Wednesday 23 June 2010

Faulty logic

Dick Puddlecote has drawn my attention to this news story in the Daily Record, which is short enough to quote in full:

Booze price hike would lead to cheaper food, claims health watchdog

Hiking booze prices will force shops to slash the cost of food - and lead to greater state benefits, say a health watchdog.

Critics have claimed the Scottish government's plan will hit the poorest families.

But the National Institute for Health and Clinical Excellence believe that if supermarkets cannot entice customers with cut-price booze, they will use food as "loss leaders" instead.

And they say pricier alcohol will push up the Retail Prices Index - which determines benefits and state pensions.

Report author Anne Ludbrook, an Aberdeen University professor, said: "People on low incomes could be better off."

Far be it from me to argue with a professor of 'health economics' but I can see one or two problems with this...

Firstly, as I've said before, I'm quite sceptical about whether supermarkets really sell much alcohol below below cost price (ie. as a loss leader). That's mainly because I've never seen these cheap deals with my own eyes. On the other hand, I've never heard a supermarket explicitly deny doing it, and I don't know exactly what the wholesale price for a can of Heineken is, so let's assume it happens.

If it does, then surely the point is to draw people in with cheap booze and then get them to buy the core product, ie. food.

But if, as Ms. Ludbrook suggests, they sell food below cost price, that's not a loss leader, that's just making a loss. You've got nothing to lead them to.

Secondly, if you want to increase state benefits and pensions, then just campaign for that. Why go round the houses trying to making alcohol more expensive in order to (slightly) increase inflation? Besides which, food is also included in the Retail Price Index and the price of that—supposedly—is going to be "slashed".

Any anyway, people on benefits drink too, so the money you contrive to give them by increasing their benefits is going to be cancelled out by the extra money you force them to pay for their booze.


Curmudgeon said...

If the supermarkets did offer loss-leaders on food, it would inevitably be on items that

(a) had long shelf-lives, and
(b) were seen as treats rather than necessities,

i.e. the likes of crisps and biscuits.

Hmm, be careful what you wish for, Righteous!

Anonymous said...

Once upon a time, there was the Tabloid press and the "serious" press.

The serious press lost. Now, our life is tabloid-only.

Mark Wadsworth said...


1. NICE should stick to their remit and stop bansturbating.

2. Who's to say that people won't consume the same volume of alcohol at higher cost (demand is very price inelastic) and just let their kids starve?

3. Sainsbury were knocking out 24-packs of Foster's (440 ml) for £12.50 a pop last week, that looks pretty close to loss-leading to me. But so what? The bulk of that just-over-50p per can cost is alcohol duty and VAT, so what's the govt. complaining about? It's not a loss leader so much as a voluntary tax (paid by the supermarkets) on Non-Righteous things.

Anonymous said...

“National Institute for Health and Clinical Excellence”

These days the word “excellence” in an organization’s title – particularly health organizations – is a clue to run the other way. All you’ll get from these groups is ideo-political, manipulative trash. They spend all day long, every day, massaging their significant egos, hatching new plans on how to bother, terrorize and oppress the public, showing everyone who is really in charge.
Excellence. ……Right!!!

BTS said...

So the next logical step would be state regulation of the prices of everything. And nothing could possibly be wrong with that. Could it..?