23rd August, 2018
by
Rupert Millar
A new paper co-authored by the Institute of Alcohol Studies and Sheffield Alcohol Research Group has accused the industry of thwarting government health policies because it “depends on risky drinking” for the majority of its revenue but does not differentiate between revenue, turnover and profit.
Published today (23 August), the paper’s headline findings are:
- “68% of alcohol industry revenue in England comes from consumers drinking at risky levels (over 14 units a week, accounting for 25% of the adult population).”
- “The 4% of the population drinking at levels identified as ‘harmful’ (over 35 units a week for women, over 50 units a week for men) account for almost a quarter (23%) of alcohol sales revenue.”
- “If all drinkers were to comply with the government’s recommended guidelines, alcohol sales revenue would decline by two-fifths (38%), or £13 billion.
- “These findings demonstrate that much of the alcohol industry has a strong financial incentive to ensure heavy drinking continues, and so raises questions about the appropriateness of the industry’s continued influence on government alcohol policy.”
(N.B. The whole report is based entirely on consumption and sales in England alone)
The report’s lead author, Aveek Bhattacharya, policy analyst at the IAS, commented that the findings suggested that the drinks industry had “resisted at every turn” all policies to address alcohol harm, which suggested, “many drinks companies realise that a significant reduction in harmful drinking would be financially ruinous.”
Co-author, Colin Angus, a research fellow at SARG, added that: “These figures highlight an important conflict of interest in the UK Government’s approach to reducing alcohol problems. Its decision to work in partnership with the alcohol industry is unlikely to lead to effective policies when heavy drinkers provide a large share of the industry’s revenue.”
Miles Beale, chief executive of the Wine and Spirit Trade Association responded: “The vast majority of people in the UK enjoy a drink responsibly. The latest ONS data shows that alcohol consumption in the UK has fallen 19% over the last decade, and people are less likely to binge drink than they were 10 years ago. Alcohol-related hospital admissions are down and producers are responding to consumer demands for lower-alcohol drinks by increasing their range of innovative low-and-no alcohol products. The drinks industry continues to work in partnership with government and others to tackle alcohol-related harms.”
A full analysis of the study can be read below but in the briefest possible way, the ‘findings’ broadly repeat those made in previous reports some at least two years old and a minority of people consuming the greatest amount is explained by the Pareto principle (80% of a consumable will be consumed by just 20% of consumers).
Furthermore, it is much easier to claim large swathes of the population are ‘risky’ or ‘dangerous’ drinkers if you enlarge the parameters by which you can thusly categorise them – by lowering ‘safe’ drinking guidelines for example. As seen below, the authors have applied the 2016 guidelines to 2013/14 data when the guidelines were different.
It is appreciated that when compiling reports the most up-to-date data may not be readily available but given the fact that consumption is falling year-on-year, reports of this nature risk finding themselves quite out of step when they are published.
It might have behooved the researchers to postpone their analysis to next year and then compile a report using post-2016 data which would at leats have the advantage of being able to look at consumption in the light of the new guidelines and perhaps see to what extent they have had an effect. A report which might be of more use to all concerned.
As for the economic argument, the report authors categorically fail to distinguish between revenues and profits. Alcohol sales in England may very well have been £35bn in 2014 (the WSTA’s 2016 figures say total sales were £39.9bn across the UK) but the authors apparently fail to realise that much of that revenue is tax (the UK has some of the highest duty rates in Europe), yet more goes to the on- and off-trade venues in which those drinks were sold and another large chunk of money has to go towards keeping the drinks companies operational – paying more tax, wages etc, the drinks industry directly and indirectly employs over half a million people in the UK – and the actual profit from that total revenue is therefore substantially smaller than they allow for.
Although the authors acknowledge in the report that their analysis has not looked at actual profit, they feel, “revenue is both an important financial metric in its own right, and also ought to be positively (although imprecisely) related to a firm’s level of profit,” and on that basis lay their claims that the alcohol industry thrives off heavy drinkers and is intractably opposed to changing the status quo due to ‘vested interests’.
By not thinking about actual profits, however, they fail to notice that a 38% fall in consumption (unlikely as that ever is to happen anyway) would not lead to a £13bn fall in revenue for the industry it would lead to perhaps the loss of around £1bn as a whole while the government would stand to lose in the region of £5bn.
The only conclusion must be that the authors have realised this but also know what will make a better headline that suits their narrative and that will be published by an unquestioning press. So much for vested interests.
Dèja entendu
As mentioned above, many of the main figures are not entirely new. Readers may remember reports earlier this year when the director of Public Health England, Rosanna O-Connor, noted that 4% of UK drinkers accounted for a third of all alcohol drunk in the country.
Those with longer memories may recall back in January of 2016 the Guardian splashed an exclusive across its news pages with the announcement that those drinking at “risky or harmful levels” accounted for 69% of all alcohol sales in England.
The figures came from a report by Professor Nick Sheron, co-founder of the staunchly anti-alcohol Alcohol Health Alliance using figures taken from the NHS’s annual Health Survey for England from 2011-2013.
In this instance those judged to be drinking at ‘risky’ levels were using the old guidelines of 14 units a week for women and 21 for men. The guidelines were afterwards lowered to 14 for all.
This report also tacked on separate work from SARG which purported to show that risky and harmful drinkers in England alone poured £23.7bn into the coffers of the alcohol industry – based on 2013 data.
The IAS’s director, Katherine Brown, lamented that: “It comes as no surprise to learn the drinks industry relies on excessive consumption of alcohol to boost its profits. Why else would alcohol producers spend millions of pounds on advertising each year encouraging people to drink more, and fund heavyweight lobbyists to fight against public policies designed to tackle harmful drinking?
“This evidence tells us two things. Firstly, the government must take action on cheap alcohol … and secondly, the alcohol industry simply cannot be relied upon to act as messengers on public health.”
Sound familiar?
Risky business
To return to the recent report, how does it arrive at its findings? To begin with, the authors used data from the UK Office for National Statistics’ Living Costs and Food 
Survey – which measures purchasing not consumption – and the NHS’s Health Survey for England.
In both cases the researchers pooled the data from the 2013 and 2014 reports as it was written in 2016 and this was the most up-to-date data available at the time.
When it came to designating ‘hazardous’ and ‘harmful’ drinking levels, however, they applied the newer 2016 guidelines, even though in the years they used as the basis of their findings the upper limit of 21 units (for men) was in effect.
As such, when defining drinker groups for the paper, moderate drinking is equal to 14 units a week for men and women; ‘hazardous’ drinking is 15-35 units for women and 15-50 for men, while ‘harmful’ is anything over 50 units.
So how much do the various groups drink? To begin with, 16% of the adult population is described as abstaining entirely and are henceforth ignored.
A further 59% drinks moderately, 21% ‘hazardously’ (within that very broad definition) and 4% harmfully.
The moderate drinkers, as might be expected consume the least alcohol of all, just 23% of the total, and therefore contribute 32% to total alcohol revenues (actual profit is not much discussed in the paper), which again suits the idea of occasional drinkers spending above or slightly above average on their drinks.
The hazardous section of society meanwhile consumes the bulk of all alcohol, 48%, and correspondingly contributes the most to total revenues, 45%.
The heaviest drinkers meanwhile consume 30% of all alcohol and contribute 23% to total revenues, again not surprising as they (as the report notes) tend to drink cheaper products.
The report also broke down where the money from each group was being spent.
Moderate drinkers largely spent in the on-trade (40% of total sales), accounted for 50% of spending on spirits (surprising but probably indicating greater consumption of cocktails which also suggests higher spending per drink) and 34% of spending on wine.
Hazardous drinkers meanwhile bought predominantly in the off-trade (49% of total sales) and accounted for 51% of spending on beer and 45% on wine.
Harmful drinkers then accounted for 32% of total off-trade sales, 26% of total sales for beer and cider, 21% of wine and just 16% of spirits.
If thought about for a moment there is no great revelation here as these statistics support the broad categorisations of various drinkers. Moderate drinkers tend to limit their drinking for ‘occasions’, which involve going out and drinking more expensive drinks such as cocktails in bars, with some focusing on craft beers and wine from independents (also more expensive drinks).
The ludicrously broad ‘hazardous’ category covers everything from those drinking beer in pubs to wine at home and buying from supermarkets to independents though the sweep is too big to allow any nuanced breakdown.
Harmful drinkers meanwhile are the unfortunates suffering from addiction and alcoholism buying high-strength beer and cider from off-licences to drink on the streets.
What does that leave us with?
From the first set of figures we can see how the report can claim that, 25% of drinkers account for two thirds of consumption (78%) and 68% of total revenue. A fact that by the tone of the press release is meant to leave us reeling in shock and alarm.
There are a couple of points to deal with here.
First and foremost there is the use of the new guidelines that determine what is and isn’t hazardous.
It should be noted that the SARG was behind the models for the new guidelines which were accepted by an advisory board that included members of the IAS (a body funded by the temperance movement) and Alcohol Health Alliance on it and there is a strong suggestion those figures were massaged to achieve the desired lower guideline recommendations.
In 2016, the aforementioned Sheron paper suggested that 69% of total consumption was by people who exceeded the (then) 21 unit limit a week.
In the recent paper using the new 14 unit limit it is 78%, despite referring to a demographic of roughly the same time period as Sheron’s analysis.
So some 9% of people who would previously have fallen in the ‘low risk’ category are now regarded as ‘hazardous’ consumers.
That might not drastically alter the overall findings but it does suggest that the percentage of the population drinking “riskily” under the old guidelines is less than a quarter as claimed in this report and total consumption and revenue would also have to be adjusted.
After all, if you push for a law that makes more people criminals you can write statistical reports that show how crime is on the rise.
Furthermore, the big focus on how the smaller number of drinkers account for the greatest amount of consumption and revenue is a well-known phenomenon known as the Pareto principle which notes that 20% of the highest consumers will consume 80% of any product.
Although responding to the drinks business, Bhattacharya seemed to want to ignore this fact, saying it was not an “iron law”, he did admit that “our findings more or less bear it out” and the report (though not referencing the principle) mentions that pattern is also visible in drinking behaviours in Australia, Brazil and Sweden.
Dodgy economics
The report holds a grim prophecy for the trade however that should the 25% of those drinking immoderately in England switch to drinking within the latest government guidelines, revenue from alcohol sales would fall 38% – a total of £13bn – with all sectors hit to some degree; the off-trade most severely and beer as a category.
The solution to this, the report suggests would be price rises per unit of £1.09 for a 4.5% beer (bringing a pint to £6.15), 47p per unit for a bottle of wine in the off-trade (an extra £4.36 on average to £9.86) and 46p per unit for off-trade spirits (raising the cost of a 70cl bottle to £26.68 minimum).
As the report goes on, the average price per unit increase in England and Wales achieved over the last 10 years is nowhere near this, “casting doubt on the plausibility of premiumisation and price increases compensating fully for the lower volume sales that would be associated with a shift to drinking within guideline levels.”
Against a backdrop of continued lower alcohol consumption, which (the odd blip here and there aside) continues 
to gently decline year after year – evidenced in the NHS’s 2016 HSE and data from last year compiled by the ONS – decreasing consumption is a matter for the trade to take heed of.
The trouble is such a sweeping statement about enormous loss of revenue is largely bunkum. To begin with, the sudden loss of 38% of total revenue (not profits though) is an extreme hypothesis.
Not unreasonably, Bhattacharya told db that: “We focus on everyone drinking within the guidelines as all stakeholders in the alcohol debate appear to agree, in broad terms, that this is a desirable target.”
That it may be but while all including the industry, may agree it is desirable and strive for it that doesn’t mean to say it’s going to happen. It is utopian and idealistic, the authors know this but it suits the narrative they are trying to create to ignore it.
Unless one splits consumption into binary spheres of ‘safe’ and ‘unsafe’ there must always be a middle ground and thus the Pareto principle will take effect.
Accurate self-assessments of drinking are notoriously inaccurate (usually underestimating) meaning those 59% of moderates are, at least occasionally, drinking ‘immoderately’ while the 15-50 unit band for those drinking ‘hazardously’ is so huge it cannot reasonably be expected to reflect any sort of nuance as many within it may drink over 14 units a week, even up to 25 units on occasion but never anywhere near 50.
Considering that two bottles of wine a week is enough to tip a person into the ‘hazardous’ category, it stands to reason that those drinking at the lower end of the hazardous spectrum have buying patterns similar to those drinking moderately, consuming less but with a relatively higher proportional spend per drink/unit.
How can the report’s authors therefore claim premiumisation is failing when there may be a large number of drinkers in the so-called hazardous category who are not actually drinking to any social excess and are spending above the average?
Would the trade’s profits ever really be thus threatened as the report hints at therefore? The report’s failure to look into how revenue actually breaks down is its Achilles heel as its entire premise is based on the theory that falling consumption will eventually cripple the industry. Yet consumption has fallen 18% since 2004 and (despite consolidation) the trade rumbles on quite happily. What gives?
Writing in today’s Spectator Health, the Institute of Economic Affairs head of lifestyle economics, Christopher Snowden, notes: “The glaring problem here is that revenue is not profit. If alcohol companies lost £13 billion in revenue they would not need to ‘mitigate this loss’ by raising prices by £13 billion or anything close to it.
“The £35 billion is not the alcohol industry’s profit. It is not even its turnover. It is the total spent on alcohol, most of which the makers of alcohol never see.
“The industry would almost certainly lose money if consumption fell by 38%, but the losses would be a fraction of £13 billion and the business would remain highly profitable. Don’t forget that a large portion of that £13 billion is taxation. Duty makes up around 70 per cent of the price of an average bottle of spirits, half the price of a typical bottle of wine and around a third of the price of a pint of beer. This all counts as ‘revenue’ but it goes straight to the exchequer.”
As he continues, the average business has a net profit margin of 7.5% after wages, running costs, tax etc. As such, if the drinks industry follows that pattern then a 38% loss in total alcohol revenue is not £13bn – it’s £1bn. Furthermore, even if consumption rates were to plunge, he adds, big producers would not frantically tread water to try and maintain loss-making business, they would adjust production to reflect the changed marketplace and maintain profits.
The report opens up some admittedly interesting areas for much deeper analysis but the central thread of the report and its conclusion that: “All sectors of the alcohol industry in England are highly reliant upon revenue from heavy drinking,” is circumstantial at best and without a shred of meaningful evidence beyond the authors’ own beliefs that ‘big alcohol’ is a malign entity gleefully profiting from the misery and exploitation of others.
As for the concluding sentence: “It is thus difficult to avoid the conclusion that significantly reducing harmful and hazardous drinking cannot be in the interests of the alcohol industry, raising serious questions about the appropriateness of the centrality of their role in government policy.”
That is line of one bunch of lobbyists trying to get one over on the opposing bunch. The government would lose £5bn if consumption fell by 38%.
This is a report built on questionable economic foundations, with ‘findings’ that have been widely published before yet are largely unremarkable and easily explained and the concluding message of which reveals it to be nothing more than a vehicle for an anti-alcohol message.
For the latest NHS statistics on alcohol in England click here.