Quality focus vital for on-trade growth
emerge from the shadow of a buoyant take-home market and generate
new momentum for beer sales, according to a new assessment of the
sector by the UK arm of brewing giant Interbrew. The widening price
gap between pubs and supermarkets makes quality all the more
important, the report suggests.
The Interbrew UK Market Report urges the on-trade to become "passionate" about delivering quality - vital if pubs, clubs and bars are to win back market share from off-licences and supermarkets.
"Beer accounts for 58 per cent of an average pub's turnover, so the performance of the category is vital - and product quality is the key element that will determine its future health," the report claims.
The value of total beer sales in the UK in 2003 was £15,193 million - a 2 per cent increase over the previous year - with on-trade sales worth some £12,683 million- a 1 per cent rise. In contrast, take-home sales reached £2,510 million, a 5 per cent improvement year-on-year.
The Market Report, which is available online, calls on the industry to work together to tackle the root causes of poor quality by developing a "live and breathe quality culture through a commitment to it at every level".
The brewer, which makes such well-known brands as Stella Artois and Boddingtons in the UK, warns that the drinks industry faces a year of major challenges during 2004, urging suppliers and retailers to work together to tackle them.
Among the issues which will have to be addressed this year are the need to communicate a better image for beer, the growing concern about alcohol-related problems, operational problems caused by the implementation of the new Licensing Act (allowing much longer opening hours) and the growing burden of red tape.
Steve Cahillane, chief executive of Interbrew UK, emphasised the importance of strong brands to the drinks industry. "Companies with strong brands who know how to nurture them will be successful even in a challenging business climate. One thing that should be quite clear to all brand owners - whether they are brewers or retailers - is that quality and consistency are two prerequisites for success.
"There is a whole host of reasons why some pubs have been successful while others have not. Consumers have proven they are willing to pay more for a quality experience: the success of Starbucks illustrates that people will stand in line to pay many times more for a coffee they could brew at home for a few pence.
"Why? Quite simply, because they are putting a value on the whole experience. That same consumer could walk into a pub, at any time of day, and find a clean, welcoming environment, and a perfectly poured beer, served (with a smile) at the right temperature and with the correct head.
"In addition, they could enjoy a brand they know, trust and love, and the pleasure of time with friends, or just relax alone, in a stimulating pub environment. That is what great brands deliver…and consumers should and do pay more for it."
The report also highlights the growing pricing gap between the on-trade and take home markets, which it suggests could be detrimental to pub businesses in the long term. "Price cutting in the take home market has become an irritation for on-trade retailers who believe it is impacting on their business through encouraging more people to do their drinking at home. It is also a problem for brewers who are seeing the brand equity of premium brands being undermined.
"But there are two sides to the pricing debate: multiple grocers insist they are giving the consumer what they want, cheap beer at key purchase periods, and they can point to their ever-growing market share as proof that this strategy is working."
Multiple grocers increased their share of total alcoholic drink sales by 5 per cent in December - 2 per cent ahead of the market as a whole - and now account for a 62 per cent share of all take-home value sales. Independents accounted for a 21 per cent value share, followed by multiple specialists - off-licences - with 11 per cent and convenience outlets with 9 per cent.
The dominance of the multiples is the main reason for the 'devaluation' of the beer sector, the report suggests, highlighting the discounting of beer which is frequently used to attract new customers into stores.
"They [the supermarkets] are using beer as a tool to drive footfall but the knock-on effect is that it is devaluing the beer category and that is unsustainable going forward. Ultimately, this devalues the on-trade as well."
Interbrew said that even it was not immune to the problem of discounting. "A brand such as Stella Artois has become a victim of its success because it is such a huge brand with strong consumer appeal that take home retailers invariably feature it as part of their pricing activity.
"However, it is worth pointing out that, despite consistent price cutting, Stella Artois still commands a premium price in the take home market compared with other big lager brands and this is greater relatively than in the on-trade."
Not only is the pricing gap widening between the on- and off-trades, Interbrew UK's report suggests that the two industries are increasingly attracting different kinds of consumers.
According to data from TNS AlcoVision, cited by the report, take-home drinking is increasingly driven by wine and lager: in 1992, seven million adults had drunk wine at home in the previous seven days but by 2000, that figure had risen to ten million.
"The shift in drinking habits is clear from highlighting the take home 'winners' and 'losers', based around penetration over the last seven days," the report said. "Wine, premium lager, vodka and premium ale are in the former group while standard lager, whisky, standard ale and ready-to-drink (RTD) brands are in the latter.
"Increasingly, take home drinking is not about special occasions or entertaining, it's more about everyday drinking such as 'vegging' in front of the TV or sharing a bottle of wine with a meal. It is part of everyday behaviour but there is an element of 'treat' in terms of the brands being chosen which is driving the rise of premium ale and premium lager.
There is an opportunity for retailers to focus on sharing occasions at home with food through developing speciality beer and through a focus on premium lager to counter the threat of wine."
