Propel Legal Briefing - Dynamic pricing – it’s not as straight forward as you think by Michelle Hazlewood

First appearing for Propel Hospitality in their Legal Briefing on16th November 2023

Dynamic pricing – it’s not as straightforward as you think by Michelle Hazlewood

Today, I had the privilege of speaking at the Propel Multi-Club Conference about legislative changes in licensing, followed by some thoughts on dynamic pricing. In the ever-evolving world of hospitality, dynamic pricing has become a contentious issue, particularly when it comes to the pint in your local pub. This summer, Stonegate Pub Company hit the headlines after it adopted a pricing strategy similar to the practices usually used by hotel and travel operators who seek to fill beds during quieter periods and so lower the price. While such strategies are not new, the implementation in the realm of beer prices has sparked a flurry of debates and considerations – even more so when put into the context of the range of regulations that govern the sale of alcohol across the UK.

So, what is dynamic pricing and why is it so controversial? Dynamic pricing is the strategy of adjusting the price of a product or service to align with fluctuating market conditions, specifically charging a higher price during periods of increased demand. Stonegate has implemented a dynamic pricing system for drinks in approximately 800 of its establishments during evenings and weekends. The aim is to offset the expenses related to increased staffing, adherence to licensing requirements and additional security measures. The pub group had previously experimented with surge pricing during the 2018 and 2022 football World Cup tournaments, but this has now become a permanent part of the running of these venues. It raised the prices of specific products by as much as 20% during periods of heightened demand. Tom Stainer, chief executive of the Campaign for Real Ale, expressed concern, deeming the move “troubling” and suggesting that it could compromise transparency on pricing for pubgoers unless the messaging was properly displayed.

One of the justifications put forward to defend dynamic pricing was the idea that the industry could utilise algorithms to analyse trading times and adjust costs accordingly. These offers and deals draw customers into their premises during less busy periods, meaning that seats remain full even during the most off-peak hours. This could be an essential draw for customers, especially during a cost-of-living crisis, which has left some turning their backs on pubs due to the financial strains they are facing day to day.

It is not as simple as launching these offers, however, as this strategy raises questions about the baseline pricing for alcohol across the three distinct jurisdictions – England, Scotland and Wales – as each one has its own unique standards and legal rules to comply to with.

In England, the floor for alcohol pricing is straightforward. It cannot be sold for less than the duty imposed by HM Revenue & Customs, plus the VAT applied on top of the duty. This provides a relatively stable pricing foundation for dynamic pricing to work alongside (in theory).

In both Scotland and Wales, minimum unit pricing has remained at a floor price of 50p per unit of alcohol for quite a span of time now. This means alcohol can’t legally be sold for lower than that. However, this summer has witnessed several consultations and discussions in Scotland, suggesting a movement towards raising the baseline figure to 65p per unit. This change would naturally result in a smaller reduction off a pint offered by any algorithm or dynamic pricing calculation compared with if it was applied to a venue in England and Wales. Those responsible for programming the pricing must take note of these varied baselines across countries to avoid inadvertently violating the minimum unit pricing laws.

Scotland adds yet another wrinkle with its mandatory condition aimed at curbing binge drinking during happy hours. The Licensing (Scotland) Act 2005 bans any promotion that provides alcohol free of charge, or at a discounted price on the purchase of one or more drinks. It also bans licensed premises from offering happy hours, drinking games or speed-drinking. Any change in alcohol pricing can only occur at the beginning of licenced hours and cannot be altered until 72 hours later – which means it would be an absolute nightmare to try to use dynamic pricing to your advantage. Stonegate’s example of pricing adjustments, predominantly on weekends and evenings, would not align with this condition in Scotland.

This may be a cynical licensing lawyer perspective, but I can’t help feeling that enforcement agencies, particularly licensing police departments, might try to capitalise on these pricing changes to track any correlations with crime and disorder incidents. Scotland, which already faces such a complex landscape when it comes to dynamic pricing, also has its own unique licensing objective of public health. If implemented, the strategy might even see scrutiny from NHS Scotland representatives, who could be critical of dynamic pricing by linking it to public health concerns as it could, in theory, encourage customers to try and get those pints in before the discounted time ends. 

As the strategy of dynamic pricing starts appearing more commonly in the sector, the legal landscape surrounding alcohol sales in the UK brings new challenges to operators. Everything from public health concerns, pricing structures and enforcement strategies all intertwine to make it a complex environment to navigate. The debates sparked by Stonegate’s pricing decisions bring to light not only the immediate concerns on the ground, but also thoughts on how it would work with the legal frameworks in place. Whatever your thoughts are on dynamic pricing, it will be interesting to see how this new found approach impacts the industry.

Michelle Hazlewood is a partner at John Gaunt & Partners