming that the economy continues to grow and that the other conditions I mentioned fall into place, so against that backdrop we’ll see employment growth in this industry.”

Nevertheless, he expects to see beer sales from the big breweries come under more pressure to cut costs and trim staff numbers – … “but this’ll be more than compensated for by growth in craft brewing and distilling”.

 

Export growth

With Irish beverage exports at €1.26 billion – €1.19 billion of it alcohol beverages – many feel that the government should be doing more to encourage the Irish drinks industry – especially as the industry stated recently that it has the potential to grow exports to €2.2 billion over the next 15 years.

“Ireland’s future economic model is going to have to be heavily export-driven” he agrees, “and within that, food & beverage is going to have to be a major player. At present it’s absolutely tiny but has the potential to grow enormously. That’s not happening yet as just not enough support is being given to the sector.

“Once you’ve the skills it’s easy enough to set up and brew or distill, but it’s a completely different matter to market what you’ve made – particularly for the export market, one area where more State assistance is needed.”

 

Local growth

Domestic support is important too.

In this Waterford man’s house over Christmas the drinks choice comprised Dungarvan Beer, Muldoons Whiskey and Blackwater Gin – all from Waterford!

“There’s a very clear trend towards supporting local but there’s also the whole emphasis on the quality and ‘shiekness’ of drinking a local product. We’re seeing this in the food industry too. There’s a segment of the consumer market that likes it, so I think that its potential is enormous.”

But he holds no illusions about any prospective drop in excise tax on alcohol to help keep the home fires burning in the pub.

“There’s zero chance of a reduction in duty,” he states firmly, “I think that the health lobby would have a huge issue with anything that might encourage consumption.”

On the other hand the law of diminishing tax returns may have kicked-in for excise.

“I think that the attention of the Government over the last few budgets towards excise would suggest that price elasticity of demand has reached its limits,” he explains, “If you continue to increase prices, demand will fall sharply – so yes, there’s a realisation that the law of diminishing returns is setting in.”

Hence excise duty hikes are no longer a viable measure.

 

Off-trade growth

Continuing moves to the off-trade look likely to feature (more) strongly, he believes.

“As we move from one generation to the next, it’s accelerating rather than abating,” he observes.

And within the off-trade the multiples and convenience stores will continue to get the lion’s share of sales. But he believes that the introduction of MUP in the Alcohol Bill will be of some benefit to the on-trade.

“What’s been shown elsewhere is that if you discourage the drinking of cheap alcohol on the side of the road you may just push people back to the pubs and that’s an objective of this whole policy, to get people back to the on-trade.

“The Department of Health has accepted, grudgingly, that people will still drink and so you want to do that in as-structured-an-environment as possible,” he states, “That requires pubs – but I wouldn’t get carried away with it.”

In opposition to doughty consumer advocate Eddie Hobbs, Jim was one of the first to rail against the abolition of the Groceries Order.

“The only thing that the ban on Below-Cost Selling achieved was to allow alcohol to be sold at dirt cheap prices with very undesirable consequences,” he believes.

 

Food growth

The on-trade’s response to this upcreep in off-sales has been to offer food.

“It’s what’s kept many pubs alive for the last five or six years,” he says, “Increasingly, the pub in general is not a place that you simply go to drink now. A lot of people don’t like this but it’s now become a place where you go to eat and drink and listen to music.

“So pubs are going to have to continue to look at ‘add-ons’ like food, entertainment, table quizzes etc.”

 

Specialised growth

In our 2007 interview he’d predicted “a lot more drinking at home, a lot more emphasis on the off-licence”.

What does he see in his crystal ball for 2020?

“Based on what I observe with the current generation, the trend will continue to go in that direction. One thing that might change to some extent is the emergence of bars that specialise in craft beers. These tend to be packed with young people – the only way you’ll get young people back into the pub trade.”

A craft beer fan himself, he hopes that this is no fad but a long-term trend.

In conclusion, he reckons that, “The greater Dublin area will continue to see pubs opening whereas in the rural trade I’d remain concerned”.

Irish pubs’ current health akin to the parson’s egg then…

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