Having come through a crisis period for brewers as supermarkets squeezed prices, Scottish & Newcastle can look ahead with confidence if signs of a recovery in the off-trade prove well founded. If S&N can grow off-trade margins, it stands to benefit from a growing trend among consumers to drink at home.

Scottish & Newcastle, the UK's largest brewer with brands such as Kronenbourg, John Smith's, Strongbow and Foster's, last week gave an upbeat assessment of its position. Profits for the first half of the year were ahead of expectations due to improved trading conditions and greater than expected cost savings. The company's confident outlook was reinforced by its decision to boost its £100 m advertising budget by a further £18 m in a bid to drive sales of its leading brands.

The company attributed its new found optimism partly to an improved relationship with retailers. Brewers have suffered especially badly from price deflation in the retail sector over the last five years, with supermarkets using beer as a means of driving up sales and consequently devoting a sizeable chunk of their promotional budgets to it. However there are now tentative signs that these pricing pressures are starting to ease, with analysts pointing to a rise in average retail prices for standard lager over the Christmas period in 2003, the first such increase for ten years.

A recovery in off-trade margins would come at a good time for S&N, with changes in consumer's alcohol purchasing trends suggesting a greater focus on this channel would be beneficial. Entertaining at home is rising in popularity and consumers are prepared to spend more on ensuring they can produce high quality drinks when requested.

Advertising campaigns that focus on off-trade consumption could prove beneficial to brewers by enabling premium brands to reach a more discerning and lucrative audience. The signs of a nascent recovery in off-trade market conditions are encouraging in this respect, giving S&N, as well as its competitors, grounds for cautious optimism looking ahead.