Which way is the amber nectar flowing?
Price cuts, women drinkers and struggling top brands make for tough times. Graham Holter investigaes
Hold the front page: cider's combined off-trade sales are now bigger than those of Stella Artois. That an entire category is larger than an individual brand shouldn't really be shocking news, but the sheer scale of Stella's domination of the long drinks category in recent times makes its decline an almost endless talking point.
Stella isn't the only casualty of a stagnating lager market, or indeed the biggest. Most of its premium rivals are also having a tough time of it and Kronenbourg 1664 appears to have really lost its way, registering a sales fall of nearly 14%. What will its new owner Heineken (whose eponymous lager is notably absent from the top 10) want to do
It will be interesting to see where its priorities lie.
Let's get one thing straight
- this is a market where any sort of sales uplift is remarkable. In the 12 months to Feb 23, off-trade lager sales were absolutely static at £2.8 million. Factor in inflation and they were actually in decline. The same was true for the beer category as a whole - though ale fared slightly worse, with sales down 1%.
There were predictions that the smoking ban would result in a direct benefit for the off-trade as pub beer sales fell away, but it doesn't appear to have happened - or at least whatever gains the take-home market made
were cancelled out by a general decline in sales. On-trade lager has fallen by 4%, twice the rate of the sector's overall liquor sales.
"Ten years ago, over 80% of beer was consumed in the on-trade," points out David Wigham, customer marketing director of Coors. "The off-trade has grown to over 44% and by 2012 I estimate it will be 50-50.
"From our historically high levels of beer consumption, we have seen a gradual decline in total beer drinking in the UK from 41 million barrels in 1980
to circa 33 million barrels in 2007. This has been influenced by a number of factors including the growth of competing drinks categories such as wine.
"While the overall beer market decline - on and off-trade - has averaged around 1% in each of the last 10 years, thankfully we remain a nation of beer lovers." Or, more specifically, lager lovers.
The price differential between the two trade sectors is more immense than ever, as MPs, doctors and pub trade associations constantly remind us. "In the early 1980s, the cost of a pint of beer in the on and off-trade was about the same," says Wigham. "Today it's almost two-and-a-half times more expensive in the on-trade - a reflection on the competition between retailers, with beer often being seen as a footfall driver.
"The actual average retail price of beer in the off-trade is lower than five years ago, despite inflationary cost pressures for beer producers and rising excise duty levels."
Mark Gerken, Scottish & Newcastle's UK off-trade sales managing director, is one of many on the supply side who believes it's time for the trade to address the issue of price promotions. "A key issue in the lager category is the real need to add value - discounting by retailers with the aim of driving footfall will not secure the long-term health of the category," he says.
"Retailers and suppliers need to build on their relationships to provide consumer value without resorting to the easy option of deep discounting."
He warns that canned lager, so often piled high and sold at a price cheaper than water, may not always be the "safe bet" the industry assumes.
"Innovation and investment is also crucial, particularly for canned lager, which could soon become a casualty of discounting if this offering is not fully addressed," he says. "The growing consumer demand for more premium bottled lagers and the burgeoning 'cider over ice' trend leaves canned lager in danger of flagging.
"At the moment, there is a fruitless share-steal situation with suppliers through ongoing discounted deals."
Something for the ladies
Another recurring theme that still leaves beer marketers scratching their heads is how to attract more women to the lager sector.
Once, there was little mystery to why it was such a turn-off: advertising had a boorish, almost moronic feel about it and was seemingly designed to appeal
to the knuckle-draggers among the male of the species. Much of the marketing
relies disproportionately on stereotypical male obsessions, particularly football, as well as low-grade laddish humour. But things are
better than they were.
Stella Artois is one brand that cannot be accused of pandering to idiotic men. Stuart MacFarlane, president of Inbev UK & Ireland, believes
improvements need to be made to the way lager is merchandised, which will not only make the environment more female-friendly but also rejuvenate the category generally.
"We can increase penetration by categorising
better and getting more women into the beer aisle," he claims.
He says that product innovation is a key focus for Inbev. "This company is evolving because we are now part of the biggest FMCG company in the world and are looking to improve on this through world-class innovation." Part of his brief is to learn from other areas of the grocery market which have not proved so repellent to women, and to be more innovative.
"Historically, brand innovation has been developed through the on-trade but I believe we need to move it more towards the take-home market. In fact, I want to bring an FMCG mindset to the brewing industry," he says.
"We have the brands to drive the innovation agenda. There are lessons to be learnt from other categories, for example
tea, snacks and soft drinks. I will take these lessons on board and look at applying them to the beer category."
Wigham at Coors adds: "We have a big opportunity to recruit more ladies to the benefits of beer. Only about 12% of beer is consumed by females in the UK, compared to 25% in the US and 36% in Ireland.
"There are some myths around the relative virtues of beer which we need to address as part of welcoming more females into the beer market.
"We can attract many more female drinkers to beer by sharing the good news: for example, nothing beats a cold beer when you need refreshment. What's more, it's fat-free and made from very natural ingredients - just water, cereals, yeast and hops."
MacFarlane says there is a need to address such issues as out-of-stocks, cold rooms and the entire chilling agenda.
He admits there are some areas where Inbev UK can raise its game - not just on the innovation front, but also with issues surrounding packaging, product dispense and the advertising for key brands such as Stella Artois.
"We can deliver good innovation from this business, but we need the right support
from the industry," he adds.
In truth, most of what the brewers are preaching is nothing we haven't heard before in some shape or form. There cannot be many people in the drinks industry who have not listened to repeated pleas for innovation, better marketing, bigger margins and more premiumisation.
The difference now is that the lager market has reached a
tipping point. The weakening economy isn't helping matters. Unless suppliers and retailers can start turning some of their wise words into positive action, this is a sector whose best days may well turn out to be behind it.
The buyers' views
How many lagers are in your range? Including some of the regional lines, about 180. It's slightly lower than it was in previous years. We've taken out a little bit of duplication.
Have you changed the way lager is merchandised? Not really. But we will be making some changes later in the year. It's about ensuring we've got the best space allocated to brands and packaging formats based on sales performance over the last year or so. There's been a switch to bigger packs and good growth from some brands that were relatively small before.
What are your best sellers? Stella is still far and away the number one SKU, although it has declined over the past year. We are selling an ever-increasing quantity of brands like Carlsberg, Carling and Foster's - and Grolsch has seen double-digit growth.
How much of your lager is sold on discount? It obviously varies depending on the time of year, but if you take an average you could say roughly half our lager is sold on promotion.
What trends are you seeing in lager? We're seeing strong growth from what I would call the genuinely imported beers, and beers with a bit of a story behind them. We're seeing double-digit growth in single-bottle world beers and "table" beers. Our customers are happy to mix and match and we're seeing an increased weight of purchase.
What are you looking for from suppliers? If they're launching new products it's about having a stage one, stage two and stage three launch programme . We want to see a good strong plan for the first 18 months or so. We were the first multiple to take the Heineken keg . It was a great piece of NPD and we're delighted with how that's performed. That's a key example of how suppliers can work with us.
Helen Moores, Tesco
How many lagers are in your range? We currently have around 250 SKUs from around 80 brands.
Have you changed the way lager is merchandised? The beer offering from Tesco has evolved significantly in the past year. We have a strategy to develop four key areas of our customer offering: world
beer. Each of these areas had additional range and space allocated to it for the summer of 2006; this was boosted again in the August 2007 category review.
beer ranges now include
more than 30 countries. The emergence of
eastern European lagers has lead to the introduction of not only Polish beers, but beers from Lithuania (Švyturys) and Estonia (Viru). We have also introduced Tusker from Kenya and Peroni Gran Riserva from Italy.
What are your best sellers? Our mainstream brands - Stella Artois, Carlsberg, Carling, Foster's - continue to sell well. They are well-known brands that customers can trust and are often supported by promotions. In addition, we have seen our own brand, Boheme 1795, show impressive sales from a standing start last July.
What trends are you seeing in lager? Increasingly, our customers are trading up
to more premium brands and are looking to try new products. In addition to the continued popularity of leading brands, our customers want a range of lagers from all over the world and in all styles on shelf to excite and challenge them, and we are ensuring that these products are in place.
What are you looking for from lager suppliers? We are always looking to drive innovation across the beer category in all aspects, so we ask our suppliers to show innovation through products, packaging
and marketing . Recent successful examples include the Foster's scuba and Kronenbourg dynamo.
Richard Genders, Bottle Stop, Cheadle, Cheshire
reports that lager sales are "very buoyant". His philosophy has always been to avoid mass-marketed brands and opt for imported rarities and even draught lager - Veltins, the German pilsner, is available on tap.
"We've been selling bona fide imported Red Stripe since last November and doing probably eight to 10 cases a week," he adds. "It's far nicer than what's brewed under licence. Another big seller is imported Bitburger.
"My imported Stella sales are very buoyant - people love it and there is a difference. I offer a choice: eight for £7.50 on UK stock and imported at £1.10 a can, and that's the one that goes. In fact when the eight for £7.50 has finished I will just do the imported one."
Genders' premium strategy has seen him buck the trend in lager sales - and has also seen his shop thrive while nearby Oddbins, Thresher and Victoria Wine stores have closed. How does he think rivals make profits with mainstream lager sold on discount? "It beggars belief," he says.
What's new at the big brewers?
Stuart MacFarlane Inbev
Stella Artois is the third-largest grocery brand in the UK and understandably dominates Inbev's thoughts.
The brand is currently being promoted in a 3,200-site poster campaign in what Inbev describes as "the single biggest monthly spend by any lager or cider brand in almost 18 months and the biggest investment in one burst of beer advertising since 2004 - highlighting Inbev UK's commitment to Stella Artois".
Stuart MacFarlane, president of Inbev UK & Ireland, says the company is looking at a "take-home rejuvenation programme"
that will focus on tackling key industry challenges - value, retail execution and product innovation.
He says: "There is the opportunity to look at how to drive value by asking what consumers really want from the beer category and what type of brands they will pay more for."
MacFarlane adds that the industry should work together to improve store standards and to tackle retail challenges to improve the "shopping ambience".
Mark Gerken S&N
Despite the distraction of a lengthy
and sometimes acrimonious takeover, which has resulted in its UK operation coming under the ultimate control of Heineken, S&N has been working hard on a strategy it believes has the potential to add £300 million to the long alcoholic drinks market in the off-trade.
The Category Vision project is designed to better understand modern consumers and offer them the right products for every drinking occasion. S&N believes this is a more sensible way of segmenting beer aisles than by alcoholic content.
"The beer with food opportunity is a growing trend and research suggests that by 2010, 70% of all alcohol consumption occasions will include food," says Mark Gerken.
"S&N UK has recognised this and invested heavily in marketing and activity linking key brands such as Kronenbourg 1664 and Foster's with food, and this has helped to develop clear identities for each brand."
David Wigham Coors
Coors has "an ambitious stream of development planned for the months ahead and is keen to work with customers to ensure we help them unlock further potential from the beer category", according to David Wigham.
"At Coors we have a passion for beer and want to see
it playing an increasingly relevant role in the lives of adults across the UK," he adds. "However, we are committed to promoting responsible beer consumption. Accordingly we are pleased to see and support the broadening occasionality of beer.
"The dining table was once the preserve of wines, but now there are many fine beers which can beautifully complement an array of fine food. For example, Kasteel Cru is a sophisticated bière blonde we produce in Alsace using Champagne yeast and will grace any dinner table. On other occasions we are seeing C2 broaden the opportunity for beer ranging from barbecues to a pint after sport."
The replacement for Artois Bock, this oak-aged addition to the Artois family is designed to appeal to beer aficionados. Inbev is promising major support for the brand this summer.
"Eiken Artois is brewed in Belgium to an original Continental recipe using carefully selected aroma hops, and harnesses an oak-aged maturation technique to produce a distinctively different style of lager," the company states. But will consumers be any more enthusiastic than they were about Bock - and is the association with the mass-market Stella necessarily right for a specialist product?
After doing well in trials in Sainsbury's, Thresher and Makro, Heineken gave its 5-litre keg a wider roll-out this spring. The £13.99 product ( that works out 63% more expensive than buying most canned lager) is the latest attempt by a major brewer to produce a credible large beer dispenser for the take-home market. Perhaps the trend towards bigger American-style fridges gives DraughtKeg a fighting chance of success, though the 10-hour chilling time makes this very much a planned, rather than an impulse, purchase.
Smoother-serve Foster's and Kronenbourg
Don't say "widget". Say "scuba" (for Foster's) and, ahem, "dynamo sytème" for Kronenbourg, but essentially we're still talking about a little gizmo that makes canned beer go all frothy.
The £12 million launch,
that involves TV advertising and sampling, boldly goes where no lager has gone before
- except of course Guinness Enigma and Carling Premier. The new products will sit alongside their regular counterparts and may even replace them if demand is strong.
Both brands are due some fresh impetus. Will the widget be sufficient to get sales bubbling again?
Top 10 lager
Value change Volume change
1 Stella Artois £503.1m -7.5% -5.7%
2 Carling £360.3m -4.9% -5.1%
3 Foster's £318.1m -4.1% -4.7%
4 Carlsberg £241.3m +20.2% +24.7%
5 Carlsberg Export £135.6m +2.9% +6.1%
6 Budweiser £146.5m -8.3% -7.3%
7 Kronenbourg 1664 £116.2m -13.6% -13.5%
8 Grolsch £97.2m -7.1% -7.1%
9 Tennent's £67.0m +1.3% +2%
10 Beck's £71.6m +2.5% +8.1%
Source: Nielsen , Value off-trade sales to April 19