The drinks market is no stranger to the term premiumisation, with suppliers pitching anything from premium soft drinks to independently produced craft beers at the pub trade.
According to research company CGA Strategy, premium products are worth more to the on-trade than ever before, with the combined sales total for premium softs, long alcoholic drinks (LAD) and spirits reaching £7.2bn in the past year (up to 11 June 2016). This was up £719m year-on-year and equates to 29.5% of total LAD, softs and spirits sales.
The premium end of the wine category continues to grow, with sparkling wine and Champagne sales up by 15.4% this year alone, CGA says.
Soft drinks premiumisation has been ahead of the curve with brands such as Fever-Tree and Belvoir Fruit Farms driving that growth. And, according to CGA, this is continuing with premium soft drinks growing by 36.3% by volume and 48.7% in value over the past year.
Many licensees have already jumped on the premiumisation bandwagon by upgrading their drinks portfolio in a bid to offer customers a different experience and, of course, boost profits.
Premiumisation may be helping these operators drive their businesses. But is it right for everyone, and how can pubs capitalise on the growth in this sector?
While it may be trendy to serve G&Ts with juniper berries in a stemmed glass, don’t forget the customer. There is no point premiumising if all they want is a pie washed down with a pint of their favourite lager.
“Ultimately your customer is your customer. You have to make sure you are not trying to take them on a journey that they are not going to go on,” warns Tim Bird, owner of the seven-strong pub group Cheshire Cat Pubs & Bars and winner of the Best Drinks Offer at the Publican Awards in 2016.
His strategy of targeting the drinks offer specifically to each pub has been a successful one for the chain he runs with Mary McLaughlin. And premiumisation has been central to this success.
The Red Lion pub in Weymouth, Dorset, stocks 80 rums, the Bulls Head in Knutsford, Cheshire, focuses on whisky, and the Three Greyhounds Inn, also in Knutsford, on brandy, while the Fitzherbert Arms in Swynnerton, Staffordshire, plays on ports and stocks 32 of them.
Of its two pubs in Mobberley, the Roebuck Inn focuses on nostalgic drinks while the Church Inn specialises in wine. The Cholmondeley Arms, near Malpas in Cheshire, now boasts 366 gins and “can boast a gin for every day of the year”, says Bird.
“The crunch for us is we could make our lives very easy by doing the same thing in every pub. You could have a standard portfolio of spirits and ales, a standard of the fizzy stuff and the soft drinks too. We don’t do that,” he says.
While the sites specialise in certain spirits and drinks, there is a core premium and quality offering giving customers a choice; from cask beer to spirits and from wine to soft drinks.
Bird believes that offering something different that will educate the consumer is the way forward.
“Our motto has always been to puzzle people with choice and puzzlement is entertainment,” he says.
“If I could do craft lager everywhere I would, but there aren’t the producers. More people are drinking Peroni, Birra Moretti and different craft beers and pilsners, far more than are drinking the mainstream 4% ABV brands.”
He cites gin as a category that has been very successful in premiumising, driven in part by the suppliers, not the consumers.
“Fever-Tree came along trying to sell to me and it was a girl with a suitcase. I said what are you going to do as you don’t have enough premium gins and you are making premium tonic?
“I think Fever-Tree probably drove the gin market into explosion without knowing,” he argues.
He also highlights staff training, serving drinks in the right glassware and garnishing the drinks correctly, as essential to offering a premium-quality product.
Prepared to pay more
And don’t forget that, along with the quality experience, is the fact that people will be prepared to pay more.
Surely this would mean a bumper margin is to be had for the licensee? Not according to Bird, who says it is not all about driving the gross profit (GP).
“We sacrifice margin to keep the customer entertained. There are some pubs out there where, if they are not getting 73% or 74% GP, they are not doing well. We are looking at it saying we would rather bank the cash,” Bird explains.
“Is the customer demanding more premium? I don’t think so. I think the customer is demanding more choice. And in so doing, the suppliers of more choice are premiumising. It’s fashionable to premiumise.”
Mark Robson, managing director of Red Mist Leisure, the seven-strong Surrey-based pub group, agrees that premiumisation is being driven by choice.
“The key thing for me is giving people the choice and encouraging them by making clear what the benefits are of taking an upgrade,” he says.
The move towards premium has changed his business over the past few years. For example, the pub group used to stock two gins but now stocks 20 and uses Bombay Sapphire as its house gin.
Its gin list has three local gins; two from Surrey and one from Hampshire, and the group does everything it can to promote these, arguing it helps the local economy and provides a more premium spirit offer.
The craft beer revolution has also meant a premiumisation within the pub group. Three years ago, Red Mist Leisure only stocked recognisable beer brands on the bar, but now the only remaining mainstream brands it serves are Carlsberg and Guinness.
“With the more niche products, customers feel they are getting a better experience that might cost them 20p, 50p or £1 more,” Robson says.
“They are getting an experience that feels handmade and crafted; one that feels like a bit more love and passion has gone into it.”
A similar revolution has taken place with its bottled beer range, which has also been revamped. The business stocks more niche beers including Rothhaus, which it imports directly from Germany. The results have proved to be positive for the pub retailer.
“We still stock 10 products, but sales of bottled beers have gone up 177% in the past 15 months because people want something different. We have a range that we are proud of and we are quite cutting-edge,” he says.
He predicts the trend towards premiumisation will continue with a mass decline in mainstream drinks over the next five years.
“I think English wine is huge at the moment and it is one to watch. We are in the middle of a promotion with English sparkling wine and we are trying to get people not to have a glass of Prosecco at £5, but to have a glass of English sparkling wine at £6.50 instead, and they will do it,” he says.
He also admits that stocking niche premium products does not necessarily mean a higher GP.
“We don’t necessarily make a higher GP on them, but we do make a better cash margin. They also help you engage with customers better and that drives loyalty,” he says.
“Our view is you have to give people what they want. But if they want to push the boat out then give them the option of doing that by trying something new and they will pay the price tag that goes with it.”
Pubs that premiumise their drinks offer means more choice for the consumer. And suppliers large and small have been keen to capitalise on this by offering innovative and exclusive products and flavours.
Soft drinks have been at the forefront with launches of premium tipples to appeal to both adults and children.
Russell Kirkham, senior shopper marketing manager – out of home at Britvic – says that licensees can capitalise on the growth by offering consumers unusual mixer options.
Alternative to gin and tonic
For example, he advises licensees to try to promote a gin and Purdey’s cocktail as an alternative to the classic gin and tonic.
Britvic business builder Jon Raw, licensee of the Black Bull in Morpeth, Northumberland, says gin is one of his biggest sellers. The pub currently stocks 50 different types, up from just five it used to have available.
“With this growth in gin and other premium spirits comes increased interest in mixers too – and we like to try and give our customers more unusual choices alongside the classic options,” he says.
Meanwhile, premium soft drink supplier Belvoir Fruit Farms agrees and says that licensees should tap into the growing trend for innovative flavours.
Pev Manners, Belvoir’s managing director, says: “Consumer tastes currently are quite retro with an interest in the old classics such as Elderflower Pressé, Ginger Beer, Raspberry Lemonade, Cox Apple Pressé and Freshly Squeezed Lemonade in our range.
“However, there is also a consumer seeking something more ‘off the wall’.”
Consumers’ diverse tastes and willingness to experiment does not mean that pubs should turn their back on the classics though.
As David Styring, spirits trading manager at Molson Coors points out: “As booming as the premium market is, we advise publicans to stock a good range of drinks to ensure they are appealing to the broadest customer base.”
As craft beer has been one of the major success stories in recent years, there is still more opportunity for pubs to capitalise.
Andrew Turner, on-trade category and trade marketing director at Heineken, says that craft beer can be a good income driver for pubs.
“Thanks to the higher price point that many craft beers command, it’s important that licensees consider the role craft should play in their range to maximise their profits,” he advises.
Deighton Ridge, Shepherd Neame national on-trade controller, has witnessed increasing numbers of pubs wanting to premiumise their draught ranges to differentiate themselves from the competition.
He says it is about selecting “good-quality, credible draught products”, which offer a memorable drinking experience to the customer.
Meanwhile, Diageo cites the opportunity for pubs to up-sell to cocktails. Faith Holland, head of on-trade category development at Diageo GB, says: “Cocktails continue to thrive, now accounting for 6% of all spirit sales. Importantly, with recent research revealing that more than two-thirds of cocktails are enjoyed in pubs, all outlets can maximise by getting their cocktail offering right.”
There is no doubt that premiumisation is growing in popularity and there is an opportunity for licensees to capitalise on this trend. But the customer is king, and while suppliers are keen to sell a range of innovative products, pubs need to focus on the basics. Give the customer what they want and make sure changes in your drinks range take the local area and demographics into account.