About this time last year, the price of beer in Belfast’s now iconic Grand Central Hotel caused much reaction, with its Observatory Bar selling a pint for £8. Clearly, this is a niche indicator, but it led to questions by some observers in relation to what this said about the local economy, the strength of the tourism sector, and the spending power of local consumers.
We can’t read too much into the price of one pint alone – albeit in one of Belfast’s main hotels – but the debate it stimulated is an interesting one for a number of reasons.
Since then, whilst the headline inflation rate in the UK has been something in the region of 2 percent, remarkably, the price of a pint in the Observatory – already at heady levels – has increased by more than 12 percent in less than a year to £9. (That’s what a quick look at the bar’s drinks menu online told me anyway.)
Some had thought £8 a pint was over-the-top and unsustainable for Belfast, but so far at least, they appear to be wrong. And indeed the opposite appears to be true. So, what is going on?
On the one hand, it would appear that consumer confidence and spending power in Northern Ireland is not in a great place. However, a closer look perhaps suggests we actually have a two-speed consumer sector, and multi-speed economy.
The latest Which? Consumer Insights Report provides a snapshot of how confident or concerned consumers in Northern Ireland actually are. 70 percent of NI consumers are happy with their standard of living but only half of respondents are happy with their income. Age is a key factor in the figures though. It seems that the older you are, the more satisfied with your standard of living, income and savings you are. The converse is also true Indeed, 18-29 year-olds are the most likely to say that they are experiencing financially difficulty – four times the rate of over 65s.
Many people in this age-group in particular will have been encouraged by soundings from both Jeremy Corbyn and Philip Hammond about potential big rises in the National Living Wage – which could see rises of almost Observatory-pint proportions. This may be great from their perspective but the hospitality sector and the hard-hit retail sector in particular will see this as another factor impacting on their profitability.
When we look at what’s happening on the high-street, it also tells us something about consumer confidence and spending power. We very recently had Boots announcing that it is to close 200 stores. At a UK-level, Jamie Oliver’s restaurant chain has also gone into administration with 1,000 people losing their jobs. The woes of chains like Debenhams and House of Fraser have also been well-publicised.
Indeed, the UK retail sector is expected to see 164,000 job losses in 2019, as high street woes intensify, and Northern Ireland is certainly not exempt from this trend.
These problems in the retail sector can be seen graphically in the latest RICS commercial property report where demand for space continues to fall markedly and rents and capital values are under pressure. But where there is retail gloom, there is also office boom. Respondents to the RICS survey indicated that demand for office space, and linked to that rents and capital values, continue to move upwards.
This tells us something of the two-speed economy we have in Northern Ireland. Whilst many firms in the retail sector continue to struggle – there are of course exceptions – companies in sectors like IT are performing very well, investing to expand their workforces and their office footprints.
The tourism sector is another area that has been booming with record visitor numbers bringing money for outside of Northern Ireland into the local economy. Whilst footfall in retail centres is down, footfall in tourism centres is significantly up. (Though the Observatory is conversely trying to limit footfall with its pricing strategy, in contrast to large parts of the retail sector where prices are being slashed to drive consumer demand.) Alongside the spending power of the people working in Belfast in increasingly high-value jobs in areas such as IT, this in part perhaps explains how the £9 a pint is sustainable.
However, perhaps more significant is the change in what consumers are prepared to put their money into. The reality is the £9 being spent in the Grand Central’s Observatory Bar is at least as much about the experience – and the Instagram bragging rights – as it is about the liquid in the pint glass.
This is a trend that retailers and other businesses in the local economy need to understand. There is an entire generation of consumers for whom the experiential is centrally important.
At this rate, 2020 looks like it could be the year of the £10 pint in Belfast. That’s not to say that the economy will strengthen then. But the two-tier nature of our economy and the apparent fickle nature of consumer spending looks set to continue. What will be interesting to see is whether it is the year of the £10 per hour National Living Wage too. There will be those who hope it is and perhaps those who hope it isn’t.