DB CONFERENCE 2011: New world order

Social media, emerging markets, renewed health lobby pressures… This year’s db conference faced a series of fresh challenges. Rupert Millar reports.

Anthony Hawser, chairman of the drinks business, opened the annual conference declaring it a “departure” from the normal focus of these events, looking as it was at social media, its role in marketing today and how the “new consumer” views and uses it.

What do they want from their drinks and the industry? Hawser declared that for a start they want “more out of life than just a drunken experience – they want a fuller experience”. He cited last year’s Fine Wine Fair, which saw over 2,000 people visit over a weekend, as an example of this. Once there, the public spent an average of two hours each talking and tasting with exhibitors.

Hawser went on to highlight some growing trends in the world at large, such as an apparent shift from volume to value. Average UK per bottle wine prices rose in 2009/2010 from £4.75 to £5.57, and all categories above £6 are registering some kind of growth.

Super-premium spirits are back in vogue and there has been an increase in competitions to define quality. As things get bigger and flashier at one end, so people are beginning to look at smaller distillers and breweries at the other for something more unique and individual.

China he described as “buoyant” and an “absolute must for Cognac companies”. Furthermore, China’s demand was helping to drive innovation, investment and product improvement. Most important of all though seems to be the fact that “consumers want more education”.

Richard Brown

Richard Brown (above) of consultancy firm Cognosis was the first speaker of the morning and he laid out what he considered to be the five “driving forces shaping and reshaping” the industry today.

“None of them are new,” he added, “and few of them are fast-track, but our sense is that each is now building to a critical point, and when they play out they’ll change the drinks landscape forever.”

Emerging markets was the first of these, and China and the other BRIC countries are of course the hot topic at the moment. Their impact on developed western markets is predicted to increase in time, particularly when one considers that China has overhauled Japan as the world’s second largest economy.

Research suggests that China’s global market share of all luxury goods will triple to 44% by 2020 and will be worth US$75 billion. Due to high tariffs and the threat of counterfeit products, Chinese buyers are increasingly turning to the west to source their luxury paraphernalia.

A study by Tourism Economics found that Chinese tourists made nearly 3.7 million trips to Europe in 2010, and the number of Chinese tourists to the UK is set to double by 2015. All those tourists are expected to indulge in some sort of luxury shopping.

Already, Chinese buyers account for over one-third of all luxury purchases in the UK, whereas UK consumers themselves account for a mere 15%.

Brown then turned his attention to the ideas of global brands and premiumisation. Furthermore, he asked the question: “How many brands are truly ‘global’? Is the global brand pecking order now locked-in? And, once a brand’s earned the appellation ‘global’, what next?”

He cited Johnnie Walker Scotch whisky as perhaps the most global of all global brands as it has a presence in a lot of countries and sells enormous quantities. Smirnoff is technically bigger, but 80% of its volume comes from only 10% of the world’s countries.

As for premiumisation, the east and west could probably not be more different. Conspicuous consumption and “the appetite for showy, indulgent, luxury drinks products will continue unabated in the emergent markets, prompting a welter of showy pack designs and ostentatious products. Our analysis suggests we have reached a high water mark for traditional premiumisation in the west”, said Brown.

As the concept of affordable, “everyday luxury” becomes more common and also more attainable, so provenance is becoming an ever more important part of a brand’s luxury image. This “knowledge-based premiumisation” also includes ethical, environmental, health and social responsibility concerns.

New routes to market were considered next. With the exception of Russia, the on-trade in most countries is in decline and growth “will be at best anaemic”.

The internet, however, has great potential. Brown said its rise meant that “new niche players can now easily tap into an affluent, interested, knowledgeable consumer pool, and as far as influencing brand choice and adoption is concerned, we now have a new generation of specialist drinks bloggers eager to share their ideas and views on the web. Their influence will grow”.

Then came the subject of consolidation. Everyone appears to be doing it. Various companies including Beam Global, Brown-Forman and Rémy Cointreau’s Champagne wing have all been earmarked to go (the latter taking place just a few weeks later) and the likes of Diageo, Pernod Ricard and SABMiller are all “acquisition-hungry” and circling.

Finally, the health issue facing the industry was mentioned. The World Health Organisation (WHO) has announced that it is “committed to tackling consumption” and Brown declared this a “critical event for the drinks industry”.

The WHO’s plan to tackle what it sees as dangerous binge-drinking among the young and expand its marketing and advertising with regard to the dangers of over-consumption is a real issue that the trade must address.

Brown pointed out that if consumers were to stick to government guidelines on consumption it would leave the trade nearly £12bn out of pocket. If they followed WHO guidelines, that figure would climb to £55bn. He asked the question: “Is the industry shaping the agenda, or merely reacting?”

In summary, Brown told the assembled members of the trade that the industry needed to persuade people to “drink less, drink better – drink different, drink differently”, and make itself “a force for change, a force for the future and a force to be reckoned with”.

Click here to see DBTV talking to Richard Brown after the conference

Rupert Millar, April 2011