E-Malt.com News article: UK: Beer market in decline

The beer market is in decline in the UK as Britons turn their back on what is, these days, often seen as an unhealthy and downmarket drink, Scotsman reported September 3. The trend has not been helped by a host of factors this year, as the recent round of brewing figures has revealed.

Not least, there is the dreadful summer weather that has dampened customers' thirst for beer.

Foster's and Kronenbourg brewer Scottish & Newcastle has also warned it may not meet full-year targets as demand waned amid the lashing rain seen in June and July. But the group noted that the smoking ban introduced across the UK since last March was adding to the weather-related trading problems, predicting the legislation could knock the entire UK beer market by up to 2 per cent.

Many brewers were hoping the ban - which came into effect in Scotland in March 2006 followed by Wales, Northern Ireland and finally England on 1 July - would be felt less in the summer, with drinking outside pubs expected to hold up in the sunny weather. The rain, however, emptied pub gardens.

Then there are the tough comparatives for beer firms to beat, driven by last year's football World Cup. Analysts note that football tournaments and hot weather are two main factors that can help create a positive blip in the otherwise downward trend for beer swigging in the UK. The absence of either, combined with the smoking ban, is bad news for brewers.

Results out so far from the sector only span the period leading up to the 1 July introduction of the smoking ban in England, although the effects are already thought to have been felt.

Guinness maker Diageo reported a 3 per cent dip in UK sales of the black stuff in the year to 30 June, with volumes down 5 per cent.

While it is unclear how much of this decline was down to the UK-wide smoking bans, it is worth remembering that in 2004, the group blamed a 6 per cent drop in sales of Guinness on the Irish smoking ban, which came into effect in March that year.

Stella Artois brewer InBev also gave little away on the effects of the ban, but its UK sales figures show a market under pressure.

The Belgium-based group saw volumes fall 11 per cent in the UK from April to June, driven largely by weaker demand for Stella.

The market this year has been hit by a detrimental mix of factors, but the UK is now notoriously tricky for beer sales and the big players have been making moves to help mitigate losses. One tactic has been to start positioning beer brands in the premium end of the market in a bid to counteract the "lager lout" image often associated with beer and lager.

This strategy has worked wonders for cider, previously regarded as cheap and tacky, but now enjoying something of a renaissance.

Heineken appears to have used this push to premium to good effect, reporting earlier this week that its repositioning of the lager drove a 27 per cent increase in UK volumes in the first half of the year.

InBev has also benefited from an increase in popularity of its more premium brand products, with second-quarter sales volumes leaping by 9 per cent for Belgian ale Leffe and 14 per cent for Beck's.

Rob Mann, consumer analyst at Collins Stewart, said in the UK, brewers are trying to reposition beer and cider as an accompaniment to food, hoping to steal market share from the booming wine market. This is a move that is also being made with the new smoke-free pub market in mind as bars are increasingly offering food to boost profits.

"Brewers are trying to look at 'drinking occasions' to try and encourage people to drink beer with food," he said.

"Bars over here have done a poor job of promoting beer in the past, but brewers such as InBev in particular are trying to reposition it by taking it out of the traditional pint glass and giving it a sense of occasion."

Foster's, too, has been toasting its move into other areas, with the recent relaunch of its Rosemount wine brand seeing a 60 per cent surge in second-half sales volumes, helping lift UK performance by 26 per cent. It added wine now accounts for 40 per cent of group earnings.

The most noticeable measure taken by these groups has been to switch focus away from the UK and other poor performing regions to emerging markets.

And the plan seems to be paying off. Diageo, for example, reported net full-year sales in Africa up 19 per cent and up 22 per cent in Latin America, leading to a 9 per cent rise in group-wide underlying earnings, at £2.16 billion.

InBev meanwhile delivered an 18 per cent increase in half-year earnings, at 2.19bn (£1.48bn) largely because of impressive volume hikes across regions such as central and eastern Europe, up 15 per cent in the second quarter alone.

The UK is far from insignificant to these groups, but its importance has dwindled. The UK and Ireland represents only around 15 per cent of Diageo's earnings, while the UK contributes just 6 per cent of InBev's global revenues.

Market experts have found it difficult to pinpoint why exactly beer drinkers have gone off the tipple in the UK, given that consumers are a fickle bunch and tastes do change.

Mann suggests lager's cheap availability has done nothing for the drink's reputation, let alone the profit margins for brewers. Treated as a loss-leader by UK grocery giants, beer is often placed in front of the fruit and veg aisle and sold at bargain prices.

The Stella Artois slogan may be that it is "reassuringly expensive", yet it is a difficult image to maintain when shoppers can buy it for 60p a can next to the lettuce in the supermarket.

This damage to "brand equity" is, said Mann, likely to be the greatest threat of all to the UK beer market and a more long-term issue than simple shifts in consumer tastes.


14 September, 2007