The Budget is still generating a lot of headlines. Between petrol and pasty taxes, proposals for a minimum price per unit for alcohol have been somewhat overshadowed. Yet this proposal could clearly have a far-reaching impact on the drinks industry and on investors in the sector.
The drinks companies have vowed to fight the idea. However, the Institute for Fiscal Studies (IFS) claims that this will actually benefit the industry to the tune of £850m. Are they right? And if so, how can you take advantage?
A minimum drinks price could create a new cartel
The IFS reckons that roughly half of the drinks on the market (particularly the likes of cider, fortified wines, and lager) would have to rise in price if the government brought in a minimum price per unit of 40p.
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Normally such a price increase would hit demand, since consumers would go elsewhere. However, the fact that everyone in the industry would be acting in unison would mean that the decrease in sales would be relatively small (consumers would have no real alternative but to stop drinking altogether).
As the increase in price would outweigh the decrease in sales, this would lead to higher profits. In effect, the drinks industry would be acting like one big cartel. And as with all cartels, this would hurt the buyer and help the seller.
Of course, the IFS's headline figure of £850m relies on the assumption that there will be no cut in demand. As cigarette taxes have proven, even a very addictive substance can have its demand cut by price rises.
However, the IFS data on average pricing is useful for predicting who will win - and lose - from a price floor. As noted above, the suggested target price is 40p per unit. That's actually below the current actual average retail price of nearly 45p.
Butclearly, that's an average across all drink types so within that, drinks such as cider tend to be a lot cheaper than that per unit (averaging about 30p), whereas your average sparkling wine is a lot more expensive (around 83p per unit).
Fortified wine, lager, spirits and table wine all retail at the closest to the minimum price so they would benefit most from being in the sweet' spot of experiencing only moderate price rises by comparison to current prices, and still remaining relatively cheap. Although only a fifth of beer is sold below 40p a unit, it will probably pick up fans from lager.
Cider and perry, on the other hand, will see the sharpest rise in prices, with costs going up by nearly a third. They are likely to be the biggest losers being the cheapest drinks already, they also have the most price-sensitive consumers. And if they end up being closer in price to wine and lager, some existing consumers will make the switch to other drinks instead.
As for sparkling wine and alcopops, these are already too expensive to benefit. Despite the latter often being blamed for violence and binge drinking, especially amongst young people, only one out of every 300 alcopops sold are priced at below 40p per unit (the average price, according to the IFS, is a hefty 88.8p per unit). So overall, these will neither gain nor lose customers.
Remember - once a tax is introduced, the government likes to milk it
Of course, history proves that the government won't stop at 40p. If this idea gets into law, the anti-alcohol lobby will push for the floor to go higher and higher. Already some are pushing for the minimum price to be set at 50p.
Also, yet more restrictions on alcohol advertising are being discussed. The latest government guidance pledges to "work with the ASA and [broadcast regulator] Ofcom to examine ways to ensure that adverts promoting alcohol are not shown during programmes of high appeal to young people".
There is always the chance that the government may also raise beer duty as well, in order to tax away any profits. This means that is important not to overestimate any benefits to the industry from the changes.
Even so, we think that the new measures will definitely help beer companies. As pointed out above, even though the price of beer will rise, it might end up gaining drinkers, as cider will be dearer.
Sadly, most breweries get their money from pubs or from selling outside the UK. Pubs will only benefit indirectly (although a higher minimum alcohol price would help close the gap between pub and off-licence prices, which might be good news for pubs), while sales outside the UK won't be affected at all.
Fuller's is the one exception (LSE: FSTA). 42% of its revenue comes from sales of its own beer, most of it within the UK. Another option, with less pure exposure, is Greene King (LSE: GNK), which my colleague Phil Oakley recently tipped. Not only does it have a yield of 5.13% - it has a strong beer brands division that accounts for 15% of both revenue and operating profit.
Another option is upscale supermarkets, such as Sainsbury's (LSE: SBRY). While alcohol is clearly a small part of supermarket profits, the more upmarket stores will see at least some benefit from less cut-price competition in the off-licence section. Sainsbury's has a dividend yield of 5.51% and trades on a price/earnings (PE) ratio of less than ten.
