Their cup runneth over

23 June 2006 By db staff writer

“standfirst”>Mainstream lagers will certainly make hay while the sun shines on the World Cup. But niche imported beers and premium bottled ales are effectively targeting the better travelled, more discerning palate. Clinton Cawood

With sweltering heat, months of anticipation leading up to the World Cup, and England’s first game, against Paraguay, taking place early on a Saturday afternoon, there could be no better time for beer. In the UK market, lager sales throughout the year are characterised by spikes, but producers and publicans alike have been hoping that this season will be the big one.
Weather seems to be among the most significant factors influencing sales of beer, particularly when it comes to the big lager brands. InBev’s managing director for on-trade sales, Steve Kitching, believes that the weather affects the drinks category in general, but that the effects on the beer market vary. “Stout and ale over-index during winter,” he says, “but lager significantly over-indexes during the summer.” Adrian Davey, director of sales for multiple grocers for Coors Breweries, agrees that these spikes affect other categories, such as soft drinks, and adds that the off-trade is more extreme in its volatility.

According to Davey, these are the times when “you do see a real focus behind those very big brands. They’re very associated with football from a consumer perspective”. It almost looks as though football marketing activity would be saturated, but the majority of producers believe sport-related marketing is worthwhile. Carlsberg cites research suggesting that 25 million extra pints of lager were sold during Euro 2004, a figure that goes a long way to explain the willingness of lager brands to invest in football.

“There is such a natural fit with our core consumer. They love football and they love beer,” says Davey. With a number of major lager brands recognising this opportunity, it becomes important to make these associations count. As Davey explains, “There’s Carlsberg’s sponsorship of the England team and Budweiser’s sponsorship of the tournament. Where Carling scores well is that you’ve got to build a legacy of your sponsorship.” He is referring to a legacy worth millions of pounds, and built over time. “What Carling’s been able to do is appeal to the true fan as opposed to the headline fan,” Davey argues. For many of the larger producers, this promotional activity is essential. As Kitching explains, during peak times like these, “new consumers come into the category who choose brands they recognise”.

And this goes far beyond football. Stella Artois, also in InBev’s portfolio, has a long history of association with tennis in the

form of the Stella Artois Tennis Championships, started in 1979 when Stella was a niche brand.

A beer for all seasons
These seasonal spikes have some practical implications when it comes to ensuring that there is an adequate supply of beer when demand is high. Davey explains that this issue is addressed by having a flexible supply chain, as well as adequate forecasting. “We’ve been planning for the World Cup since the draw was made in December,” he says. “We have eventualities for how England could progress in the tournament. Kitching agrees that it is necessary to forecast demand, particularly when it comes to less predictable factors such as the weather.

For other players in the beer category, these concerns are not as pressing. Steve Curzon, marketing director for Adnams and Bitburger, acknowledges an element of seasonality in the beer market, but believes, “It’s not a major factor – it’s just a fact of life.”

Michael Cook, who is in charge of imported beers for Pierhead,  believes the demand for imported beers is currently “a little bit distorted because the World Cup has created a massive demand for beers from all participating countries,” but he believes that afterwards, “It will die down a bit.” Cook finds that in this part of the market, the typical increases in sales are not as relevant. “During July and August sales flatten off, if anything, as a lot of people are away. We trade fairly evenly throughout the year.” He does, however, believe that there is an increasing interest in imported beers, as well as what he terms “authentic beers”. In his opinion, “Consumers are more willing to look to the products they’ve tasted while abroad.”

Foreign exposure

Tiger Beer UK’s managing director, Bennett Neo, also believes that an increase in travel is encouraging interest in niche beers. As Tiger is an Asian beer, Neo also sees a related influence: “There’s more interest in terms of economy – all of the growth is in Asia,” he says, which encourages an interest in all things Asian, including beer. This is related to the type of consumer that Tiger attracts. “They want to seem to be worldly and discerning,” says Neo. “These are the kind of people who like to try new things, and then be the ones to introduce a new beer to their friends.”

Curzon at Adnams also believes that, as consumers travel more, speciality beers are likely to increase in sales. “One area we’ll see growth in is European beers,” he argues. In addition to more travelling, modern day consumers are also increasingly savvy. “Consumers have so much more information at their fingertips. They hear about new beers, and new bars to visit. And that’s got to be good news for the beer market,” says Curzon.

InBev is well aware of the potential for speciality and imported lagers, as Kitching confirms: “We’ve seen these categories grow exponentially over the last five years.” He goes on to say that, “The rapid growth of these categories indicates that there is a market for international brands.” Kitching confirms that in many cases, these beers are being discovered first-hand by consumers. “People are better travelled now and more adventurous in what they’re willing to try,” he says. InBev is in a good position to take advantage of this, with brands such as Hoegaarden and Leffe.

Cobra Beer’s marketing director, Simon Edwards, agrees that while there is still a place for mainstream lager, there is an increasing emphasis on quality, a move “towards discovering the craft of beer”. Cobra’s range offers this, particularly in the form of King Cobra, the high-alcohol, twice-fermented lager complete with a Champagne-style cork closure. Cobra has also recently increased the emphasis on its draught offering. “It’s an affordable luxury – you can trade up for a few extra pence,” Edwards explains.

The speciality and imported segment of the beer market, according to Davey, is far from the biggest threat to mainstream lager brands. “Particularly in the on-trade, the beer market is somewhere where we’ve felt the growth of wine over the last decade,” he says.

Going global
As with wine, beer producers have begun targeting developing markets. While many producers head in this direction Davey explains that parent company Molson Coors is primarily focused on mature Western markets, specifically Canada, the US and the UK. The beer market has arguably been more regional than other drinks categories, but this has changed recently.

As Davey explains, “Only in the last four to five years have we seen global international brewers. Fifteen years ago, all brewing capacity in the UK was owned by UK businesses, but the reality now is that all the major brewers are international.”

Cook believes that this is a cyclical process. He believes that, particularly in supermarkets, “every five to six years the range coagulates, and then it all breaks down again”. He also believes that this diversification is frequently sparked off by the on-trade. “They’ve been good in the last 18 months. They all want different beers and to be distinctive. That has sparked a lot of interest.” Interestingly, Cook finds that trends in the US are not indicative of future trends for the UK, and believes it is unlikely that home brewing will take off like it has across the ocean. “The US market is introverted. The

UK is much more aware of foreign countries and foreign things,” he says.

Tiger beer is interesting in this regard. While it is a mainstream brand in many countries in Asia, it is a niche brand in countries such as the UK and the US. Like the bigger lager brands in the UK, Tiger is involved in extensive football sponsorship in southeast Asia. In its export markets, however, “we compete in a different segment,” says Neo. “We’re not with the big boys like Stella. We use a sniper gun and they use a shotgun – they’re targeted at everyone. If we use a shotgun, we’re wasting bullets, and we don’t have that many bullets.”

This demonstrates the importance of the UK, both to local brewers and other producers. In investment terms, this is evident in the significant sums invested in sponsorship, as well as in marketing and innovation. Curzon explains that, while Adnams has been involved in limited exporting to Scandinavia, “We think the opportunity in the UK is far greater than the potential for an export business. The on-trade marketplace is tough, but the opportunity for a premium, distinctive, speciality beer is significant.” Last October, Asia Pacific Breweries made clear the importance they place on this market by opening a local office. “We want to be called the global Asian beer, and to do that we have to be successful here,” says Neo. “Whatever we do in the UK is of great interest back home.”

There is a definite shift towards creating the global brands that Neo refers to. Davey believes, “The increase in globalised brands is positive. It means more investment behind those brands, and the ability for those brands to be marketed. Traditionally, the strength of the beer category is brands, so the more investment the better.” 

At a glance: beer statistics

• According to ACNielsen, 28.6% of lager in the off-trade last year was sold during summer months (w/e 4 June to w/e 27 Aug 2005).
  The five weeks to Christmas saw 13.2% of the annual volume sold (w/e 5 Dec to w/e 31 Dec 2005).
• The top ten lager brands in the UK off-trade account for nearly 75% of off-trade lager volume, whereas 13 years ago it was less than 25%, according to Coors Insight Market estimates to Dec 2005.
• Beer is the biggest category in the off-trade in volume terms, accounting for 54.5% of the market.
• The 2005 World Drink Trends Pocket Book lists the UK as sixth in the world for per capita consumption of beer, with the Czech Republic in first place, followed by the Republic of Ireland and Germany. It lists the UK as 20th in the world for wine consumption, and 21st for spirits.
• Recent figures from Canadean report that Anheuser-Busch’s Budweiser and Bud Light are the two largest brands by volume, each accounting for 17% of the top 10 brands worldwide.

Premium ales have got the bottle
Ale, despite accounting for a significant percentage of the beer market, and being poised to benefit from increasing consumer interest in less mainstream beers, is not the most promising segment in this market. As InBev UK’s managing director, Steve Kitching, says, “Ale is continuing to decline by 3.2% (in the on-trade) in the most recent 12-month period that compares with a growth of 0.5% for the beer category as a whole and 2.2% for lager.” He points out, however, that “30% of the market is hardly insignificant, and with an annual turnover of around £4 billion, ale remains an important part of the business.”

Coors has an interest in the ale category as well, and Adrian Davey, director of sales, multiple grocers, suggests that there is very little crossover between sales of lager and ale. “It is good to see the growth of premium bottled ales. It’s very positive for the beer category, where they play a relatively small, but higher-value part of the beer category,” he says.

Ian Loe, research and information manager for The Campaign for Real Ale (CAMRA), suggests that, despite recent growth among smaller brewers, cask-conditioned ale sales have been falling since the mid- to late-1990s. One of the reasons for this has been the shift to the off-trade. “Cask-conditioned ale used to be 90% on-trade, now it’s 60% or 70%, and it’s in the on-trade that these ales are sold,” says Loe. Another reason he gives for the decreasing prevalence of cask ales is that, “Half the pubs in the UK are owned by big chains. They make money from the rent they charge, but also from the margins they make on the beer they sell, so they buy from the bigger brewers where they can get bigger margins.” Small brewers have achieved a measure of success in recent times, however. According to Loe, small brewers now account for over 50% of the real ale market.

Meanwhile, Kitching suggests that one way to increase sales of ale is to emphasise how well it goes with food. “Ale is well placed to benefit as the focus on food in pubs grows,” he argues.

© db July 2006