Weathering the storm

This summer’s washout has affected the drinks industry both practically and metaphorically, but there are occasional bright patches, according to Spiros Malandrakis, senior alcoholic drinks analyst at Euromonitor International.

An array of images could fittingly summarise the state of the UK alcoholic drinks market in 2012. Rain-soaked plastic bunting reflected in the muddy water of a widening pothole would be one. The vision of an overcrowded train carriage swiftly passing by a fading Olympics poster could also do the job.

Perhaps Andy Murray’s tearful portrait following his defeat in the Wimbledon final would suffice. But beyond sensationalist metaphors, this year’s Jubilee-induced optimism and feverish Olympic aspirations are failing to turn the tide for the troubled domestic alcoholic drinks industry.

HERE COMES THE RAIN

Macroeconomic indicators make the weather appear positively Mediterranean in comparison. The UK economy officially slipped back into recession in April 2012 and it is expected to mostly flatline for the year. Unemployment is at a near 20-year peak, with youth joblessness the highest since records began in 1992. Household final consumption expenditure fell by 1.7% in real terms in 2011 and is expected to decline by a further 1.5% in 2012.

Business investment has weakened appreciably, house prices continue to slide and consumer confidence has plummeted. And this is just with regard to top line socio-economic undercurrents.

The neo-prohibitionist rhetoric that has been creeping into the public sphere over the last couple of years appears to be gaining traction. The government’s punitive tax escalator regime continues to squeeze the drinks industry’s margins hard as its laissez-faire promises give way to a more interventionist approach.

Scotland is ignoring the EU competition authorities’ protestations to proceed with the legal measures that will pave the way for minimum pricing. From a lowering of the drink-driving limit to the abolition of multipack deals, government agencies and health advocacy organisations seem to be mounting a full-frontal attack. If only the industry did not also have to face its own shortcomings and inherent maturity issues.

According to Euromonitor International, total alcoholic drinks volumes are set to drop by 1% in 2012, an improvement on 2011’s dismal 3% decline, but definitely not a figure prompting many in the trade to break out the Champagne.

And while Champagne sales themselves are set for a relative rebound with less than 2% total volume growth tipped for 2012, a cheery attitude is in short supply.

Overall, beer is set to suffer over a 2% total volume drop, still light grape wine will see further acceleration of its chronic decline, the brandy and Cognac category is expected to remain trapped in its downward spiral, while spirits can at best hope for an anaemic 1% total volume gain for the year.

RAYS OF SUNSHINE

Amid the prevailing gloom, pockets of optimism can still be found. As ready-to-drinks and high-strength premixes come of age, the category is set for an enviable 4% total volume growth for 2012.

RTDs have proven to be the riotous youngsters (of legal drinking age, mind) arriving fashionably late to the alcoholic drinks family’s dinner party.

Temperamental, adaptable and contradictory; flirting with new audiences as much as with controversy, the category’s transformations have been as documented in the trade press as they have been attacked by the tabloids. The UK market, inherently susceptible to fads and novelties, has been quick to fall in and out of love with every format adopted by the chameleon-like category.

So it should come as little surprise that it is becoming the testing ground for innovation once more. From cocktails-in-a- can to ready-to-pour ventures in the on-trade, RTDs/high-strength premixes are also among the best placed to take advantage of a potential downturn, adapting their offerings accordingly.

Cider also appears to be maintaining its unstoppable momentum, with premiumisation and flavour sophistication retaining their key roles in expanding penetration rates.

Nevertheless, the category’s seasonality could still prove to be its downfall in rain-soaked 2012.

And then there is the craft revolution.

Small, irreverent, independent producers have been mounting guerrilla attacks on the mainstays of the alcoholic drinks industry for a while, and the intensity of the assault is rising. Microbreweries are spearheading the rapidly advancing push, paving the way for the likes of tiny boutique distilleries.

There is no denying that this ongoing war of attrition is a game changer in this country, prompting conservative industry behemoths to think outside the box while facing up to existential questions about their operating models, product development tactics and promotional strategies.

From lager to bourbon, and Irish whiskey to ale, offerings are evolving. As consumers in the UK increasingly drink less but better, such products appear to be best placed to capitalise on their experimental business models and reference to heritage and authenticity.

Looking ahead, the UK alcoholic drinks market is bound to find the economic headwinds it is weathering to only intensify.