The Hindu Business Line : Why beer seems cheaper than water

My friend frequents an upscale neighourbood pub. He complains that the pub charges him premium for providing bottled water but generously gives him free side-eats such as wafers and salted nuts. What, he wonders, is the logic behind such business decision?

As it happens, the business decision is entirely rational and can be explained using economic principles. If you are frequent visitor to pubs, you may be aware that the ambience makes you spend more. This could be the company of your friends, other people in the pub, the music and side-eats.

Charges for serving water?

In fact, side-eats are a catalyst for your drinking binges. A handful of wafers has to be invariably washed down with a swig of beer or your favourite alcohol.

So, each time your side-eat plate is empty, the waiter fills it, hoping to get a beverage order from you. But do not think that the side-eat is actually free!

Often, the alcohol is priced in such a way that you pay for the ambience, the side-eats and all. Of course, those who consume more side-eats are subsidised by those who do not.

But why do pubs charge for serving water? Or in most cases, why do pubs serve bottled water at a premium over MRP? The reason is that the bottled water becomes a substitute for your drinking binge! How?

Lower revenue for pub

Your stomach can only take in certain gallons of liquid — whether it is alcohol or water. The more water you drink, the less alcohol you will order. And less alcohol you order, lower the revenue for the pub.

Charging you for the bottled water does not help the pub recover the revenue lost because you ordered lesser beer. But it does discourage you from drinking water. Why?

You and your friends may perform some mental analysis and figure out that beer is cheaper than water, adjusted for the pleasure it gives you! And so you drink lesser water and more beer. That is, perhaps, why pubs charge you for bottled water but shower you with cholesterol-rich side-eats.

(The author is an investment strategist.)

More Stories on : Economics | Simple Economics | Breweries

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page