Drinks Retail – Part I: Developed Markets see Off-Trade Flourish as On-Trade Struggles

By | 30 June 2011

This month's management briefing for just-drinks' subscribers looks at the retail landscape for alcoholic drinks. In part one, we look at the shift from the on-trade to the off-trade in the mature markets.

While sales of alcohol in pubs and bars in the developed markets of North America and Europe have seen a steady decline since the global economic downturn, experts are saying the shift from on-trade to off-trade alcohol sales has not really had a financial impact on the alcoholic beverage industry as a whole. Granted, people may have shifted from bar stools to couches, but they are still drinking just as much as before.

“From a volumetric standpoint," says Martin Jones, president of the US-based beverage consulting service Artisan Source, "when you look at the big picture, the alcoholic beverages industry actually continued to grow during the recession.” It is worth noting, says Jones, that only 20% of US retail sales volumes for alcoholic beverages comes through bars, pubs and restaurants. Despite the shift from social to home purchasing, the industry has not really suffered overall from the recession. “Drinking – whether it’s at home or at the bar – seems to be one of the few things that people can still always find a way to afford to do,” he says.

In the UK, a 2009 report by the National Health Service (NHS) Scotland found that, of the total volume of pure alcohol sold in Scotland, England and Wales in 2009, about two-thirds was sold through off-trade channels. The majority of spirits (82%), light wine – wine with less than 14% abv  – (86%), and cider (64%) was sold via the off-trade. Beer was the only category where the majority was sold through the on-trade (55%). According to the 2011 Britvic Soft Drinks Report, 2010 was a bleak year for the on-trade in the UK, with 50 pubs closuing each week. 

Tom Pirko, president of US-based international food and beverage advisory firm Bevmark, believes that, while a rich-world shift from social- to home-purchasing of alcohol has been due to the economic downturn, it is also in large part due to government regulations and taxation on alcohol consumption. In the UK, for example, “increased taxes on alcohol and the government trying to control binge drinking is pushing people towards home consumption,” says Pirko.

While bars and restaurants in Europe and the US have seen less spending on alcohol in recent years, Pirko claims that, in emerging markets, the opposite is actually true, with social spending on the increase. “The industry is still trying to figure out the fundamental way to market products to emerging markets,” he says.

Euromonitor International’s report ‘Best Performing Channel in Alcoholic Drinks in 2010: On-trade vs. Off-trade Volume’, released in November 2010, backs this up. While consumers in developed markets are choosing to drink at home, the trend in emerging markets is more mixed, according to the report. China and Russia, for example, both saw better on-trade performance in 2010. In China last year, on-trade volume growth was higher than off-trade, although the off-trade channel still holds a majority 52% volume share.

“Chinese consumers prefer to do most of their drinking socially outside the home in restaurants, bars, and clubs with larger groups of friends,” says James Roy, an analyst at Shanghai-based research firm China Market Research Group (CMR).

According to Euromonitor, beer remained the most popular hard drink in China in 2010, with a market size of 45.3bn litres, while spirits came in second at 4.2bn litres. The Chinese market for alcoholic beverages will continue to grow, with wine leading the pack – Euromonitor predicts the market size for wine by the end of 2011 will reach 3.9bn litres, up by 12% from 3.4bn litres in 2010. Imported brands, such as Chivas Scotch whisky, are sold mostly at bars, nightclubs and karaoke venues rather than as off-sales, according to the Beijing Alcohol Circulation Trade Association. 

Looking forward, the opportunities left for foreign companies in emerging markets are mostly in higher end, western-style drinks, says Roy. “At the higher end and in western-style spirits like whisk(e)y and vodka there is really no Chinese brand that competes with imported wines and liquor brands like Jack Daniels and Absolut,” he says. The wine market is a typical example, he said, as few Chinese brands are priced above US$12.30 per bottle. 

While the advertising of alcohol is banned in India, that has not prevented the country from becoming the number three market in the world for spirits consumption, with the International Wine and Spirits Report (IWSR) predicting that India will become the world’s second largest spirits market by 2013.

Gaurav Prakash, marketing manager for the Delhi-based NV Group of Distilleries says, that the Indian Made Foreign Liquor Brands (IMFL) spirits market is rising by 18% to 20% per annum. Every year, he estimates, around 5m new legal drinking age consumers - who are more open to drinking alcohol than previous generations - enter the market. To cater to the younger consumers, Prakash says, liquor companies in India are investing in branding that reflect youthful attitudes and aspirations.

Back in the developed world, Jones says that, with the shift from on-trade to off-trade since the recession, alcoholic beverage manufacturers worldwide have adjusted marketing plans and tactics to target the home consumption trend. “Brands have been featuring more diverse sizes, or special promotions like home cocktails, for instance, as well as marketing tactics that show people enjoying drinks at home instead of at a bar,” he says.

Laura Edwards is director of off-trade marketing for Miller Brands, the UK subsidiary of SABMiller. She says that, with the shift towards home purchasing, on-pack promotions have become a key feature for many products in Miller’s portfolio, noting that these promotions have proved especially successful for Miller’s Polish brands, which have seen solid growth in recent years. 

Meanwhile, a spokesperson for Diageo told just-drinks that the company noticed the shift from social consumption to home consumption across North America and Europe about two years ago, and “has been activated against via innovation and marketing throughout that time”. One approach to this trend has been a move towards ready-to-serve cocktails: in 2010, Smirnoff Mojito and Smirnoff Cosmopolitan for example were rolled out across grocery outlets in the UK, Denmark, Greece, Belgium, Sweden and Portugal as well as in Australia.  

Neil Williams, communications manager at the British Beer & Pub Association says that, in the UK, one of the challenges the beer industry is currently facing is how to persuade consumers that beer is a great choice at home. “We need (to do) more in terms of helping customers to navigate the world of beer in supermarkets, for instance,” says Williams. “Wine displays, for example, tend to tell you a strong story of its taste or style and where it has come from – this is something beer could possibly learn from.”

For part two of this four-part briefing, click here.

Sectors: Beer & cider, Spirits, Wine

Companies: Jack Daniels, Absolut, Smirnoff, SABMiller, Diageo

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