UK premium on-trade bucks trend as value sales grow

While the UK on-trade market has contracted by over two million cases in the past three years, consumers are spending more than ever on wine at the higher end, with the average bottle price in the premium on-trade rising almost three times faster than in the rest of the sector, according to Liberty Wines’ 2018 premium on-trade wine report.

The report, developed in partnership with CGA, investigates how wine sales in premium restaurants, hotels, gastropubs and bars are thriving in contrast to a continued decline in the mainstream “outside premium” on-trade.

In 2017, the total UK on-trade market saw volumes drop by 6% and value by 1%, however within this the premium on-trade has bucked the trend to deliver strong growth at the top end of the market.

Importantly, the report divides the on-trade into “premium” outlets, defined by the quality of the premise itself and scored on criteria such as product range, cost, setting and commercial success, with venues falling outside of this standard defined as “outside” premium.

It is in the “premium” sector where there is growth, indicating a trend toward premiumisation and spending more on better quality wines. This is being driven not only by a pursuit of better quality, but the desire to drink less by an increasingly health conscious consumer.

“UK consumers are drinking less as health concerns grow,” the report states. “Liberty Wines/FlyResearch’s consumer survey shows that 47% of UK adults are more concerned about the health effect of alcohol than they used to be and 45% are cutting back on their alcohol consumption for religious or health reasons. Alcohol spending is also under great competition from other leisure activities. Consequently, the share of adults who have drunk alcohol in the last week has fallen seven percentage points since 2007.”

UK ON-TRADE CONTRACTS 

Consequently, the UK on-trade market had contracted by over two million cases in three years, however consumers are spending more on wine when they go out, with average bottle prices rising almost three times faster in the premium on-trade than in the rest of the on-trade since 2014 (see chart 3.3, 3.4)

“This strong rise in premium on-trade average bottle prices has tracked significantly ahead of inflation due to tax and foreign exchange,” the report said. “The effect of this is that 14% more is spent per bottle of wine in the premium on-trade in 2017 than in 2015, even once the impact of tax and currency are adjusted for.

“We believe this is because the premium on-trade works harder on the quality of its service, food and drink. Outside the premium on-trade, the average bottle price is tracking just below currency and duty inflation, suggesting that wine quality or margins are declining in this sector.”

Average bottle price 2015-2017

With regards to what people are drinking in the on-trade, more than six out of 10 wines consumed in the premium on-trade are European, with wine sales from France, Italy and Portugal all growing in 2017. New Zealand Pinot Noir also had a strong year, which now accounts for 20% of premium on-trade wine sales from New Zealand, with Sauvignon Blanc still the leader.

“The only two countries growing both volume and value are New Zealand and Portugal, increasing New Zealand’s market share from 5% to 6% and giving Portugal a discernible market share (of 0.4%) for the first time,” the report added. “Additionally, Australia, South Africa and Italy are outperforming the premium on-trade. France, with the highest market share (30% by volume and value) is tracking the market exactly (-4% volume, +4% value).”

In particular, the report noted an increasing interest in regional-specific wines from Australia, “quite often made from unusual grape varieties”, but also Australian Chardonnay, with the ABC (Anything but Chardonnay) motto becoming increasingly false. This category has gained momentum in 2017, driven by sales of high value Australian Chardonnay, resulting in a 17% volume and 25% value growth.

SPARKLING GROWTH SLOWS

The sparkling wine category has also continued to grow, which includes Champagne, with sales in the premium on-trade increasing by 149% since 2013, while English and Welsh sparkling wines have enjoyed double digit percentage growth every year since 2013 (albeit from a low base).

“Growth has been less dramatic outside the premium on-trade, but is still striking at +80% by value over five years. Despite these impressive numbers, the rate of growth is slowing across all parts of the trade,” the report notes.

On-trade value sales 2015-2017

Summing up the performance of the UK on-trade, David Gleave MW, managing director, Liberty Wines, said it was clear that there was still the capacity for growth in the premium on-trade, “despite the uncertain economic climate, especially if consumers can experiment more and drink better wine”.

“One of the most positive aspects is that the growth derives from a much more diverse range of grape varieties than in the past,” he said. “This bodes well for outlets with the skills required to put together an adventurous list. Our research illustrates that value at every price level is vitally important to the premium drinker. This is shown by the continued rise of the average selling price. As part of the value offered by outlets, consumers expect to see a well-laid out wine list supplemented by good glassware and educated staff.”