Focus - How to Solve a Problem like Europa

By Rod Street at SymphonyIRI | 4 July 2012

With shoppers more price-conscious than ever, drinks producers need to be be on top of their game when it comes to how they promote their brands, says Rod Street, executive VP of international consulting at SymphonyIRI.

Across Europe, drinks producers must think carefully about how they promote alcoholic and non-alcoholic drinks as consumers alter their shopping habits and seek out bargains to beat the economic downturn.

In the year to the end of February, according to SymphonyIRI’s special report ‘Pricing and Promotion in Europe – Adapting to Tough Times that last’, some 28.5% of alcohol volume was on a deal. That represents an increase of 2.2% on the corresponding period a year earlier. 

The survey covers seven countries, the UK, France, Germany, Netherlands, Spain, Italy and Greece.

In the UK, drink has long been a traffic driver for retailers, with more than 70% of alcohol on promotion in the country during the survey period. This figure was the highest in Europe and reflects the on-going and increasingly aggressive price war among the supermarkets.

The dilemma for retailers and drinks producers is that both sides need to start raising prices to cover increasing raw material costs and to reclaim the profits they have lost in recent years. 

Yet, the recession is changing consumers’ attitudes to brands and many people are adopting a multi-channel approach to grocery shopping to hunt out the bargains.

In fact, despite the huge amount of special offers on alcohol, volume sales in the UK actually fell over the year. This was due partly to the lack of any big sporting event last summer around which the industry historically moulds its drinks promotion strategy. 

The depth of deals in the UK and the fall in volume sales reinforces the vital importance to producers of considering carefully what types, frequency and depth of promotions they should invest in over the next 12 months. Decisions in this area will help to determinet he financial return that they require and their shareholders demand.

Retailers have started to move their drinks promotions away from on-shelf offers and are making more use of secondary off-shelf areas such as gondola ends and foyers in a bid to boost sales.

Indeed, alcoholic drinks is the one category where the face of promotions may have to change as our economic downturn drags on for longer than most experts predicted.

The marketing community is concerned about what impact higher taxes on alcohol in France and the plans for minimum pricing in Scotland could have over the longer term, especially if these ideas are more widely adopted across the European Union.

In Scotland, currently 75% of lager, cider and ale volumes in the supermarkets are sold below the proposed minimum price of GBP0.45p (US$0.70) per unit. The market will have to absorb an average price increase of almost 25% for the category to meet the threshold. Cider prices are likely to rise the most (+40%) followed by lager (+20%).

The impact on large cases of lager and cider heavily promoted in the summer months will be significant with the price of cheap, strong cider likely to more than double.

We are already seeing legislation affect the promotion of alcohol in Scotland: Since October 2011, multi-buy deals have been banned. This is hitting sales volumes, particularly in the wine category where consumers can no longer be tempted by ‘three bottles for GBP10’ deals.

Producers may decide to invest in more sampling activity within supermarkets and shift the focus away from low prices to promoting particular brands. Alternatively, some producers may be tempted to reduce the strength of some drinks to avoid having to hike the price of products that remain a favourite lead item for the supermarkets.

For non-alcoholic drinks, 65% of volumes are sold on promotion in the UK, compared to just 24.8% in Spain and 19.2% in France.

There was a big rise in value sales of non-alcoholic drinks across Europe due in part to higher prices. These were driven partly by a 20% increase in coffee costs.

Energy & sports drinks such as Red Bull and Lucozade remain popular, helped by the large marketing budgets that support brands in this category. Indeed, the sector saw the largest value (+7.2%) and volume (+2.7%) sales jump across the continent of all the food and non-food categories surveyed.

Brand owners are finding clever ways to use price and promotions. Coca-Cola, for instance, is offering consumers value deals but using tailored retailer-specific propositions and different pack sizes in different areas to retain its margin. Meanwhile, in Spain, the company is highlighting price reductions in its advertising for the first time and promoting a 1.5-litre bottle for EUR1. It has also started selling its products via the telephone, telling consumers about local in-store promotions and special offers.

Promotions have proved crucial to sustaining sales volumes during this long period of austerity and this will continue as consumers become more frugal about what drinks they purchase, how and when.

SymphonyIRI’s ‘Pricing and Promotion in Europe – Adapting to Tough Times that last’ special report surveyed seven countries across Europe, the UK, France, Germany, Italy, the Netherlands, Spain and Greece. The macro-categories studied are; Chilled & Fresh Food, Ambient Food, Frozen Food, Non-alcoholic drinks (including tea and coffee), Household, Personal Care, Confectionery, Pet food/Pet Care and Alcoholic Drinks. The full report can be found here.

Expert analysis

Consumer Europe 2011

Consumer Europe helps you to understand the European consumer market. The book has market sizes for consumer hundreds of products in 27 countries in Europe.

Sectors: Beer & cider, Soft drinks, Spirits, Water, Wine

Companies: Red Bull

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