These are dark days for Britain’s Biggest Alcohol Brands. In the face of tax hikes, cost increases and the minimum pricing threat, volume sales of many major brands are heading in one direction…
You might want to fix yourself a drink - this year’s Britain’s Biggest alcohol Brands may make for a sobering read.
Over the next 17 pages, we will draw a picture of the state of the British alcohol market, good and bad. Suffice to say, things have changed somewhat since artist and satirist William Hogarth drew his famous illustrations Gin Lane and beer Street some 260 years ago - and we’ve given the latter a 21st-century twist on the facing page.
Not that you should infer that the nation is happily glugging increasing quantities of alcohol. Far from it. In the past 12 months, Brits have bought 164 million fewer pints of beer in stores than they did last year the equivalent of six million fewer bottles of spirits and 27 million fewer bottles of wine. Even category stalwart cider hasn’t escaped, with sales down by 3.7 million pints.
The upshot? Volume sales of a shocking 59 of the 100 biggest drinks brands have fallen over the year - with Smirnoff Red the only top 10 brand in volume growth [Nielsen 52 w/e 28 April 2012]. Overall, the market has lost 4% in volume sales. And while we would love to report that the 3% year-on-year hike in value sales is a positive sign, there’s no getting away from the fact that much of the increase is the result of costs and tax hikes.
“It’s been a challenging start to 2012 against a backdrop of tough economic conditions and a prolonged period of poor weather,” admits AB InBev UK off-trade director Simon Harrison.
“Innovative NPD has been key - consumers are prepared to pay more for premium products”
Andy Smallman, Halewood International
Unfortunately, these problems aren’t going to disappear any time soon - and they aren’t the only challenges facing Britain’s Biggest Alcohol Brands.
Over the past year, just a few brands and, indeed, areas of the market, have bucked the trend. Some wine brands have put in great performances, including Barefoot, Turner Road and retailer exclusives, and many major spirits brands are showing strong growth too. Meanwhile, new products such as Stella Cidre and Foster’s Gold have developed large followings in a remarkably short time.
But others report that the weather has cast a dark cloud over sales - particularly when it comes to year-on-year comparisons.
“Figures for the past 12 months are comparing against the very good weather we experienced in the first quarter of 2011 - and the Royal Wedding weekend,” says Debs Carter, marketing director at WKD owner Beverage Brands, adding that the company saw a 45% y-o-y hike in RTD sales over the two weeks around the Royal Wedding.
Few would argue that the gloomy weather and the even gloomier economy have had a massive impact on the market, but they are only part of the story.
Cost and tax hikes have contributed to a typical 7.3% retail price increase per litre over the past 12 months [Nielsen 52 w/e 28 April 2012]. Hardly what shoppers already contending with the effects of the first double-dip recession since the 1970s need - and it may explain why overall volume sales of wine have dropped 2% year-on-year.
“One of the key reasons for the slowdown, in wine sales at least, is price inflation,” says Liz Ashdown, marketing manager for Percy Fox wine brand Blossom Hill. “We are seeing duty escalation at a time when consumers are watching what they are spending more.”
The barrage of messages warning of the health risks of drinking - from doctors, assorted health bodies and even the Prime Minister - also appear to be taking their toll on sales. In March, Cameron compounded industry misery by announcing he would be pressing for a 40p minimum price per unit to “tackle the scourge of violence caused by binge drinking”.
Impulse shoppers abandoning multipacks
There has been a noticeable shift in off-trade sales over the past year in favour of the impulse market.
While overall volume sales of alcohol are down 6% year-on-year in the take-home market, they have grown by 3% in impulse, which accounts for about a quarter of all sales of alcoholic drink.
Impulse sales of beer and cider have been particularly strong, with beer sales growing 4% in impulse while declining 8% in take-home.
“People are cutting back and may sometimes buy four-packs or single bottles in local stores rather than a 15 to 20-bottle pack in a supermarket,” Sainsbury’s beer buyer Oliver Chadwyck-Healey told The Grocer earlier this year.
The behaviour has been encouraged by high fuel costs, believes Beverage Brands marketing director Debs Carter, citing research by Nielsen that shows a third of shoppers plan to use their car less often.
“As a result, more consumers are purchasing alcohol from their local off-licence or c-store,” she says. “And because they are carrying their purchases and have less money in their pockets, they are buying smaller quantities and pack formats rather than stocking up on multipack case deals.”
As a result, some suppliers are focusing their attention more heavily on the impulse market, with Heineken recently launching Star Retailer, a three-year programme designed to help raise the standards of beer and cider retailing in the convenience channel.
Wine is the one part of the market that is bucking the trend towards impulse, with sales down 2% year-on-year in the grocers but down 3% through the impulse channel.
Accolade will be hoping to give impulse a boost through WinningWithWine.com, an initiative it launched in January. The online retail tool, which is specifically designed for use by the convenience sector, offers advice on stocking policy and merchandising, as well as educational information on the wine category.
Consultation on the proposal has been delayed from the summer to the autumn, but the Scottish Parliament is pressing ahead with its plans for the introduction of a 50p per unit minimum.
Young drinkers are a key target of the minimum pricing proposals - while research by Kantar Alcovision shows that the young are becoming more important to the off-trade alcohol market - particularly the 18 to 24-year-old age group. The number of times the typical 18 to 24-year-old male has had an off-trade drink in a seven-day period has risen 11.8% year-on-year [MAT to end of March], while the figure for 18 to 24-year-old women has risen 7.9%.
Kantar figures show a more modest increase on the part of 25 to 35-year-old men and women who, like their younger counterparts, are looking to save money by drinking more at home rather than in a pub or club.
Crucially, however, those aged 35-plus have, on average, reduced the number of times they have an off-trade drink - with the number of occasions among adults down 1.5% year-on-year.
Confirmation in Britain’s Biggest Alcohol Brands that alcohol volumes are falling without interference from the government will give added weight to supplier claims that minimum pricing unnecessarily punishes the vast majority of responsible drinkers.
Few put this more vociferously - or colourfully - than Jon Whittle, off-trade sales director at Budweiser Budvar UK.
“With consumption falling, minimum pricing is not necessary,” he says. “Only the demented or a politician could believe that it was. This is part of a whole neo-prohibitionist movement fuelled by bad science and spite that is plaguing our business at the moment.”
“The price of alcohol will remain higher than it has been, even if the economy starts to improve”
James Lousada, Accolade Wines
Minimum pricing is described as a “crude tool” by Andy Smallman, managing director of Halewood International, whose Crabbie’s brand has rocketed 19 places up our top 100 table on the back of a 27% hike in value sales. What is needed is a joined-up approach that combines education with efforts to modify social behaviour, he argues. “The vast majority of consumers drink responsibly, so minimum pricing may have a wider collateral impact on them,” he says.
Other suppliers, including Percy Fox and fellow wine business Accolade, add that there is nothing to support the idea that minimum pricing will reduce alcohol-related harm. “There is clear evidence that problem drinkers are the least responsive of all buying groups to any move in price,” says James Lousada, European general manager at Accolade Wines.
In the meantime, responsible drinking messages are contributing to changes in the behaviour of consumers and consequently suppliers - with the past year bringing a host of lower-abv product launches, particularly in wine and beer.
In April, Brand Phoenix rolled out the First Cape Discovery Light 5.5% abv wine-based drinks in sauvignon blanc, pinot grigio, and white zinfandel varieties. And this month, Blossom Hill moved into the lower-abv market with its 5.5% Blossom Hill Vie, joining the suppliers looking to tap into the 60% year-on-year growth in lower-abv wines recorded by Nielsen.
With take-home sales of lower-abv beers also rising, brewers have been busy developing beers at 2.8% abv or below - encouraged by a change in taxation policy last October, which means such products attract half the tax of standard brews. This, in turn, reduces their retail price.
Earlier this year, the All-Party Parliamentary Beer Group showed its support for lower-abv beers by holding a tasting, and retailers have been backing the category too. Tesco, for example, launched an 11-strong range of 2.8% beers in January.
Marston’s, which has rolled out two 2.8% abv brews, said the duty reduction had created an opportunity for brewers.
“There is certainly a demand from consumers who want a bit of abv but who might be looking to lower their alcohol intake or who are on a low budget,” says Marston’s national sales and marketing director James Coyle.
And, while many of the 2.8% launches have been in the ale market, the lager giants are also showing an interest, with Carling dipping its toe in the water this March with a limited-edition citrus-flavoured brand extension, Carling Zest, at this strength.
Carling owner Molson Coors also reduced the strength of Cobra beer from 5% to 4.8% abv earlier this year, in line with reductions in the strength of Carlsberg Export, Stella Artois, Budweiser and Beck’s.
While some brewers claim they have done this in response to demand for lower-strength beer, the consensus is that many have been forced to cut abv to offset cost hikes that retailers refuse to pass on to consumers by way of retail price rises.
Brewers have also been looking to premiumisation to increase value, again to some degree a reaction to responsible drinking messages. Some shoppers who are moderating their alcohol intake are switching to premium products to make the most of the times they do have a drink, says Heineken marketing communications manager Nichola Reeder.
Heineken is one of the suppliers that have tapped into this trend over the past year and its Foster’s extension Foster’s Gold has shown the Midas touch, clocking up £30.3m in sales since launching a year ago.
“Minimum pricing is not necessary. Only the demented or a politician could believe that it was”
Jon Whittle, Budweiser Budvar UK
Gold, and Carling extension Carling Chrome, have also been launched to offer lads a more sophisticated way of drinking their chosen brand while out with the ladies. “As mixed-group socialising has increased, shoppers are looking to purchase brands that feel more socially acceptable to be drunk amongst men and women,” says Reeder.
AB InBev has taken a different approach to adding value to its Stella brand by expanding into the cider market with Stella Artois Cidre. The move has paid off, with sales of Cidre hitting £50.2m - more than offsetting the £31.5m decline in sales of its parent lager brand - and this month, the brand is being expanded into the pear cider market, where it will face competition from products including a new pear extension to Heineken’s Strongbow brand.
Although cider volume sales have dipped by 3.7 million pints over the past 12 months, this is a drop in the ocean compared with rival categories. The reason it has not been hit as hard is likely to be down to the huge volume of NPD, particularly in the fruit-flavoured cider market. With their more premium price tags, fruit ciders have also helped drive value sales. Indeed, in May, Asda said its fruit cider sales had risen 143% year-on-year.
“A key factor that has led to value growth in the drinks market has been the increase in innovative products, as consumers are prepared to pay a little more for premium products,” said Smallman, who expanded Halewood’s Lambrini perry brand into cider with three 4% abv drinks last September.
The success of cider is taking its toll on RTDs, suggest some industry observers. Switching has contributed to a 7% slump in overall volume sales of RTDs, while value sales have risen 2%, below the 3% off-trade market average. Top-selling brand WKD is down 3.4% by value year-on-year and Smirnoff Ice down a chilling 23.8%.
Such traditional RTDs are also facing increased competition from pre-mixed cans, which are proving a draw for cash-strapped shoppers. “In terms of price per litre of the mixed drink, buying these products is much more expensive than buying a bottle of spirits and a mixer, but they enable the shopper to spend less per trip,” says Nielsen analyst Helen Stares, adding that the comparatively low price of pre-mix cans lets the consumer try different spirits without committing to a bottle of a particular drink.
Spirits brands, meanwhile, are increasingly adopting 50cl and 35cl formats to keep price points down. And the spirits category is not alone in adopting smaller formats, with wine producers also looking to 50cl bottles - the First Cape Discovery Light wines are available in this format at £3.49.
The beer market has seen a reduction in the size of multipacks as brewers look to maintain price points. This, in turn, has affected volume sales. While pack size and price engineering has allowed brewers to continue to offer case deals, some suppliers are believed to be reducing support for promotions because they find it difficult to pass on cost increases - also pulling down volumes.
Many will argue that alcohol sales will rise again when the economy improves, but not everyone is convinced. “The price of alcohol will continue to remain higher than it has been previously, even if the economy starts to improve,” says Lousada. “I don’t believe a change in the economy will hugely impact the rate of purchase.”
Smallman, however, feels an improvement in the economy could encourage shoppers not to drink more per se, but to drink more premium products. “The economic downturn has created a profound shift in consumer behaviour, and drinks manufacturers need to recognise and respond to this,” he says.
In 12 months’ time we will see whether their responses - and those of their retail partners - are enough to raise a glass to.
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