Could alcohol go the same way as smoking?

Could alcohol go the same way as smoking?

Continuing his series of quarterly columns assessing potential shocks which the drinks sector may face, Chris Hart, a partner at business performance consultancy McKinney Rogers, considers what would happen if the next ten years bring dramatic social changes that challenge the drinks sector in the way the past ten years have done for tobacco.

2010 is perhaps not all we thought it would be. Struggling out of a recession, we seem to have moved back rather than forwards. But change has been irrefutable in a number of areas – not least the culture and laws concerning smoking in many countries.

The tobacco industry had known for years that conditions were only going to get harder in many markets and has been able to plan ahead. But what about alcohol? With increasing pressure to break the relationship between alcohol and health and social issues, what if 2020 looked as different, and as challenging, for alcohol as 2010 does for the tobacco industry?

When businesses become accustomed to talking in year-on-year changes, it is easy to get into a mindset where the next year or two is the horizon of corporate thinking. But if you have reasons to believe big changes lie over that horizon, they should be considered against your immediate plans very carefully.

The UK, for instance, seems to be edging closer to overturning the extended hours drinking culture which has characterised media coverage of alcohol for the last decade. If pub opening hours were shortened in a few years, what affect would this have on your business model, on your financial plans and your estimated returns?

If the above happened, would your business refocus on channelling sales through supermarkets? Yet, apart from strengthening supermarkets’ market position further, there is just as much political pressure on decreasing access at the checkout as there is at the bar. We have known drinks companies go to great lengths to overcome these issues, typically around freak disruptions to delivery lasting a few weeks at a time. But if mounting pressure on ‘cheap booze’ at supermarkets clamps down on distribution here too, how would you get your product to the consumer?

It is one thing getting the drink to the outlets, but it is quite another to persuade them to purchase. We have already seen serious limitations on the ‘lifestyle’ advertising of alcohol, with advertisers treading a fine line between linking fun and the product without suggesting the product is responsible. If stricter guidelines on the content or placement of alcohol advertising occur, brand awareness will become an even more difficult commodity than it is now.

If brand awareness is to be an increasingly precious resource, companies may decide to go all-out on this while they can, or else reassess which brands have the most elastic response to brand awareness efforts. Tobacco companies such as Dunhill have tried to diversify into lifestyle goods to get around this, but it is hard to deny that most of their growth success has been in less-regulated markets such as China. If alcohol follows suit, the choice seems to be between pursuing high volume in emerging markets or high value in mature ones.

If alcohol is to be hit by similar restrictions and attitude changes as tobacco in recent years, then the third change will be the hardest to overcome – a cultural shift away from alcohol consumption.

In developed countries considerable effort is devoted to publicising the negative health and social consequences excess consumption can cause. Tobacco rapidly went from social norm to a generally-perceived addiction, but here alcohol has better grounds for defending itself, as it can be beneficial in moderate quantities. Using such a defence would seem to favour pursuing high-margin, low volume brands over high-volume ’10 for GBP10’ brands. A company’s brand portfolio may be seen in a very different light in these circumstances.

All of this can be unsettling but, regardless of sector, companies must assess long-term market trends against one’s targets and goals for 2010. Whether 2020 will comes to pass as outlined here or whether the industry will find itself in a different position is something leaders in drinks companies must consider, prepare for and protect against. But one thing we can be sure of is that it will be markedly different from 2010.

Chris Hart is UK partner of business performance consultancy McKinney Rogers.