Pricing In The Bars

You asked, “Do business owners in Thailand get it that across the Western world, consumers have become very price-sensitive and many are ultra resistant to price increases?”

Oh they get it but what are they meant to do about it exactly?

They (well most, bar owners who are their own best customers might be an exception) are not here to run a ‘not for profit’ charity for the benefit of cheap Charlie expats / mongers who want everything to remain like it was 10 – 20 years ago, including prices, but rather here to make money. And while for some there might have been, at one time, a vision of “living the dream” here with their business for most within a year or two that’s gone because the reality is a bloody nightmare.

First off, a staggering proportion of service industry businesses here are renting, if they are very lucky that might have remained at same rate over last 10 years but for most rent has gone up, especially if in a good tourist location

Salary’s also have gone up across the board (and cost of keeping “attractions” like girls have gone way, way up), used to be labor in Thailand was cheap and plentiful, but if you are in a business that involves having attractive young women around, your overall staff costs will be actually probably greater than equivalent business size in a lot of the west now. And if a normal business, because you pretty much have to double up on staff due to Thai work / career ethics, unless very lucky with hiring, it’s not much better.

Also supply chain costs for most products have gone up and when talking about any business involving alcohol, not only have you got inflationary increases but also multiple tax increases over last 10 years (4 that I remember, 3 of them alcohol and tobacco specific) and unlike say in the UK, where prices in supermarkets and bars change across the country within the hour after tax rate increases are announced, here they have not at all (and god help any non mall bar that tried.

Sure many of these businesses, especially bars, don’t pay taxes owed (though the government is getting better at collecting), but most are buying from distributors with taxes already applied because unless doing seriously big business there is not a proper wholesale sector, and they do increase their prices same day or even earlier.

And if government starts actually enforcing the new 11% on gross alcohol sales tax…well lets just say got feeling it will be like Armageddon on the tourist bar industry, because if bars have to apply that they they might as well also try to apply all the tax increases they have absorbed over last 10 years and go “legit” so they can get deductions on other side. When your profits are that small you might as well pay all taxes and get good enough accountant because you might end up ahead.

And then on top of that you have issue of very little competition between handful of main national distributors in any sector (both food and alcohol), like why the hell can you get Thai beer like Chang / Singha / Leo in a UK supermarket for about same price as supermarket here, especially when UK has import taxes, 20% sales tax rate plus alcohol tax. You strip those out and would estimate the pretax wholesale price there is at least 20 – 30% cheaper than the same here, and not factored in shipping costs yet. So why is imported Thai beer cheaper there than local Thai beer here? Only reason can see is no real competition (price fixing) between the big boys here.

And just out of curiosity just looked at first random NZ supermarket I could find online and see 330ml Tiger at 32 baht a bottle, cheaper than Tesco Lotus here at 35 baht…what’s NZ import and alcohol sales taxes like?

For the smaller tourist dependent businesses who are directly consumer facing, such as bars, restaurants and shops, competition has gone though the roof while overall tourist / expat spending has, at best, remained same but more spread out, at worst, gone way down (world economy / exchange rates so forth).

And even despite all that, prices for consumers have remained relatively stable over last 10 years (official inflation rate has been around 22% over the 10 year period combined), except for few limited exceptions like girls and lady drinks, but if anyone honestly expects everything to cost same over a 10 year time spread then they are just a idiot, but what has been more stupid is businesses have been absorbing those costs increases and thus reducing their profits instead of passing them up them on, but now many are either running on empty and thus unable to invest back in the business to improve, or are just going bust.

So you can sit there and blame the small business owners all you want, because that’s the only part of picture you see, but remember they are not personally growing their own food, hand making their own goods and brewing their own beer, all on the family property with no rent and then selling to you, every part of their operation has a mass of 3rd party costs hidden from view and those costs are not just increasing now but have been year in year out for last decade and very little of those costs have been passed onto the consumer until lately.

But got feeling they may have left it to late (plus bad timing due to exchange rates and general market conditions), far to many are down to wire already and “locked in” to long time coming tourists / living here western expats that want their 40b meals, 60-80b beers, 150 baht lady drinks and a supermodel for the night for less than the price of two packs of cigs back home (hell that’s the Pattaya model in a nutshell) And of course, now demanding western level of quality and service for those prices just because.

And one thing you will generally notice if you think about it, bulk of places playing those undercutting price wars, especially if smaller, don’t last. They vanish within year or two while their higher priced neighbors survive, because all costs being equal, longer surviving places are pricing in dry spells, while those aiming for bottom of the market can get wiped out in one bad low season. but if I went on about similar bad / stupid business practices that I have seen over the years, made by people who never had their own business before coming here, size of this email would quadruple…and it’s already way to long, so lets just put it down as a downside of the cheapness and ease of opening a small business here, to many (both Thai and foreign) doing so who should not be. And will note it puts more pressure on other better financially planned business to keep prices stupidly low in relation to costs as hard to explain why you are charging 100b for a Chang when the “opened this high season, will most likely vanish half way though next low season” bar next door is charging 59 baht.

And while all the above is mainly in reference to BKK, it is far worse situation in the tourist towns, BKK at least has the better spending western “expat salary package” types, regional weekend tourists and moneyed Thais to fall back on, the tourist beach towns with just mainly western tourists and expat retirees on pensions and severe seasonal variations are in some ways totally screwed, but on other hand adapting, but not in a way the old guard will like

Down in Phuket (where I am more based) old nightlife has been steadily shrinking and changing for a decade now, the mongers have headed on mass to ‘cheaper’ Pattaya (and slowly abandoning that a few years later, and despite what people say, most I know went back home not to Vietnam / Cambodia / Philippines) and the small beer bars are either vanishing or moving to out of the way low rent areas but a new, larger more expensive and varied nightlife is replacing heart of the nightlife sector

The open air bars with most pole girls (and thus busiest) are mainly just agency girls there for show now, unless you are going to give them a very expensive version of an indecent proposal they are not going home with you but that’s no issue for most of their client base, Asians like Korean and Japanese just don’t seem that interested in taking them but they will spend 20k on lady drinks, maybe due to their own country’s hostess bar model?. The couples, mixed groups, hen nights and such are there just to gawk and party. And these bars share same customers as the gogos

Non Arab clubs are for mainly under 35 foreign men and women hooking up, some are even starting to restrict amount / quality of Thai freelancers they let in as don’t need them anymore, so bulk of freelancers are now in the Arab clubs and westerners want nothing to do with those clubs. Beach clubs for well dressed and behaved, affluent “beautiful people” are the new growing rage (though honestly not sure if they are going to find enough of that type of customer for that model to work, Marbella / San Tropez this is not…yet).

On flip side you have large venues and hostel groups catering to the little money but large volume young party backpacker, bar crawl, full moon types

Internet is quickly becoming the main medium for real working girls to find customers, which has a knock on effect of less and less girls working bars every year (despite top end salary’s going from 4-6K baht per month 10 years ago to 18-30k now…before commissions) and quality is dropping fast, but as less girls overall bar fines and girls prices are going up.

But one thing all these new and old successful places have in common, it’s not a business being started by a single guy with a dream, a little bit of money and no clue, they are not dinky little bars and restaurants, it’s all big money and big ventures now, forget getting to know the owner (or more likely owners as normally now groups / partnerships) he / they rarely have anything to do with customers outside their little clique, definitely no time for people spending only a few thousand per night…..average 10K baht bill per night might get one of the managers to pay attention to you though.

Now with this change quality of products and service are increasing rapidly, but so have prices…big time.

But this new breed of western tourists are not here to spend two weeks sitting 6+ hours every night in a bar before taking a girl home, don’t seem to mind the price increases because they are only going to be out half that amount of time and don’t have to factor in lady drinks and other extras, but they do demand quality.

What they do mind though is the drunk 60 – 70-year old, overweight balding Aussie / Kiwi / Brit in a Chang shirt and flip flops pawing the drunk 20-year-old looking Thai girl on next table over, first large club / large bar on Bangla Road who comes up with a way to properly separate those two customer bases is going to make a killing.

But with this change one thing is for sure, a hell of a lot of old style business / bars are going to go under, some because it’s just impossible for them to adapt due to location, size, costs, current business set up, finances so forth but none because don’t know, don’t want to or care.

If you want to really flummox a complaining bar owner, just ask him. “OK if you close tomorrow what else would / could you do in Thailand?” Answer will most likely give you clue why they have not already packed it in, it most certainly is not the money for vast majority. It’s also why, vast majority seem to leave the country when they do finally pack it in

“When I raised the issue of prices and poor service business owners were seldom interested”

Because they (especially bar owners due to the nature of the job) have heard it time and time again from people who think they are “experts” because they drink a lot and are tired of what can be nearly always summarized as “give me more for same or less”. Most bars here already have a markup that’s well below world average and it shows in the lack of profits and small profits means not much left to reinvest / innovate or take risks with.

Stick’s thoughts:

I stand by my comments that it might just be that for some bars the business model might not be viable in its current location. Rents downtown have reached levels at which bar operators may need to put up the prices of drinks and barfines to levels which many customers refuse to pay / cannot afford.