Keeping a cool head

Despite tough market conditions for brewers as sales continue to decline, some areas of the lager sector are offering a ray of light. Noli Dinkovski reports

Brewing continues to be one of the least comfortable areas for an on-trade supplier to be in. Tough market conditions cast a decidedly black cloud as overall lager volumes shrank by 2% while value was up 1% to £8.36bn, according to AC Nielsen figures for the year to January 2007.

Despite the pressures, brewers are trying to keep beer prices low, keeping increases roughly in line with inflation. InBev was the last of the big four brewers to up its prices, and did so to the tune of 3.4% - about 4p on the cost of a pint.

However, the pressure on the market is being compounded by the fact that licensees are also putting the price of a pint up in a bid to recover some of the high operating costs they are paying out.

"The constant upward price movement in the on-trade, whether it's forced by the brewers, retailers or licensees, means you are looking at on-trade price increases of three times the retail price index," says AC Nielsen consultant Graham Page.

Despite the on-going decline of beer sales - and the spectre of the smoking ban, which threatens to dent sales further, at least in the short term - some lager categories have been faring better than others.

According to AC Nielsen figures for the year to January 2007, standard lager, by far the largest category, has held its own fairly well, managing an increase of 2.6% in value, despite a 1.3% drop in volume.

This is in contrast to a 1.5% decline in value for premium lager, while other categories were hit even harder.

Super-chilled branding

So what is driving the relative success of the standard-lager category? Many feel the extra-cold, or super-chilled lager phenomenon has made a difference.

"There is no doubt about it that extra-cold has proved to be, in the main, beneficial to the sales of standard lager, probably increasing volumes by 2% to 3%," says Page.

This shift appears to be at the expense of premium lagers, particularly as some extra-cold brands are not necessarily any more expensive than their standard versions - Foster's Super Chilled, for example, is sold at the same price as regular Foster's.

While price is one factor, Pub People Company operations director Andrew Crawford believes the marketing might of certain brands is also pushing consumers in this direction.

He says: "The drift to standard lagers is probably more to do with the exceptionally powerful brand images of Carling and Foster's in the on-trade."

InBev UK commercial and field operations managing director Steve Kitching says that standard-lager brands have upped their game with many managing to command a higher price as a result, thus driving up profits. "While the price of premium lager has grown in line with total lager, the price of standard lager is up by 3.9%.

"There's no doubt that improvements in quality, coupled with the emergence of

premium-image brands such as Beck's Vier have added to this."

Recent joint AC Nielsen and CGA Strategy research claims premium lager brands "are not experiencing the levels of growth year on year that has previously been witnessed, partly due to a resurgence in the standard and world lager categories".

AC Nielsen figures show that while premium lager volumes have fallen by 4.8%, discovery lagers (defined as a combination of world and speciality lagers) increased by 8.9%, occupying 12.3% of the total premium lager market.

While the successes of speciality premium brands such as Staropramen and Leffe have been well documented, mainstream premium brands have had mixed fortunes. Market-leading Stella Artois has been working hard to address this and claims to have grown its distribution by 5% thanks to the introduction of its Reassuringly Chilled font.

Heineken UK customer marketing controller Chris Duffy feels many consumers are moving away from the default lager choices, and are looking for something different to the mainstream brands.

"There is increasing quality awareness among lager drinkers," he says. "People are, for example, prepared to pay a 10p to 15p price premium for Heineken as it is now an authentically-imported lager, made with natural ingredients."

Duffy feels that consumers are trading up from premium or standard lager into what he terms the "choice market" - including speciality brands such as wheat beers, and well-

being brands such as Kaliber.

The rise of cider

Cider has been very much the drink of choice over the last couple of years, but how has its rise affected the lager market? Despite cider's rapid growth, some feel that it is not substantially affecting lager consumption. "We have found from research that cider has taken small amounts of share from lots of categories," explains Carlsberg UK insight controller Adrian Shaw.

"We know from analysis of drinkers' data by Alcovision that last year cider still represented less than 1% of an average beer drinker's share of throat," he adds. "However, because of the relatively small size of the cider market, a small share of much bigger categories amounts to a large growth figure for cider."

Fuller's retail marketing manager Elton Mouna believes that cider has had a more marked effect. "In every round there's probably a cider drink in there somewhere," he says. "So it could be taking away, certainly from the lager market - but also from other categories too, such as wine and cask ale."

Scottish & Newcastle UK head of customer marketing for regional sales Shaun Heyes says speculation that buoyant cider sales are having an impact on lager is understandable. However, he feels that there is plenty of

headroom for growth in both the lager and cider categories. "The successful introduction of extra-cold variants proves that while the cider market continues to grow, well-supported lager brands that are backed by new product development and dispense innovation will continue to thrive."

The smoking ban is predicted to have a much larger effect. "Based on Scotland we expect a short-term reduction of around 3% and then some bounce-back once people have got used to it," says Shaw. "Obviously, some outlets will suffer more than that in the short term, but others will see consumption increase."

A community feel

Anheuser-Busch UK marketing director Vicki Kipling agrees that drop-off will occur, but as people start to see the on-trade premises as more of a community, many will start going back into pubs.

"Pub companies will be investing in outdoor facilities to ensure that the people who smoke continue to visit," she says.

Mouna has grounds for optimism as well: "The research I've done says that customers, after that initial shock, will enjoy the smoking ban. While there might be one or two smokers that initially say they are never going to go into a pub again, they will eventually all creep back in and actually quite like the camaraderie of the smoking areas, where they meet new and different people."

The future performance of lager depends greatly on the ability of outlets to attract consumers and convince them to spend their valuable leisure time there.

With the smoking ban in England just over a month away, that performance will be under close scrutiny.

Lager key facts

l Total on-trade value of standard lager increased by 2.6%, volume went down 1.3%

l Premium lager value was down 1.5%, volume decreased by 4.8%

l Draught premium lager volume declined by 5.1%, packaged premium lager went down 3.7%

l Discovery beers (world and speciality beers combined) volume increased by 8.9%

l Discovery beers volume is now 12.3% of the premium lager market

l Lager now has 60.3% of the overall beer

market, ale 33% and stout 6.7%

Source: AC Nielsen (MAT to end of Jan '07)

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