Fighting for a slice of the pie

You'd have to have been living on the moon for the past couple of years not to appreciate that these are challenging times for brewers, be they globally owned behemoths or regionally-based operators.

While there has been much talk of beer sales racing ahead in developing markets like Russia, in developed zones such as Western Europe the picture is less positive. In the UK in particular the worry lines are lengthening.

UK beer volumes are reported to be down anywhere from five to eight per cent in recent months. Changing tastes among drinkers, compounded by the smoking ban, hikes in business costs and a wary consumer outlook have combined to create a slope down which pub revenues are in danger of slithering. And the decline in beer sales in particular appears to be gathering pace in all but niche or premium product areas.

Meanwhile the much vaunted move towards a 'café culture' in the UK appears to be running out of gas, with many pubs and brewers alike preparing themselves for a tough time ahead on the back of a tough few months already.

Richard Evans, president of InBev's UK and Ireland operations for the past 18 months, is all too aware of the pressures facing both his own group and the competition. InBev UK saw volumes fall in the last quarter by 5.2 per cent, lower than the market decline of 5.7 per cent but all the same, not great news.

But he is putting a brave face on things.

The key challenge

"The key challenge for us is how we drive value in a market that has seen an ongoing decline in beer sales in the pub. But a [long term] decline in beer volumes is absolutely not inevitable.

"Interest rate rises or falls, the weather, football tournaments; these things are all with us at various times," he says. "Some people are better at running pubs than their neighbours. Good pubs aren't withering on the vine. Give people want they want and they'll be happy."

When it comes to bolstering sales and the value they offer, lessons can still be learned from other retail sectors, Evans believes. "We've seen that people are willing to pay more for premium products - coffee, fruit juice and so on - and we've led the premiumisation of beer in the UK."

While consumer tastes and economic circumstances are changing, many people are more affluent than they've been before, he says. Tapping that well of leisure spend potential is the battle that has to be won, he argues.

"How do we grow beer value in the pub? How do we do that in the current social context, where there's a lot of noise surrounding the role of alcohol in society?

"It's very easy to blame someone else for our problems, but at the end of the day, I don't believe that people are going to the pub for cheap beer. They are going for the experience. It's up to us all to deliver them an experience that's worth paying more for. Do that and they'll come back for more of it."

Prices and the supermarkets

The issue of price, premium or otherwise, is a contentious one, particularly in the light of the supermarkets' role in alcohol retailing. But while recognising the tensions that exist between licensees and supermarkets, Evans does not publicly cast any stones in the direction of the large grocery groups.

"I'd ask a licensee or anyone else, do you use a supermarket? At the end of the day, however one feels about them - and I'm not going to discuss how I feel about them - supermarkets both here and around the world are a proven model; consumers like them. They're in growth and they sell alcohol.

"We're trying to get our brands to where consumers are and places where they want to spend their money. Supermarkets are one of those places. Anyone who's in denial about that needs to wake up."

Evans goes on: "Whether it's pizza, bread, beer or wine, supermarkets sell things more cheaply than you can get them anywhere else. That's what they're good at and that's why they're growing. People like getting value for money."

Supermarkets decide what to sell his company's products for, not InBev, he says, although he won't be drawn on the issue of selling below cost, beyond pointing to a recent government announcement which ruled in supermarkets' favour.

"InBev sells its brands at a higher price premium to the other standard lagers in the supermarket than we do in the pub. We've done it like this for years and it remains the case today.

"Our average premium on Stella Artois versus the three leading standard lagers in the pub is in the teens. Our average in the supermarket is more than twice that. We're actually more premium priced in the off-trade than we are in the on-trade."

Perception gap

But doesn't it irk him that there is still a perception issue, that InBev brands such as Stella as seen as anything but "reassuringly expensive"?

"People know where a good place is to get cheap beer or wine," says Evans. "It's the supermarket. People like getting stuff cheaper. And as long as these retailers operate within the law, that's the way it is. It's like the smoking ban. Complaining about it won't improve your business.

"We're in the same place. We work to apply the same strategy whichever channel of trade one is talking about: we sell alcoholic products, but we want to grow our business. In a world in which there is rightly a key focus on responsibility and consumer trends the smart way to do that is to encourage people to spend more on a higher quality experience than try and drive volume."

Value is also important, since, as Evan points out, "you can't take barrels to the bank".

"With a product like Beck's Vier we've shown you can get a better quality drinking experience from a beer with the same strength as the competition and charge more for it."

In the face of rising commodity costs brewers are likely to have to charge more generally for their products in the coming months, but Evans will only comment that InBev will need to "reflect in our prices" increased raw material costs.

With all the talk of price rises there remains one segment of the licensed sector that so far appears to be inured to the problems facing brewers, namely the large pub companies. A number of these have attracted criticism for their habit of driving hard bargains with suppliers, but who then fail to pass on those savings to their lessees and tenants.

The power of the pubcos

How does Evans feel about the buying power of the big groups?

His response is diplomatic: "It's not my place to comment on how much power some companies should or shouldn't have. That's for governments to decide.

"Of course pubcos have buying power but it's like the supermarket debate; they are legally entitled to exist, they have scale and they are entitled to use it. Do I like it? That's not a question I'm going to answer. Do I wish it was otherwise? That's not a question I'm going to answer. But it's a fact of life."

Does Evans think these companies have InBev over a barrel, so to speak? Again, diplomacy rules the day. "I don't think anyone's got anyone over a barrel. In all types of industry scale is something people like to have; those who have it will try and use it. No-one's forced to agree to something that's against their economic interest.

"For us, we focus our energy on growing the top end of the mix, knowing that it's a value-added strategy, whoever owns the pubs we supply."

Meanwhile InBev's owners are said to be hard task masters. Evans acknowledges the group is "demanding" but says the challenge of running a portfolio business in the UK has its advantages.

"I have been able to attract additional investment on the back of the longer term opportunities we see here. If [InBev boss] Carlos Brito was sitting here he'd say 'Yeah, it's all about long term value creation, but you can't tell me it's all jam tomorrow; the long term starts today. So show me what you're going to deliver on day one, then day two and so on'.

Evans recognis