With the UK's FTSE 100 at a three year low, stocks in the UK's brewing companies may not be the safe haven they are traditionally thought as, an analyst statement said this week.

Equity analysts WestLB Panmure warned that while UK brewing demand fell 3.7% on a moving annual total at the year end June 2001, spirits volumes grew 2% and wine saw a jump of 8%.

WestLB said that the switch from beer to wines would add to "endemic over-capacity" and put pressure on "input prices and the cost base to maintain margins."

Despite the onset of a recession, when consumers traditionally turn to beer rather than more expensive wine and spirit products, the statement said it estimated that a further decline in beer volumes, of 1% between 2001 and 2010, was imminent.

The fall would be driven by the on-trade, which would fall 3%, the report predicted. This drop would be offset slightly by increased sales in the off-trade, however these would be tempered by the weaker bargaining power of the brewers with off-trade retailers.

These factors, combined with an increasingly price-sensitive consumer, mean that further consolidation is "critical", WestLB said, to improve margins through supply chain efficiencies.

But the analyst warned that "with continued regulatory interference and family interests impeding further consolidation, we cannot argue with any certainty that performance improvements will happen in the short term."

The World Market for Beer