Supermarket alcohol: a Giffen good?

The Institute of Temperance Studies - or whatever they call themselves now - published the results of a survey of publicans last week that showed that they want lower tax on pub booze and higher tax on supermarket booze. Fancy that!

It also showed support for minimum pricing. We have seen before that some of the more short-sighted PubCos are happy to get into bed with the temperance lobby on this issue because they think it will benefit them. I think they are mistaken. It would be a disastrous mistake in the long-term to hand the price mechanism to the state and there would be no short-term benefit. Indeed, there is likely to be a short-term cost, as I explain at Spectator Health today...

If the price of food in supermarkets rose by 50 per cent, no one would predict a surge in demand for expensive restaurants. On the contrary, higher supermarket prices would make consumers eat out less to save money for groceries. So it is with alcohol. Consumers are well aware that pub prices are higher than supermarket prices. If pubs were no more than an alternative location in which to buy alcohol, everybody would go to the supermarket and the pubs would be empty.

Pubgoers are buying much more than a drink. They are buying an experience, with ambience, company, service and entertainment. There is no doubt that some consumers would prefer to drink at home less and visit the pub more, but they are unable to do so because of high prices in the off-trade. But minimum pricing is not going to make a pint in a pub cheaper. It is just going to leave people who buy alcohol in supermarkets with less disposable income. Unless these people have a highly inelastic demand for pubs and a highly elastic demand for alcohol – a strange combination of preferences – they will need to cut expenditure elsewhere to maintain their alcohol intake. Buying fewer drinks in the on-trade is one way of doing this.

Do please read it all.