Credit crunch lunch

There are plenty of tales around of the number of pubs closing down due to the competition posed by cut-price beer in the supermarkets and smoking ban, and of Wetherspoon’s cutting beer prices to 99p a pint to keep drinkers coming to them. This story which the Guardian carried a couple of weeks ago takes the struggle to survive even further, with pubs offering a ‘credit crunch lunch’ for just £1.

The meal is on offer at the Four Crosses Inn near Cannock, Staffordshire, and is a really good example of price elasticity of demand and break even analysis. Variable costs for the meal are just 30p, leaving 70p as a contribution to the fixed costs of running the pub – and the landlord reports that bar takings are up by 400% as a result with bus loads of pensioners coming from nearby Wolverhampton on day trips to take advantage of the deal. We don’t know the fixed costs of running the business per week, but with up to 300 lunches served per day (instead of just 30 before) the daily contribution of £210 must be a major factor in keeping the business going through the downturn.