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| ALCOHOLIC DRINKS |
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| Executive Summary |
| Breweries and the Beer Market
The British brewing industry is in the middle of the most significant period of restructuring in its long history. In 2000, the UK beer market was worth £16.42bn, a rise of 9.4% since 1996.
Regulatory measures introduced by the Government during the 1990s eventually persuaded two of the UK's five national brewers, Whitbread and Bass, to diversify further into hotels and other catering sectors by selling off their brewing divisions in the first half of 2000. Within the same dramatic
6-month time frame, the UK's largest brewer, Scottish & Newcastle, bought the largest French brewer, to become a European performer.
Meanwhile, the beer market has continued to shift away from its traditionally diverse pattern, in terms of products and brands, towards further dominance by a handful of heavily marketed, and widely distributed, international lagers or on-trade 'dark beers', such as Caffrey's (invented in the 1990s by Bass) and Guinness, the main stout. The leading lager, and an outstanding performer for many years, has been Stella Artois, the flagship brand from Interbrew, the Belgian company that bought Whitbread's brewing division (having previously used Whitbread as its UK distributor).
The shrinking range of available beers has made life difficult for the UK's regional brewers. Some have given up brewing, while others, such as Greene King (producer of popular traditional brands, such as Old Speckled Hen and Ruddles), have merged into larger units. However, there is also speculation over the future of many of the nationals' domestic beer brands, with the market leader — Scottish & Newcastle — intent on building an international structure based on its newly acquired Kronenbourg lager brand, and much of the brewing industry coming under foreign control.
In contrast to the profound supply-side changes, the beer market is a mature, static one, dependent on conditions such as heatwaves or football tournaments to boost growth significantly. In 2001, the immediate future of the market depends on the outcome of a government decision to force Interbrew, which bought both Whitbread and Bass Brewers, to dispose of Bass Brewers. Also up for sale in mid-2001 is the largest of the regionals, Wolverhampton & Dudley.
Key Note forecasts that the UK market for beer will increase in value by 8.8% between 2001 and 2005.
After Dinner Drinks
The after-dinner drinks market was worth around £1.03bn in 1994. After-dinner drinks as defined in this report consist of port (£62m), brandy (£530m) and liqueurs (£433m).
The UK market for port consists largely of standard ruby and premium ruby. Both are at the lower end of the price scale, but the slightly more expensive premium ruby is taking a growing share of the market. The UK market for brandy is divided largely between French grape brandy and 3-star Cognac. The liqueurs market is subject to differing segmentations. Key Note identifies three main sectors: advocaat, cream liqueurs and traditional strong liqueurs.
Most of these products are relatively expensive or luxury items and, as such, have suffered a decline in sales during the recession years since 1990. There is some sign of recovery, however, in 1994 as far as sales by volume are concerned, but strong competition is restraining prices and hence sales by value.
The market rests heavily on brands and branding, but own labels in all sectors now represent a significant and growing threat to brands. Most of the major brands are marketed by five multinational drinks groups. Brand support is expensive. £1m a year in above- and below-the-line promotion could be considered a minimum. After-dinner drinks tend to appeal more to older, upmarket and male consumers. Cream liqueurs are the exception to this and their sales are also heavily weighted towards Christmas. Brand owners fight a constant battle to rejuvenate their consumers profile and spread sales more evenly throughout the year, but with very limited success.
The economic recovery is good news for after-dinner drinks. People may be dining a little more formally at home and eating out more. They are also trading up to more expensive ports and brandies. The fast growing cream liqueurs market is going the other way, however, as products with a wine base heavily undercut the prices of those with a spirit base.
The short- to medium-term prospects are for better business than has been experienced for most of the 1990s so far and Key Note forecasts the market to increase to around £1.07bn by 1997.
Dark Spirits and Liqueurs Plus
Key Note estimates that the UK market for dark spirits and liqueurs reached £3.69bn in 2000, having risen by 3.9% from the previous year. Between 1996 and 2000, the dark spirits market grew by 10.2%. This has coincided with an increase in the white spirits and liqueurs share of the market. The market for dark spirits and liqueurs received a boost with the advent of the Millennium, with a corresponding rise in sales during the latter part of 1999, although growth has been more modest since.
The dark spirits and liqueurs market, as described in this report, consists of several sectors. In the dark spirits sector, subsectors include Scotch whisky, Cognac and brandy, non-Scotch whiskey and dark rum. Whisky matured and distilled in Scotland is known as Scotch whisky while whiskies from any other part of the world come under the classification of non-Scotch whiskey.
Like the white spirits market, the dark spirits market is facing increasing pressure from other sectors of the alcoholic drinks market. Wine, in particular, has performed exceptionally well in recent years, and the popularity of premium-packaged spirits (PPS) has also increased their share of the overall market, often at the expense of more traditional drinks such as Scotch whisky and brandy. Scotch whisky, however, remains the largest market sector.
Sales of spirits and liqueurs have traditionally been biased towards the on-trade, although the take-home trade has increased in importance during recent years. However, owing to higher prices, the take-home trade has made most of its recent gains in volume, rather than by value. The growing power of the major supermarket groups has led to price discounting in the sector and this has further hampered market growth.
Two large companies, Diageo PLC and Allied Domecq PLC, dominate the dark spirits and liqueurs market. Both companies have recently disposed of other business interests, and are now positioning themselves as international drinks companies, focusing upon a number of key brands. Elsewhere, a number of small, independent distillers exist, especially within the Scotch whisky sector, although their number is in decline.
Scotch whisky remains one of the UK's largest exports. Exports are now starting to recover again, having been hit particularly hard by the recent currency crisis that swept the Far East economies.
The market for dark spirits and liqueurs is likely to experience marginal growth between 2001 and 2005, although most of this growth will come from the liqueurs sector. The market for dark spirits has a mature consumer profile and many sectors have been slow to innovate, thereby failing to attract younger drinkers. There will also be increasing competition from other alcoholic drinks, eroding the sector's share of the market even further.
Wine Market
The wine market was worth £7.9bn in 2000, which was an unusually buoyant year due to the Millennium celebrations. However, market value increased by 43.2% between 1996 and 2001. Wine's share of all British consumer spending on alcoholic drinks was 23.7% in 2000. The UK wine market by volume grew at a slightly slower rate — by 26.2% between 1996 and 2001 — indicating a gradual increase in spending per bottle. This reflects a move towards better quality wines, rather than a price inflation, which has been held back by a fiercely competitive marketplace. Every major wine-producing country competes in the UK market, which relies almost entirely on imported wine.
France retains the lead, with a 35.1% share of the value of all wines consumed in the UK in 2000, but Australia is leading the New World. Imports of Australian wine increased by 53.6% between 1998 and 2000, while wines from the US, Chile and South Africa also grew in popularity. This applies particularly to the take-home market, where wines that are treated as 'brands' by the consumer have soared in popularity. The majority of the branded still light wines (SLW) are New World, led by Jacob's Creek (Australia) and Gallo (US), but supermarket own-label wines, using grape 'varietals' as names, (e.g. merlot and sauvignon blanc) are also important.
The European importers fare better in the on-trade (in pubs and restaurants, etc.), which still accounts for 42.3% of the market value in 2000 for wines, despite the growth of take-home through grocers' superstores. However, the European or 'Old World' share relies partly on traditional wines, which are going out of fashion with UK consumers. These include sweet German and Italian wines and fortified wines, such as vermouth and sherry.
The rise of the New World wines means that the UK market is more competitive and more fragmented by number of suppliers than ever before. Some consolidation is taking place at a global level, with companies such as the UK's Diageo PLC and Allied Domecq PLC, acquiring more export-oriented wineries.
The perception of market growth created in the supermarket aisles is not accurate, since consumer data shows that the proportion of the British population that drink wine has not been increasing for several years. Per capita consumption, at 15 litres a year in 1999, is only growing gradually, and remains far behind the 50 litres that is typical of some European countries. Future consumption may be driven forward by lower prices, with many exporters fearful of a glut of wine on the world market in the early 2000s.
White Spirits and Speciality Drinks
The UK white spirits market was worth £2.31bn in 1997, representing 39.4% of the UK market for spirits and liqueurs.
Vodka is worth £1.18bn, gin £640m and white rum £410m. The minor white spirits are led by tequila, but pre-mix cocktails in single-serve containers, such as Bacardi Breezer or Smirnoff Moscow Mule, is the new growth category.
With vodka and white rum appealing to younger drinkers, the white spirits have fared better than the dark spirits such as whisky and brandy for many years, although real-term growth is difficult to achieve in any spirits market.
In value terms, sales are concentrated in the on-trade (public houses, clubs and bars), where investment in more attractive drinking outlets is a positive factor. Higher volumes are sold through the more competitive take-home outlets.
The distinctive feature of white spirits is the category dominance by a 'big three' brands: Gordon's gin, Smirnoff vodka and Bacardi white rum. The strongest category dominance (over 80% market share) is by Bacardi, the privately-owned white rum that leads the overall global spirits market.
Smirnoff and Gordon's were united in 1997 by the merger of Grand Metropolitan and Guinness, whose spirits subsidiaries will now trade as United Distillers & Vintners (UDV), the world's largest distilling group. Other UK distillers are led by JBB (Vladivar vodka), Allied Domecq (Beafeater gin) and Seagram (White Satin gin).
Prospects for growth can only be regarded as reasonable, as long as these drinks and their pre-mix cocktail versions continue to appeal to young adults (except gin, which has an older consumer profile). The millennium celebrations should provide a temporary boost for the spirits market
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