MARKET: South Africans drink up

The desire for premium brands continues to be one of the most widespread themes shaping consumer choice across alcoholic drinks in the Cape. Euromonitor International’s Catherine Mars reports

SINCE 1994, economic growth and the implementation of measures to redress social imbalances have led to a rapid rise in urbanisation and disposable income levels for previously disadvantaged South Africans. These consumers underscore their sense of “having arrived” with the brands that they associate themselves with, including their choice of alcoholic drinks. To date, this has resulted in much more overt linking between alcoholic drinks brands and individuals’ concepts of status.

Buppies spur growth
The emerging black middle-income group, known as “buppies” (black up-and-coming professionals or black yuppies), has seen rapid growth, while the primarily white high-income group is static or in decline. Black middle-income consumers tend to be more willing to experiment than other mid- and high-income consumers and are open to new brands and more overt marketing. Volume sales to black middle-income consumers are estimated to account for over 65% of total alcoholic drinks, with higher proportions in some categories such as beer than in others such as wine.

This consumer group enjoys the image and status that is reflected when seen to be consuming a premium brand. Unlike other consumers who opt for mainstream brands at home, the black middle class consumer prefers premium brands both at home and in on-trade establishments. Given the importance of this consumer group, it has been the target of most marketing in South Africa over the past five years. A priority is being placed on badging, such as the move to premium beers like Peroni Nastro Azzurro or Miller Genuine Draft, both belonging to SABMiller Plc, as consumers closely align the unit price and image of the brand with their personal social status. In addition, many consumers eschewed long-standing brands, that are too familiar and therefore viewed as old-fashioned, in favour of new premium brands, such as in RTDs.

Within spirits, the shift to global brands has been pronounced and linked to the shift towards premium brands. Many South Africans still have lingering perceptions of local brands as being inferior due to the sanctions that were imposed on South Africa during the apartheid era. Tellingly, international spirits accounted for 41% of total volume sales of spirits in South Africa in 2007, up by three percentage points since 2002.

Whisk(e)y benefits
Brandy, which is locally produced and therefore both affordable and readily available, has been the leading spirit for many years. With globalisation, however, brandy began to decline (volume sales were down by 3% in 2007). Meanwhile it is not surprising that whisk(e)y sales are on the up, given the product’s powerful image as a status symbol (volume sales of whisk(e)y grew by 8% in 2007). In fact, South Africa has one of the fastest growing whisk(e)y markets globally in actual volume terms, along with China, India and Thailand.

Although Jack Daniel’s is perhaps the best-known premium whiskey brand in South Africa, Irish whiskey continues to show the greatest growth in whisk(e)y, with this category dominated by Jameson (Pernod Ricard). “Other” blended Scotch whisky is the most prolific whisky category in South Africa in terms of brands and also saw very good growth in 2007. These brands tend to be more accessible to consumers and include famous brands such as Diageo’s Bell’s, J&B and Johnnie Walker. These are the brands most frequently stocked in on-trade establishments. While Johnnie Walker benefits from extensive marketing and an offbeat appeal, Bell’s is a more traditional brand. J&B showed the most aggressive marketing of the three in terms of attracting younger and more aspiring consumers, meanwhile, with its high-profile 2006 re-launch of J&B Jet. The re-launch epitomised the growing competition among brand owners for the attention of image-conscious consumers, particularly the emergent black mid-income group.

Faced with a declining category, brandy producers have realised that the black middle class presents great opportunities. The advertising campaign for Klipdrift brandy (Distell Group Ltd) epitomised brandy players’ attempts to attract new and younger consumers and to challenge its image as a second-rate drink for older white consumers. The advertisement plays on the Afrikaans for “with ice” (“met ys”) with the African language equivalent of the word “wow” (“eish”) to create the phrase “met eish” or “with a wow factor”. The advertisement memorably promotes the brand for enjoyment in a multitude of ways, depicting cross-cultural exchanges between younger consumers with apparently little in common.

Premium beer on the rise
Beer has seen a similar trend to spirits, with economic development encouraging consumers to seek high-status and new beer brands. While this was most evident in younger and newly affluent consumers, demand for premium products was by no means limited to this group. The firm favourite in the premium arena is Amstel lager. However, in late-2006 the brand was repatriated from licensee SABMiller to Heineken NV and only became available again from July 2007. SABMiller countered the loss of Amstel with new domestic premium lager Hansa Marzen Gold. However, Amstel’s removal also boosted consumer interest in, and trials of, SABMiller’s other premium lagers that enjoy an international image and have a status appeal, namely Miller Genuine Draft, Peroni Nastro Azzurro and imported brand Pilsner Urquell. In an effort to increase penetration of the premium market, SABMiller launched Grolsch in South Africa in June 2008.

Euromonitor International expects that growth in beer will continue to be led by premium and low-alcohol beer as consumers see status and added benefit in consuming these beers over standard variants. However, growth in other alcoholic drinks may constrain beer growth, particularly as many female consumers also favour RTDs and wines. The explosive growth of whisk(e)y as a popular alcoholic drink may further impact growth of beer.

Niche opportunities?
Although RTDs provide a means of reaching out to young consumers, this category is characterised by the fickle nature of its consumers, who are constantly seeking brands that convey an appropriate social status and fashionable image. Euromonitor International expects that this category will struggle to retain its aspirational appeal and will lose out as consumers seek premium options. That said, it is unlikely that RTDs/high-strength premixes will see a decline as many brands have a loyal consumer base, and RTDs generally will always be popular among new drinkers due to their sweetness.

Cider is another niche category that has seen strong growth led by Distell’s Savanna brand (10% CAGR by total volume 2002-2007). The brand’s popularity with black consumers is the reason cited for this rapid growth, while its continued growth suggests that its success is not a passing fad but a more enduring appeal to a wide consumer base. The brand remains affordable but is also considered to portray the correct image for more style-conscious consumers. However, Euromonitor International believes that it is unlikely that such high momentum can be sustained unless producers develop new products. Similar tactics have been employed by producers in the UK, another market in which cider sales have recently taken off. For example, niche brands have launched variants designed to appeal to women, such as Aspall’s Perronelle’s Blush, a rosé cider made from a blend of English apples and blackberry liqueur, and H Weston & Sons’ Weston’s Sparkling Rose Cider, a mix of cider and raspberry juice.

Rising interest rates threat
The South African exchange rate is set to make it more difficult for local distributors to maintain prices of imported brands over the mid- to long-term. Meanwhile, consumers are showing signs of declining disposable income levels, due to a number of socio-economic factors. After a number of years of growing consumer spending, particularly among black mid-income consumers, the general economic slowdown is hitting this group hard. The economic situation even led to the introduction of new credit legislation in 2007 to prevent unprincipled lending to these consumers, who have high levels of household debt.

Looking ahead, these consumers will be burdened with high debt repayment responsibilities, limited access to further credit and rising costs of living. Alcoholic drinks are not viewed as necessities but will remain a popular indulgence. Consumers will remain aspirational and younger consumers will spend money they can ill afford to ensure they maintain the image that they have set for themselves. With consumers looking to maintain an upmarket image but to maximise value for money, there is an opportunity for players that can create a premium image for brands while ensuring that pricing remains favourable and cheaper than most premium brands. 

Catherine Mars is an alcoholic drinks analyst at Euromonitor International 

db © August 2008