ON-TRADE: BEER – Handle with care

While speciality beers continue to perform well, the rest of the beer market is flagging. Could wine be the nation’s top tipple in 20 years time, asks Ben McFarland

Spot the odd one out: The whereabouts of Osama Bin Laden, the cure for the common cold, the secret to happiness and sales of beer are down. Yes, that’s right, it’s the last one. All the rest are things we don’t know. The beer business is shrinking like a crisp packet in a roaring fireplace. To lose 20 million barrels since 1990 is unfortunate, but to lose two billion in value (a decline of 17%), well, that’s just plain careless.
In 1990, the average person drank just under 140 litres of beer every year. That figure now stands at 124 litres. In the same period, though, alcohol consumption has increased with cider, spirits and, most noticeably, wine all making significant gains.

Much of the blame can be attributed to the disheartening situation in the on-trade. The decline of the on-trade beer market is accelerating. According to ACNielsen, for example, in the Mitchells & Butlers estate, one of the UK’s biggest managed retailers, beer’s share of sales value has declined from 69% in 1994 to 35% in 2005.

Food, meanwhile, has grown from 11% to 29% while wine has mushroomed from 11% to a 25% slice of the mix. In the last 15 years or so, wine consumption has almost doubled from 14.2 litres in 1990 to 26.2 litres in 2004. In another 20 years, if trends continue as they are, wine will usurp beer as the nation’s favourite tipple.

Brewers, their innovation purse-strings tightened by the margin-hungry pub companies, are desperately trying to recruit new drinkers by launching new product ideas, improving quality at the point of dispense and linking beer with food. All, sadly, to no avail judging by the latest ACNielsen figures, which cover the year to July 2006.

Overall beer sales in the on-trade are down 2.4%. The only sectors where beer currently enjoys growth is in the heavily discounted managed pub sector (2%) and the hotel arena (1%). Elsewhere, sales are down in tenanted pubs (-1%); in independent pubs (-4%) where food is playing an increasingly important role; in dance-oriented clubs (-7%) where trade is slow and the future is gloomy; and in restaurants (-10%) where beer makes up a small percentage of the mix.

So, what is beer doing to pull up its sandal-clad socks and roll up the sleeves of its woolly, gravy-splattered jumper? To find out, the drinks business has donned its white-coat, grabbed a clipboard with graphs and stuff on it and run the rule over the various different sectors.

Lager
Lager is responsible for 70% of the entire beer market and boasts six of the top 10 beer brands. Carling, Fosters, Carlsberg and Stella Artois make up 40% of beer sales alone – more than the entire ale market (25%) – and there’s little sign that lager is losing its fizz.

Nor, for that matter, does it look like the big brands are loosening their grip. With the resources to brew big and distribute wide – not to mention the substantial benefits of a huge economy of scale – the major lager brands are able to offer the big behemoth pub companies exactly what they’re after. Namely, huge volumes at low prices, and consolidation is set to continue with the top 10 brands predicted to hold an 80% share of the on-trade universe by 2015.

The arrival of super-chilled variants has further strengthened the hands of the leading players with many venues stocking both options. The chilled versions have added impetus particularly to the standard lager category which is outperforming other sectors but is still showing neither growth nor decline.

“I think standard lager is doing better than premium lager because the price differential (between standard and premium) is widening, people are drinking a little more responsibly, the standard brands have been pumping a hell of a lot of marketing dosh into the category, and then there’s the cold phenomenon,” says Graham Page, consultant for ACNielsen. “Cold seems to be working. In the outlets where there’s duplication, there tends to be a significant uplift in sales.”

According to on-trade drinks analyst CGA, Carling Extra Cold, Foster’s Chilled and Carlsberg Extra Cold are now stocked in 21%, 13%, and 5.5% of on-trade outlets respectively.

Predictably, standard lager on tap is strongest in wet-led premises and YPVs (Young Persons’ Venues). Further CGA research has revealed that standard draught lager is present in 97% of pubs where drinking makes up the majority of the sales mix. While in dance-led venues, draught lager is a staple for 96%.

However, it is only present in 57% of venues where food is at the forefront of the offering. Familiarity, perhaps, has bred contempt, with the likes of Carling and Foster’s deemed incongruous companions to food. The likes of Amstel and Beck’s, from Heineken and InBev respectively, have attempted to add a more premium sheen to the standard category, while Coors Brewers has very high hopes for C2, a new 2% version of Carling that the American-owned brewer believes will herald an entirely new and potentially attractive long-term sub-category.

The premium lager sector is in 3% decline according to ACNielsen. Stella Artois remains market leader with a reassuringly extensive on-trade distribution of 56% (CGA). Amid talk that the brand is on the downward curve of its brand cycle and losing its premium credentials, owner InBev has not only market-tested a chilled version for the mainstream market but has also unveiled the Artois Brasserie concept, a trio of premium brands that come together under the Artois banner. In addition to Stella Artois, for which Inbev is anxious to retain its premium reputation, Brasserie Artois features Artois Bock and a new 4% ABV wheat beer called Peeterman Artois.

“Brasserie Artois is about bringing much-needed impetus to the beer category,” says Steve Kitching, managing director, on-trade sales at InBev UK. “What consumers want and when they want it has been changing; they are increasingly looking for a better quality experience; they’re willing to indulge themselves more often but aren’t willing to pay for a product unless they know it will deliver.”

Rival Coors Brewers, meanwhile, has introduced The Cold Beer Station which showcases not only Carling Extra Cold but also new Extra Cold versions of Grolsch, Coors Fine Light and even the long-forgotten Caffreys brand. It has also released Coors Sub-Zero, served at minus 2.5 degrees and poured from a rotating font.

In addition to these new-fangled innovations, further value is being added to premium lager in the shape of lager brands that straddle the gap between premium lager and speciality brands and that command a slightly higher price point and profit margin for retailers. CGA data reveals that Staropramen, for example, has doubled its distribution in the last year while the likes of San Miguel, Budweiser Budvar and Grolsch continue to thrive in the repertoires of those drinkers looking for an “alternative” to the usual lager suspects.

According to CGA, the average number of fonts on the bar top has increased from 10 to 11 and the kind of beers that tend to be picking up the extra position are often of the “discovery” or “boutique” variety.

Speciality
Although the speciality beer market is still very much in its infancy, it is still the fastest growing sector. According to ACNielsen, sales were up 17% last year and the likes of Hoegaarden and Leffe (responsible for 32% and 28% of category growth respectively) are gaining distribution in mainstream drinking establishments.

You’d think that the packaged lager sector would be alive to the sound of kerching-ing tills following the demise of alcopops, but recent ACNielsen figures have revealed that it’s suffering a 3% decline (year to July). Four of the top five brands are experiencing a slump in sales, Corona Extra being the sole anomaly. Why is this? Well, firstly, the traditional breeding ground for packaged lagers, namely the high-street bar, is experiencing a tough time following the halcyon days of the 1990s.  “The situation on the high street is pretty bloody tough at the moment and it’s certainly hit packaged beer harder than anything else in the beer market,” says Graham Page at ACNielsen. “Many people are predicting that there’s going to be a general
return to more traditional venues in city centres and a shift away from the YPVs.”

Secondly, packaged cider has emerged as a real threat. You only have to walk into a London pub recently to witness how Magners hogs the facings that were once occupied by the likes of Budweiser, Beck’s and Holsten. Packaged cider, according to ACNielsen, recorded a staggering 173% jump in the year ending July 2006. In London, Magners has become the number-two packaged long alcoholic drink brand in the on-trade and the leading packaged cider.

With Scottish & Newcastle and Diageo both aggressively marketing two new packaged ciders, the beer boys have opted for an “if-you-can’t-beat-em-join-em strategy” with Carlsberg recently relaunching its Elephant lager brand on the back of a recommended over-ice serve.

Other so-called innovations in the premium packaged lager market include Carlsberg Edge and Foster’s Twist, two variations on lager ‘n’ lime. Page adds, “Packaged lager is struggling overall but if you break down the market into sub-sectors there are a handful of brands that are doing extremely well such as Leffe and Corona.” 

Cask ale
There’s been a lot of trade talk recently about a cask ale renaissance. While there are plenty of reasons to be optimistic, with some regional and micro brewers seeing 20% growth in cask, it would be an error to get overly excited. According to ACNielsen (and in contrast to other, less reliable, insights into the market) the cask ale market is not growing overall, but declining still, at a rate of 6.7%.

Regional cask brewers are doing very well and the craft brewing sector is thriving, boosted by a helpful sliding scale duty, but by no means everyone in cask is making gains or, indeed, money. Consolidation is rife with the leading players skipping down the acquisition trial and picking up smaller brewers and their big pub estates. It’s a polarised sector with a growing legion of small, microbrewers at one end, a handful of strongly performing major regional players such as Greene King, Wolverhampton & Dudley and Fuller’s at the other, and in between are a whole host of medium-sized brewers fighting for distribution and guest beer listings with the big pub companies.

SIBA’s (Society for Independent Brewers) direct delivery scheme, whereby small batch beer is dispatched direct to local pubs, has tapped into the consumer demand for authentic, local produce while the proliferation of blonde beers and golden ales has lured cynical lager drinkers into the category. SIBA’s 2006 report reckons it may be 2008 before cask market growth returns, though ACNielsen estimates that it could be sooner.

Certainly, cask ale needs to find new ways of recruiting new drinkers or lapsed drinkers, with women and young drinkers high on the priority list. Cask needs to get more in touch with its feminine side as only 5.9% of cask drinkers are women. Similarly, with 88% of ale drinkers over 35 years old, beer could do with getting down with the kids (or at least those over the age of 18).

Also, while the quality issue is being substantially improved by both Cask Marque and the individual efforts of both brewers and pub companies, room for improvement remains.  According to Why Handpull?, a recently formed think tank made up of Wolverhampton & Dudley, Greene King, Fuller’s, Adnams, Caledonian, Charles Wells and Everards, the key to boosting sales of cask ale is in raising quality and reducing quantity.

The group has recommended that the most efficient way to sell cask is to cut down the number of cask ale brands on the bar and ensure quality. “Throughputs are a real problem. There are still too many bad pints being poured,” says Alistair Darby from W&DB Brands. “Our research has shown that people want quality rather than choice but there are far too many beers on the bar.”

Why Handpull? is also campaigning for retailers to make handpull beer more expensive. “It’s bewildering that handpull beer in pubs is sold at a discount to premium lager when there’s no question that people are willing to pay more for it,” says Darby. “Publicans and pub companies would be more willing to work with cask ale if the margins were more attractive.”

Why is Beer struggling so?
The contrasting fortunes of wine and beer can be attributed to a number of factors:

• People are getting older. Some 51% will be aged 50-plus by 2016, in excess of two-thirds by 2050, based on current demographic trends.
• Visits to pubs and clubs (the traditional stamping ground for beer) are a lot less frequent. In the last 10 years the percentage of Britons visiting the on-trade at least once a week has slumped from 41% to 35%.
• There’s been a demographic shift from the working class to the middle class. Today, more people work in Indian restaurants than ship building, coal mining and steel manufacturing combined and there are three times as many PR consultants in this country as there are coalminers. Less thirsty work and more money to spend on “sophisticated” drinks.
• Women. Yes, women. They drink now and drink quite a lot. Only they tend not to drink that much beer, preferring wine and spirits instead. Not only that, they turn the heads of men too.
• Widening price gap between the on- and the off-trade. With supermarket beer prices cheaper than a two-penny lady of the night, the price differential has stretched to £1.30 a pint. The spirits differential, notably, has remained virtually untouched in the last decade. This means that beer has to really perform in the on-trade in order to impress. Problem is, though, it often doesn’t.

© db November 2006