Last week saw the minimum price of alcohol in Scotland rise from 50p per unit to 65p per unit. Thanks to inflation, 65p today is the same as 50p in 2017, but it won’t feel like that to shoppers who have seen their incomes fall in real terms. 

Those who lobbied for the price hike employed two arguments. The first was that minimum pricing has been a tremendously effective public health policy that saved hundreds of lives and the Scottish government should “build on the success”. The second was that deaths from alcohol are at a fifteen year high in Scotland and that “a radical step change” is required to tackle this “public health emergency”. Fans of George Orwell will recognise this as doublethink, but it worked. Booze prices have now shot up. 

The question that is often asked about minimum pricing is “where does the money go?” It is not a tax so it doesn’t go to the government. Does it go to the retailer? Does it go to the manufacturer? Who is making money out of it?

The answer is that it depends, but there is no reason to assume that anyone is reaping big profits. Strong cider was hardest hit by minimum pricing. A can of Frosty Jack (7.5 per cent ABV) which costs £1.50 in England now costs £2.50 in Scotland. It sounds like somebody should be making £1 of excess profit from that, but only if people are still drinking Frosty Jack. The problem is that you can get a lot of other drinks for £2.50, so you have to be really committed to the brand to keep drinking it at the newly inflated price. 

What we’ve seen in Scotland since minimum pricing was introduced in 2018 is the bottom fall out of the strong cider market. The policy makes it impossible to get more bang for your buck. Since Scots now have to spend at least 65p to get a unit of alcohol, they can switch to beer, brandy, whisky, vodka or pretty much anything, including the infamous “wreck the hoose juice” Buckfast, an English import which has done particularly well out of minimum pricing. 

At 50p, minimum pricing virtually annihilated the bottom end of the market. At 65p, it will take an axe to much of the middle. A 70cl bottle of vodka can no longer be sold for less than £17.10 and a 70cl bottle of whisky cannot be sold for less than £18.20. When the floor price was 50p, they could be sold for £13.15 and £14.00 respectively. This is likely to finish off budget supermarket “own brands’” Why buy a bottle of Tesco Special Reserve Scotch Whisky (which retails for £14 in England) when you can have a bottle of Johnny Walker Red Label for the same price? 

At 65p per unit, minimum pricing also poses a threat to whisky brands such as Bell’s, Whyte & Mackay’s, Grant’s and Famous Grouse, all of which sell for less than £18.20 in England, as well as vodka brands such as Smirnoff which you can pick up in England for £15. It will be interesting to see how the drinks industry responds. It may be that consumers of Whyte & Mackay whisky, for example, are so loyal to the brand that they will keep buying it despite the price hike. If so, that is good news for the people at Whyte & Mackay, although they might need to increase their advertising spend to convince drinkers that their product is worth the money. 

It is possible that if the public accepts that £17-18 is now the standard price of a “budget” bottle of spirits then the makers of premium brands will raise their prices. If they can get away with that, it will mean more profits for them, but it is also possible that the premium brands will drop their prices to wipe out their erstwhile-budget competitors. If so, that will be terrible news for the likes of Whyte & Mackay and mean lower profit margins (but a bigger market share) for the likes of Johnny Walker.

The evidence from Scotland when the first minimum price was first set in 2018 suggests that the last of these scenarios is the most likely. But whatever happens with the 65p price, it is far from certain that the industry as a whole will become more profitable. Brands that used to be cheap could launch advertising campaigns to persuade consumers that they are now premium brands, but all that spending on marketing will reduce their profits. Premium brands could start a price war with their less prestigious competitors, but that will eat into their own profits. The only way minimum pricing could make the industry more profitable overall is if consumers volunteer to spend more money on brands that used to be cheap when they could be spending the same amount of money on brands that are generally considered to be better. For obvious reasons, that seems unlikely. 

 

Scottish drinkers have been spending many millions of pounds more on alcohol since minimum pricing came into effect

If the drinks companies had got together and introduced minimum pricing of their own volition, they would have been prosecuted for collusion. It is an anti-competitive measure. Nevertheless, both the alcohol industry and the supermarket industry are highly competitive, and you don’t tend to see excess profits in very competitive markets. The answer to the question of who wins from minimum pricing is — probably — nobody. Some drinks companies have benefited more from it than others and corner shops seem to have benefited more than supermarkets, but the real effect of the policy has been to force consumers who were quite happy buying cheap alcohol to switch to premium brands which cost more to manufacture and advertise.

Scottish drinkers have been spending many millions of pounds more on alcohol since minimum pricing came into effect, but they’re not always buying the same drinks. It would be ironic if the alcohol industry has been making out like bandits under the puritanical SNP, but it is not clear that they have benefited from higher prices at all. The “public health” lobby has a knack of producing policies in which no one wins. Minimum pricing looks like it will be another one.