Drinks industry nursing hangover as Ireland sobers up

Tue, Mar 23, 2010, 00:00

CANTILLON: Inside the world of business

“FIRST DO no harm,” said Pernod Ricard’s Kieran Tobin, somewhat inappropriately invoking a phrase of medical origin when asked what he wanted the Government to do in the forthcoming Sale of Alcohol Bill. He meant “first do no harm to the drinks industry”.

Tobin, who is chairman of the Drinks Industry Group of Ireland, was speaking at the launch of a report by DCU economist Anthony Foley, which showed that alcohol consumption in Ireland has fallen back to levels last seen in 1995 to 1996. Consumption is now 21 per cent below the peak, which occurred during the drunken haze that was 2001.

Foley’s report is on the one hand a miserable tale of job losses (some 15,000 of them in 2009), business closures (1,500 pubs shut down in the past five years) and cross-Border threats (mitigated by excise cuts, but still there).

On the other, steadier, more sensible hand, the same data suggests an Ireland that is in recovery from its messy binge phase and on the way to something approaching sobriety.

Way back in 2004, the report of the Strategic Task Force on Alcohol ran through the conditions attributable to alcohol misuse, from neuro-psychiatric conditions and various cancers to gastrointestinal conditions and simple, tragic injury – too many to list here. The report also set a target of bringing down Ireland’s per capita consumption of alcohol to nine litres per annum.

Rather unexpectedly, this has been achieved, in large part due to the destruction of disposable incomes over the past two years. Drinks sales evaporated alongside consumer confidence, taking the 2009 per capita average down to 8.97 litres of pure alcohol.

The target was reached with the help of an 8.9 per cent slide in alcohol volumes and a near 10 per cent fall in consumption per capita last year alone, based on Revenue and Central Statistics Office data. Even taking cross-Border purchases into account, consumption still fell more than 7 per cent last year, according to Foley.

While Tobin noted that 2009 was “the worst year for our industry in living memory”, Foley surmised that perhaps drinks companies should be sanguine about its 2009 performance, as the gap between the decline in alcohol volumes and the total decline in consumer expenditure had narrowed.

This “not-quite-so-disastrous when you look at it on a relative basis” assessment is about as upbeat as anyone connected with the drinks industry will be able to manage.

For everyone else, the economic misfortune of a weaker, suffering drinks industry is clearly outweighed by the public health benefits of lower consumption. The drinks industry is not the patient here; the patient is us – and we appear to be getting better.

Big win for bookmakers

Davy stockbroker analysts Simon McGrotty and David Jennings reckon that listed bookmakers such as Paddy Power and Ladbrokes have a strong chance of beating first-half earnings estimates after a bonanza at Cheltenham last week. With three out of four of the shortest-priced favourites beaten at the biggest betting event of the year, the bookies have to benefit.

Only 15 per cent of favourites won, against a Cheltenham norm of 27 per cent and a year-round racing average of one in three. Throw in Scotland’s defeat of Ireland in the rugby and any bookie in the Irish market will have been quaffing champagne by 8pm on Saturday.

Last year’s earnings at the three listed bookies in the Irish market – Paddy Power, Ladbrokes and William Hill – were at the lower end of expectations, mainly because racing and other sports results favoured punters. Not that the bookies lost, just that the percentage of money they took off punters was lower than normal, which fed directly through to earnings and profits.

McGrotty and Jennings reckon Paddy Power was the biggest Cheltenham winner. A special incentive it offered on the first race of the festival netted 10,000 new accounts.

Shannon idea takes flight

The Dublin Airport Authority’s idea to charge passengers directly for using Shannon Airport is not new.

Tadhg Kearney, who served on the board of the Shannon Airport Authority from 2003 to 2009, yesterday revealed that he had mooted the idea a couple of years back. But it was rejected by the then board of the airport.

Such a move would take the airport passenger charge out of the cost of an airline ticket fare and remove a big bugbear for carriers, particularly Ryanair.

Kearney reckoned stripping out the fee was a good way to neutralise what was a contentious issue in negotiations with Ryanair.

Passengers would still have to pay the charge but at least this way they could be sure it was going towards the upkeep of Shannon Airport.

In theory, airlines would be able to fly in and out of Shannon for free. There could hardly be a better incentive for them to launch new routes, notwithstanding the economic downturn.

In reality, Ryanair is unlikely to make any dramatic move on new routes at Shannon until it sees off the air travel tax, which was introduced last year.

With Fine Gael appearing well disposed to such a move, Michael O’Leary might have to wait for a change of government to achieve that goal.

What is clear is that Shannon is in dire trouble. Traffic in February is reported to have declined by 29 per cent year on year.

The recession continues to dampen consumer demand.

Ryanair is withdrawing services and there is no obvious replacement for short-haul routes.

Shannon Airport needs a new gameplan, and quickly.

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