Ben Cooper

Research - Premium beer market facing tough times

By | 14 August 2009

The premium beer sector has suffered during the downturn but was already enduring difficult times, according to a report from Key Note. Ben Cooper reports.

The downturn has put paid to a few growth curves in the drinks sector but according to market information specialists Key Note, the decline seen in the premium lager, beer and cider category is the continuation of a prevailing trend.

According to Key Note's Premium Lagers, Beers & Ciders Market Report 2009, the total sector declined by 3% from GBP14.20bn (US$23.44bn) in 2007 to GBP13.78bn in 2008. But it adds that the sector was already under pressure prior to the downturn, declining by 4.6% between 2006 and 2007.

According to the report, it is the premium lager market that has suffered most acutely. In fact, this sector peaked in 2006 at GBP11.1bn, and although it still accounts for more than 75% of lager sales in the UK, and over 50% of total beer sales, the sector has suffered from a number of negative trends.

First, there has been competition from other categories. "Fashion is an unavoidable factor among young drinkers," the report states. "Premium lager brands had been in vogue for so long that a swing against them was not surprising. The main culprits in taking share from premium lagers have been cider and white or rosé wine, although the young drinkers who sustain so many pubs and bars may also opt for spirits with mixers as alternatives to long drinks."

In addition, the launch of sub-premium brands, such as Beck's Vier and the triple-filtered Stella Artois 4%, has had a negative impact.

"The launch of sub-premium brands (4% abv or less) has affected the market," says Key Note. These include sub-premium brands launched under established premium brand names in response to consumer demand for less alcohol but with the reassurance of familiar branding." Brewers have also used these launches to generate consumer interest with 'new' brands, the report continues.

But the key impact has been increasing price competition. "Above all, the value of the premium lager market has been affected by price competition, perhaps more so than standard lager, particularly in the off-trade. Given the large number of premium lagers from other countries constantly jostling for UK positioning, price promotions are inevitable, and some brands, although designated premium, have been marketed on a volume platform."

At the same time, industry consolidation has played a part and will continue to exert a negative impact over the premium sector, the report states. "The premium lager market seems likely to contract radically over the next few years in terms of the number of major brands competing, simply because there are now only a handful of major brand owners with the financial muscle to promote beer brands at the required level of marketing investment."

However, the report forecasts that the premium lager, beer and cider market will rally slightly this year in value terms with a total of GBP13.88bn forecast for 2009, and growth of 13.9% between 2009 and 2013. This does, however, include the effect of higher taxation and the figures also include a provision for higher inflation.

One category within the review sector that is likely to continue to experience problems even after the economy improves, according to the report, is the premium cider category. In comparison with 12.2% and 23.1% growth respectively for premium lagers and premium dark beers over the next four years, the premium cider market is forecast to decline by 20% to GBP300m.

"Premium ciders have had three good years (2006 to 2008) with the over-ice boom having introduced a new generation to cider, but the category's cyclical history is likely to be repeated, with less interest shown by the turn of the decade."

However, the report does not conclude that premium cider is altogether a busted flush. "In cider, the inevitable downturn must come sooner or later, even though some commentators have argued that the current boom is not a fad. Nevertheless, niche products have probably established themselves for some years to come (e.g. pear cider or Thatchers' varietals), enough to sustain cider making for smaller companies."

The report also points out that owing to the recession cider advertising fell last year for the first time in five years. In the year to March 2009, advertising by cider and perry brands fell to GBP23.2m from GBP24.5m in the 12 months to March 2008.

The recession also resulted in a sharp fall in all beer and cider advertising, Key Note points out, with the total falling by 12.7% to GBP92.5m in the 12 months to March 2009 from GBP106.0m in the 12 months to March 2008. But the report notes that total beer and cider advertising has in fact been in decline for the past four years, falling by 18.7% between 2006 and 2009.

Premium lager advertising spending has held up the best, as major international players continue to battle for market share, while the most severe drop has been observed in dark beer advertising which has fallen by some 62% from GBP30.3m in 2006 to GBP11.5m in the year to March 2009.

While Guinness has only slightly decreased its ad spend, and Moorland has increased its backing of Old Speckled Hen, advertising funding for other dark beers such as Fuller's, Greene King, Bombardier and John Smith's "has fallen dramatically", the report states, while funding for Young's bitter, Spitfire, Belhaven Best and Tetley's has "ceased entirely".

But the report forecasts that in spite of this apparent retrenchment, premium dark beers will make progress over the coming four years as a result of greater national distribution through the rising number of free houses and more supermarket listings.

Expert analysis

Premium Lagers, Beers & Ciders

The term ‘premium’ has more than one connotation when applied to alcoholic drinks such as beer and cider. It may refer to drinks of a stronger strength. Premium lager is usually 5% Alcohol By Volume (ABV) or more, compared to ‘standard’ lagers, which have under 4% ABV. The extra alcohol can push the lager into a higher tax band, but brewers may in any case decide to price it at a premium by promoting it as a superior product (ingredients, method of manufacture, etc.). Premiums can therefore be either high in alcohol or high in quality, giving them a retail price premium.

Sectors: Beer & cider

Companies: Guinness, Greene King

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