Is the glass half empty or half full? If you're talking about cider, you'd have to say it's pretty full.
Sales have shot up 14.5% over the past year to £466m and volume sales have leapt 12.2% [Kantar Worldpanel 52w/e 18 April] thanks to the potent combination of innovation, advertising and according to its rivals in the beer sector a more favourable duty regime.
The overall beer and cider category, however, is up just 4.1%, growth held in check by sluggish value sales for ale and lager and a fall in sales for stout. With all three experiencing a decline in volume, the beer glass appears to be half empty at best but the outlook may not be as bleak as it seems.
For a start, with £2.4bn off-trade sales, it remains bigger than the spirits category, and though few would dispute that it has been hit hard by the rise in wine drinking and decline of heavy industry, premium bottled ales and the so-called world lagers sub-category, typified by the likes of Peroni and Corona, are performing well.
This, and the fact value sales are up while volumes are down, suggests the category is not discounting quite as aggressively as in the past and that the premium push is starting to add genuine value to the category even if it is at the expense of volume.
In a category as mature as beer, the drop in volume is no small beer, which is why, over coming months, we are likely to see more price rises and case deals involving smaller volumes than in previous years.
The latter, in particular, has been a much-used tactic over the past year. "One of the key trends has been the grocers' strategic decision to drive more value back into the beer category," confirms Carlsberg UK customer marketing director David Scott. "One of the ways they have done this has been by decreasing pack sizes. For example, we have seen the 18-pack changed to the 15-pack, and just recently Morrisons moved to the 12-pack. If you do this, volumes sold will fall while value holds or increases."
By reducing bottle and case sizes, you maintain headline price points, adds Marston's sales and marketing director James Coyle.
This means, however, the average shopper is now paying about 6p more per litre across beer and cider, according to Kantar Worldpanel analyst Ross Smith. He also suggests that the shift from the on to the off-trade means consumers are prepared to pay higher prices for alcohol they drink at home as those are still significantly lower than the prices in the on-trade.
But Asda beer buyer Rob Paton says promotions are still an essential element of the category, with the most popular promotions in peak periods being multibuys. That may well be the case but Coyle is one of many in the trade who believe retailers need to be a little more imaginative with their tactics.
"Supermarkets are putting pallets and pallets of beer at the front of the shop and consumers are putting two or three cases in their trolleys and saying that's their beer sorted," he says. "There's a growing proportion of consumers who are just not getting down the beer aisle."
Only 15% to 19% of supermarket shoppers actually visit the BWS aisle, claims Richard Barlow, marketing manager for packaged Guinness at Diageo GB. "We need to focus on how we make the BWS aisle more exciting so consumers do want to go there and interact with a host of brands," he says.
If the industry fails to do this, sales are likely to remain flat. Lager continues to be the dominant sub-category, but its value sales growth has slowed significantly over the past year compared with the 5.6% recorded in the year to 19 April 2009.
"Shoppers are spending more each time due to price rises, but buying less often," says Smith. "We're also seeing 73,000 fewer shoppers buying lager this year."
This is despite substantial increases in promotions on almost all the big lager brands and big uplifts in ad spend across the category. While there have been some notable successes from the bigger players Budweiser inceasing its sales 42.5% to £192.4m [Nielsen 52w/e 17 April], for instance, premium and world beers have the biggest growth potential, according to experts. "These more premium offerings are encouraging shoppers to pay a higher price, as well as driving new shoppers into the market, and becoming a contender for the first port of call when shifting from on to off-trade," Smith says.
Mexican lager Sol, for example, has seen its sales soar 71.9% to £15.3m [Nielsen 52w/e 20 March], while sales of Italy's Peroni Nastro Azzuro are up 45.4% to £52.1m and Spain's San Miguel has grown 39.2% to £52.0m [Nielsen 52w/e 20 March].
Barlow values the growth in the world beers category over the past year at £38m, a figure that doubtless loomed large in his thoughts before this year's UK launch of Windhoek (see above).
"We saw a trend, particularly at the height of the recession, towards standard lager but we're starting to see premium lager turn around," says Barlow. "Brands that have provenance, heritage and a story to tell seem to be doing well, especially in ales."
The quintessentially English ale Old Speckled Hen has seen its sales soar 27.4% to £28.1m [Nielsen] on the back of its quirky advertising campaign and sponsorship of Primetime on TV channel Dave.
Interest in provenance and locally produced ale has benefited members of the Society of Independent Brewers (SIBA), says chief executive Julian Grocock.
"The smaller brewers have started to get listings with supermarkets. People like Waitrose have been at the forefront but even in Tesco you see local beers," he says. "It is a growing sector, without a shadow of a doubt. It's been driven by necessity in some cases because of the trials and tribulations of the on-trade. One brewer I can think of set out with no intention of being anything other than a draught beer producer but now sells more than 40% of its beers in bottles.
"We're not talking massive volumes, but we're not talking massive businesses. We've got a significant consumer movement towards local produce and we're well placed to take advantage of it." About 15% of SIBA members' volume is sold bottled up from 13% last year and 9% the year before.
However, these brewers tend to view the supermarkets as more of a necessary evil than an opportunity, says Grocock. "The bigger picture is that pricing in the off-trade continues to knacker the beer industry."
It doesn't help that that supermarket speciality fixtures often don't offer the consumers much choice, says Alastair Hook, brewmaster and founder of London's Meantime Brewery. "Our off-trade volumes are growing and we hear the same from other craft brewers," he says. "We suspect volume decline is in areas where beer in not differentiated. Sustainable beer growth in the off-trade will only come from offering a real choice of exciting beers."
Whether they are enjoying sustainable growth or not, beer suppliers must be looking at cider's overall performance with envy. While most sectors of the alcohol industry were hammered by duty increases, cider escaped unscathed.
The jealousy won't have been helped by the coalition government's decision to scrap the 10% above-inflation duty hike on cider, introduced by Alistair Darling in his last budget as Labour Chancellor. Darling's proposal was intended to go some way to evening out the duty on beer and cider. However, the coalition reversed the increase before it could come into effect, much to the chagrin of brewers.
"Duty on a pint of beer is 49p while duty on a pint of cider is only 20p. It's unequal and unfair," says Stuart MacFarlane, president of AB InBev UK.
Grocock is even more scathing. "We've seen the cute and cuddly cider industry managing to mobilise itself and give the impression it was being seriously hard done by, which of course it wasn't."
SIBA is in favour of taxation being the same for both beer and cider. However, Grocock believes there should be a sliding scale of tax for smaller cider makers whereby smaller producers pay less duty. Such a system, called 'progressive duty', has often been linked to the success of the microbrewery movement, and has helped the cider industry develop.
As well as helping the cider industry, producers argue that the relatively benign duty regime has helped the Exchequer as well. "That stable environment, and the investment it allowed us to make, doubled cider sales and doubled the contribution cider made to government revenues," says Simon Russell, spokesman for the National Association of Cider Makers (NACM). He argues that more punitive duty would have hampered the growth of the cider industry, meaning, ultimately, it contributed less tax to the government.
Whatever the beer industry might argue, the growth in cider is not solely due to its more favourable duty terms. The dramatic value and volume sales lift in cider has been driven largely by a 10% increase in shoppers meaning 10 million consumers now buy into the category [Kantar].
New entrants have been attracted by innovation and investment, says Russell, adding that premium ciders are leading the way. "A number of new consumer groups are getting switched on to cider; people for whom quality and provenance is a big issue," he says.
"The profile of the category is very different from five or 10 years ago in terms of the offer. The big difference is that producers have started talking about the virtues of the product instead of just saying it's an alternative to other long alcoholic drinks."
Support for music festivals and other events has also helped to bring new consumers to the category, he adds.
A further fillip has been greater consumer interest in alcohol levels and food matching. "There is a breadth of cider styles that can match with food more readily than other drinks," he says. "People who are concerned about alcohol levels and food miles will say it is acceptable to put a 6% Somerset cider or a 7% Herefordshire perry on a dinner table instead of a 14% Aussie Chardonnay that's been shipped half way around the world."
In terms of innovation, pear and fruit variants have been coming to the fore. Jacques, now part of the Heineken stable, led the way in 2006, followed by the likes of Thatchers Cider Berry and Halewood's Brambles this year. In June, Morrisons joined the party with the launch of New Season, an own-label cider with raspberry and orange variants.
This month, Jacques launched its biggest-ever marketing campaign, which included tie-ups with Benefit Cosmetics and Toni & Guy hair salons. Sales of Jacques are up 18.9% to £22.5m [Nielsen 52w/e 17 April], and with the new push raising awareness of the sub-category as a whole, the growth of fruit styles looks set to continue.
Another notable success over the past couple of years is the rebranding of perry as pear cider, says Merrydown MD Chris Carr. "It has opened up the category and made the product acceptable among a whole new audience." Niche and heritage brands, which are sought out by consumers for the different flavours they offer, have boosted the category's presence in-store with a vast array of ciders now available.
"Seven years ago, the standard fixture was maybe a dozen SKUs and some of that would be Strongbow in four-packs as well as eight-packs," says the NACM's Russell. "Now you're talking above 40 different ciders and perry brands on shelf and that's different products from different producers."
But the growing range means there is a risk of the fixture becoming hard to navigate, says Aspall Cyder commercial director Geoff Bradman. "Instead of developing the category, what you have is an increasingly fragmented portfolio," he warns, pointing out that the increase in shelf area hasn't kept pace with market growth.
"At the end of 2007 there were, on average, two pear lines per store in out-of-town supermarkets at the end of 2009 there were 9.5, while the number of ciders has risen from 47 to 57," he says. "If the space doesn't grow proportionately, the fixture becomes cluttered and confusing." He worries that, with limited space, brands can also go out of stock more easily.
It's all a far cry from a few years ago, when cider was characterised by extra-fill promotions on plastic bottles of booze though there is still the odd muttering about some own-label ciders being sold for less than the inbound price from producers.
"Scottish & Newcastle [now Heineken UK] hasn't had enough credit for its part in making cider a drink that's clearly part of consumers' repertoires," says Bradman. "A lot of work it did in tidying up the portfolio pulling away from 'three litres for the price of two' promotions and taking White Lightning out of the market was very helpful as part of the drive to extol the virtues of cider, rather than making it a cheap and cheerful way to get alcohol."
Aspall has "good debates about inbound price" with its retail partners, according to Bradman, but it also has a clear strategy on what it is prepared to sell its lines for. For this reason, Aspall is not stocked in Asda.
Thatchers is another premium cider producer that believes low prices are not the way to grow the category. It's innovation that has driven cider's growth and that is set to continue, says Martin Thatcher, MD of Thatchers Cider.
"NPD will keep the category alive and as long as it's something that's a bit different, that will keep the consumer's interest," he adds. "There are still a lot of people who haven't really discovered cider yet so I don't see us running out of steam."
Ultimately, the future of cider and beer will almost certainly be influenced as much by government pressures as by NPD and consumer trends. The prospect of minimum pricing on alcohol is fading, thanks to a lack of appetite from any of the main Westminster parties, and the SNP's failure to win support for the policy among opposition groups in Holyrood.
A ban on below-cost selling is, however, on its way, but not everyone agrees on what "cost" should mean. The government has put forward four possible options for defining the cost.
The simplest method is duty plus VAT, but cost could also be measured as duty and VAT plus the cost of production, distribution and marketing; or an invoice price plus tax (this is the definition used in France and Spain). The government has also mooted the idea of allowing retailers to thrash out pricing among themselves.
James Bielby, chief executive of the FWD, argues that invoice price plus tax would be the fairest method. "But that's not likely to be introduced over here because of marketing money and overriders, things like that," he says. "We support option two, but the basic production cost has to be defined by the industry we want to be able to say to the government, 'this is an agreed cost of production'."
There are also calls from some quarters notably the National Institute for Clinical Excellence for ministers to consider more restrictions on advertising and promotions, with one option being a blanket ban on ads, as is the case with cigarettes. Such a ban would make life tougher for suppliers but wouldn't tackle the problem, suggests Martin Wheeler, director at Billetts Marketing Investment Management, which calculates the money spent by brands on advertising.
"Any ban on alcohol advertising will make it difficult for brand owners to differentiate themselves in a cluttered and over-ranged category," he says. Carlsberg's Scott agrees: "Advertising, sponsorship and other marketing activity does not encourage irresponsible or higher consumption but it does drive brand switching."
But the real issue in the category isn't the threat of an advertising ban but promotions. Wheeler says the amount spent on them dwarfs the amount spent on advertising. "Promotional activity is extremely intense across BWS and this will not change unless the government legislates further and brings in minimum pricing, or manufacturers reduce the amount of money they are prepared to throw at unprofitable promotions," he argues.
The blame for the proliferation of cheap deals is shared by the retailers and manufacturers, says Rupert Thompson, former managing director of beer supplier Refresh UK, and now a non-executive director of Thatchers Cider.
"The brewers want to move beer and offer overriders of one type or another," he says. "The only way the supermarket is going to hit sales targets is to drop the price. The retailers can make money while loss leading, but the brewers aren't angels."
However, Grocock claims supermarkets have an added incentive for running loss-leading deals, because they also receive a "VAT kickback" as they are not making a profit on such sales even if they result in driving more customers into shops.
To persuade retailers to move away from this strategy, Hook at Meantime believes there needs to be a shift in the way that beer is sold.
"Beer is a crafted product and should not be regarded as purely functional," he says. "Commercial concerns have been guilty of trivialising beer and turning it into just a price-pointed alcohol. Things that reduce alcohol abuse and promote our industry in a commercially responsible way are a good thing."
Regulation is not the only external threat facing the beer industry. Duty fraud mainly involving rogue wholesalers who claim back tax on beers that are supposedly being exported but are then sold in the UK is rife in many parts of the country. Hotspots include the M62 corridor, London, Birmingham and, increasingly, Scotland.
Legitimate wholesalers complain many of the deals on leading lager brands and some ciders are suspect, and they claim that it is having a major impact on their businesses. Official estimates put the level of fraud at as much as £700m.
"We are seeing new entrants coming into the market," says the FWD's Bielby. "What's worrying is that some of these fraudsters are using the margins they make on alcohol to move into other categories such as confectionery, snacks and soft drinks."
The duty cheats offer products specifically for the on-trade, including ciders that haven't been sold under bond by the brewers to Federation members, he says.
Efforts to combat this problem are being led by HMRC, which is monitoring people suspected of being involved in fraud and is working with brewers to understand how the product gets into the supply chain.
"We're seeing quite a strong response at the moment," says Bielby. "They go into a wholesaler they suspect is fraudulent and say 'can you prove the goods are duty paid?' At the end of 10 days the goods are lost, they're destroyed, and the wholesaler is liable for 100% of the duty. It's going to put a lot of people into liquidation."
Fraud problems aside, there are plenty of signs that the legitimate trade is making progress towards injecting value back into the category.
But whether or not these efforts will be enough to put the fizz back into beer and lager remains to be seen.
Focus On Beer & Cider