Good Example Of UK Baer And Pub Industry Pestel Analysis Essay
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The UK beet and pub industry is an £18bn industry comprising of 32,005 businesses that employ upwards of 336,841 people. Despite its long history and nostalgic value to the British culture, the United Kingdom’s bar and pub industry is under a threat. Over the past decade, multiple adverse legislative, social, political and economic trends have conspired to squeeze the industry’s sales, revenues and profit margins, with the consequence of most outlets shutting down. Already struggling with the intolerance of smoking in public, industry revenues and patronage have plummeted following the increasingly rising beer duty, falling alcohol consumption, stern competition from off-license alcohol retailers such as supermarkets and the global economic crisis. The increasing food and beverage prices, as well as rents and business rates, have also served to squeeze operator's profitability, with the consequence of rendering the industry largely and profitable, effectively forcing firms out. This paper presents the political, economic, technological, legal and social environmental factors affecting this industry, asserting that long-term trends bode ill for the industry and that a change of a the business model or government policies would be necessary to secure the industry.
The need to rein drunk driving, alcoholism and other social problems associated alcohol, the national and local governments have increasingly enacted restrictive legislations targeting the bar and pub industry. The central and local governments directly control the bar and pub industries through the varied laws and by-laws. The changing social and political attitudes against alcohol abuse and smoking have rendered the alcohol manufacturing and distribution industry an easy target for adverse government policies. Taxation policies have easily been the most notable in the industry, mainly because the local and central governments want to raise revenues, but also want to address the public health difficulties associated with alcohol abuse. The bar and pub industry is at the receiving end of the adverse political changes, not least because while alcohol sales are barely impacted by price increases, the fact that off-traders (supermarkets) offer relatively lower prices, has meant that bars and restaurants have been worst hit by the negative government policy changes. According to a study by Alamar & Glantz (2007), the imposition of smoke-free bars had the consequence of reducing bar revenues by up to 30%, especially since it reduces the value that these businesses previously offered, compared to off-traders.
The industry posted upwards of £18 billion in annual revenues during the year 2014, which however, represented a 0.3% decline in its annual growth rate. While expenditure on alcohol is expected to increase in the short-term, the increase in spending is still heavily dependent on the overall economic performance, which remains relatively low compared to the period before 2007. Since alcohol is a discretionary purchase, customer spending is positively and closely associated with the overall economic performance and the consumer confidence. Real expenditure on alcohol between 1960 and 2008 shows a close correlation to the economic performance, including sharp declines during economic downturns.
With the full recovery of the UK economic from the effects of the Great Recession, employment, incomes and consumption are increasing, with positive implications for the short-term performance of the beer and pub industry in the country. In 2013, the UK economy posted a 1.7% growth, with unemployment standing at 7.2%. The interest rates and inflation rate remain low, which should spur higher investment and consumption borrowing to foster further expansion in the economy and the alcohol industry. The GDP expansion is expected to remain above 2% in 2015 and the next few years. However, the economic crisis was severe, having resulted in up to 7.2% reductions in GDP during the year 2009, which means that even the sustained growth since 2013 has not restored the pre-crisis GDP level. This has massive implications on the living standards, disposable incomes and discretionary alcohol expenditure. This is not least because living standards have fallen short of the inflation rates, and there is little reason to expect strong recoveries in the short-term.
While alcohol as a product is characterized by inelastic price elasticity of demand, the beer and pub industry market structure is nearly perfectly competitive, which means that the ability of individual businesses to manipulate prices is limited. Effectively, given the generally rising rents, tax-induced alcohol prices inflation and the stern industry competition (in part due to the emergence of the off licence supermarket retailers), the profit margins in the industry are increasingly squeezed. If these trends keep up, the economic profits in this industry will be wiped out, with the consequence of driving many businesses under (IBISWorld, 2014; Grant Thornton, 2011). In fact, Grant Thornton (2011) argues that up to 15,000 pubs and bars will have close down in the near future in order for the surviving firms to make normal profits. According to Euromonitor (2014), modifications to the bar and pub industry’s business models to attract new customers are central to the re-invention and sustainability of the industry. The addition of restaurants to pubs/bars has been central to the success of leading players such as JD Wetherspoon, which has seen an up to 8% growth between 2009 and 2013.
Social values, beliefs, opinions, attitudes and lifestyles appear to be changing, mostly to the detriment of the bar and pub industry. Perhaps the strongest positive social environmental factor for the bar and pub industry in the UK is the relatively constant pub/bar visiting. Pubs/bars comprise a key feature of the United Kingdom’s leisure industry, even during the Great Recession. The streamlining process in the industry due to tough times will ensure only the best-equipped facilities remain operational, with the consequence of swaying consumer behaviour into the industry’s favour. However, this remains a distant possibility. According to Grant Thornton (2011), the UK’s alcohol consumption per capita has fallen the overtime due to consumer behaviour changes. Similarly, consumers are increasingly staying in. It is now common for people to drink at home prior to going out, in part because of the emergence of ubiquitous alcohol retailers outside the bar and pub industry. In the initial half of the year 2010, the on-trade beer sales accounted for 53% of the total market, compared to 47% off-trade. This trend has also been driven by the changing attitudes towards drink driving, which has made more drivers prefer drinking at home as against at the pub and driving home drunk. The expanding preference for home drinking is also driven by a growing price gap between off-trade and on-trade sales, especially since bars and pubs include rent, labour costs and overheads in the pricing, as against supermarkets. In fact, industry surveys show that up to 65% of consumers currently buy alcohol from off-trades due to the relatively lower prices, disposable beer cans and convenient packaging. Effectively, off-trade beer sales are rising and will continue to expand, further eating into the falling sales by the industry.
Technological changes affecting the packaging and distribution of alcohol products have tipped the balance in favour of supermarkets as against the bars/pubs. To begin with, reusable glass bottles have been increasingly replaced by cheap and disposable plastic, aluminium and paper packs, which make it easy for consumers to buy alcohol and consume it anywhere. Since people used to go to bars/pubs for the atmosphere, including smoking, this has since been stopped by stern smoking regulations. Technological changes have also have a major effect on the costs, which has helped bars and pubs, but not more than it has for the off-traders. Other than these aspects, the bar and pub industry is largely immune to technological changes. It is an old-fashioned industry that thrives on its ability to create atmospheres that consumers have always identified with.
Notable legislations include the Licensing Act (2003), the Licensed Property Noise Pollution Act, and the Working Time Directive (1998). Similarly, the inelastic price elasticity of alcohol has rendered the alcohol industry a natural target for taxation, which does not directly hurt sales but reduces the profitability of individual bars and pubs. In 2008, for instance, the Labour government increased real duty on alcohol by 6%, with further increases occurring during subsequent years. In 2012, the government launched an initiative to reduce cheap alcohol sales by imposing minimum prices. Other significant regulations that have affected the industry include smoking bans in public places and stern restrictions on the sale and advertising of both alcohol and tobacco products. This is in part borne out of the perception that the alcohol industry irresponsibly portrays alcohol in advertising, and thus the need to set statutory regulations, controls and restrictions on advertising strategies and messages, channels and even times. In most European nations, advertising on television and radio is prohibited for spirits, with even sterner controls on adverts that link alcohol with driving, children, possible encouragement of alcohol abuse, sponsorship of radio and television programs by alcohol manufacturers and sports. Other legal restrictions include the legal requirements for age verification. The consequence of increasingly tight regulations includes higher costs of compliance, coupled with reduced alcohol sales, which may prove to the detriment of the bar and pub industry.
It is immediately evident that the bar and pub industry in the UK as indeed elsewhere in the world is struggling against adverse environmental trends that threaten the long-term sustainability of its business model. In the short-term, the recovery of the UK economy would result in higher employment, incomes and disposable incomes, which should drive the recovery of sales from the effects of the Great Depression. Economic indicators point to a sustained expansion in the GDP, incomes, employment, coupled with low inflation and interest rates. While bar/pub visiting maintains a central role in the British population’s leisure, attitudes towards alcohol consumption and consumer behaviours are hardly encouraging. Overall alcohol consumption is reducing, in part because of the increasing awareness of the public health problems associated with alcohol abuse. This change in attitudes and values also stem from the success of public health campaigns and deliberate regulatory restrictions that have seen the banning of smoking in public and restricted alcohol advertising among other factors, which have reduced alcohol sales as well as the actual patronage to bars and pubs.
Alamar, B. & Glantz, S. A., 2007. Effect of Smoke-Free Laws on Bar Value and Profits. Am J Public Health. 97(8), p. 1400–1402.
Euromonitor, 2014. Cafés/Bars in the United Kingdom, Brussels: Euromonitor.
Grant Thornton, 2011. Restructuring and recovery bankers’ Industry Performance Update: Bars and Pubs, London: Grant Thornton.
IBISWorld, 2014. Pubs & Bars in the UK: Market Research Report. [Online] Available at: http://www.ibisworld.co.uk/market-research/pubs-bars.html[Accessed 9 Nov 2014].
MarketLine, 2014. Diageo, Plc., New York: MarketLine.
Mintel, 2013. Pub Visiting - UK - May 2013. [Online] Available at: http://store.mintel.com/pub-visiting-uk-may-2013?cookie_test=true[Accessed 22 Jan 2015].
Rugman, A. M. & Collinson, S., 2012. International Business (6th Ed). London: Pearson Education.
The National Archives, 2013. Alcohol, etc. (Scotland) Act 2010. [Online] Available at: http://www.legislation.gov.uk/asp/2010/18/contents/enacted[Accessed 28 Feb 2015].
World Bank, 2015. United Kingdom: Country Profile. [Online] Available at: http://data.worldbank.org/country/united-kingdom[Accessed 28 Feb 2015].
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