Where did it all go wrong for premium?

18 May, 2007

The category is starting to fall back, after several years of growth. Nigel Huddleston investigates the various theories as to why the going has suddenly become so much tougher

It seems like only yesterday that premium lager was the shiniest star in the take-home beer market galaxy.

We had all become Europeans, said the mass market brewers, so we'd be happy to enjoy continental café culture, sipping (not quaffing) beers that were a wee bit stronger but in lower quantities, savouring the quality rather than keeping score of how much we'd consumed.

Supermarkets have made a mockery of that by proving that what really turns shoppers on is getting as much lager as they can get their hands on for as little money as possible, and many aren't that fussy which brand as long as it's something they've heard of.

Standard lager, which some experts were writing off five years ago, achieved growth of 7.8 per cent in the year to February, according to Nielsen figures, against a total off-trade beer market increase of 3.6 per cent - which made it the best performing segment of the market after low-alcohol and specialities.

Premium lager (which doesn't include superstrengths) achieved growth of 1.7 per cent and remains the biggest lager segment with a 54.2 per cent share of an overall take-home market worth £2.7 billion, but some of the major brands aren't having it as easy in the recent past.

Stella Artois' phenomenal growth of a few years back has stalled and sales have slipped back by 6 per cent over the year.

It's still the biggest lager brand of all, but its current performance contrasts with that of the top three standard lagers, with Carling up 7 per cent over the year, Foster's ahead by 14 per cent and Carlsberg by 20 per cent.

And Stella's not the only big premium brand finding it tough: number two brand Budweiser dropped 2 per cent over the year and Grolsch was down 9 per cent. Beck's could soon be taking Grolsch's place in the top five premium lagers if it continues its growth of 47 per cent, though even that growth is more about winning back some of the sales it lost in the years before distribution transferred from S&N to InBev.

So what exactly is going on with premium lager? Here are some of the trade's favourite theories.

We're all health freaks now

Although marketeers stop short of admitting that the Daily Mail-led outcry over binge drinking might have affected premium lager's fortunes, the whole healthy lifestyles thing is playing its part.

Steve McAllister, director for take-home at InBev UK, says: "There is no indication that take-home drinkers are moving away from any particular brands because of the media debate. What is evident is that there is a growing demand for beers of different strengths to suit different occasions."

Vicki Kipling, UK marketing director at Budweiser supplier Anheuser-Busch, says its Michelob Ultra low-calorie lager is showing niche premium brands can provide alternatives to low abv. She says of Ultra : "It's for people who aspire to an active lifestyle, who want to go to the gym twice a week and probably end up going once and feel they've done their bit."

Craig Clarkson, S&N UK's head of customer marketing, says standard lager is aided by "consumers' heightened aspirations to appreciate their experience with alcohol and desire to stay in control on a wider range of drinking occasions".

The 4 per cent new wave

The desire for lower abv for midweek and other "low-tempo" drinking occasions has driven the emergence of brands such as Beck's Vier, the now-with-lower-abv Amstel, and Peeterman Artois. It would be naive to think that at least part of these sales isn't coming from consumers switching from 5 per cent abv products.

Whether you see these brands as premium because of their image and branding, or standard because of their abv probably depends whose marketing department your desk's in, but they have at least shaken things up in a sector that's been half asleep for years.

InBev's McAllister says: "We've started to see some successful innovation over the past couple of years after a long time of precious little activity and it's vital that the industry keeps this NPD focus going. Being very different to the 4 per cent abv beers already available, these brands are catering for additional drinking occasions, giving retailers the opportunity to build the category even further."

It's all the fault of the retailers

The big retailers have been kicking the backside out of margins for ages and the major premium brands have been dragged in.

"Retailers have been promoting premium lager very hard with bottle packs now frequently included in two for £20 or two-for-£16 promotions," says Heineken UK sales director Richard Bradbury.

"They're putting a range of standard and premium lagers in that mix."

The most famous case is the "reassuringly expensive" Stella Artois, which is often heavily discounted.

Vicki Kipling at Anheuser-Busch says: "It's easier for the grocers to price discount on premium lager just because they have a higher starting place. It's easier to give what looks like a bigger deal, and that makes us more susceptible."

But Steve McAllister, at InBev UK, which supplies Stella Artois and Beck's, thinks "price cutting is more to do with the brand name than whether it's a standard or premium lager".

He adds: "The fact is that more successful brands are the ones that tend to be promoted and this has certainly been the case with Stella Artois, Carling and Foster's."

Consumers have got wise to changing packs

You're a premium lager brand manager with a dilemma. The supermarkets want to at least match, if not beat, what their rivals are doing promotionally, which means they want to hit certain price points or "two-for" deals.

Your own competitors in standard lager can do this, if not happily, at least more comfortably than you can, because they pay less duty, use cheaper ingredients and so on, which means they can retain a bit of margin. If you try to go like-for-like you'll end up losing money because you can't cover your costs.

But here's a trick. Because the margins are tight, if your 50cl can suddenly becomes a 44cl one, and your 33cl bottle is swapped for a 27.5cl, you can hit those price points without causing your name to come up for discussion at the next company board meeting.

Consumers still see that they're getting 40 or 48 bottles of stuff for their £16, and everybody's happy - at least at first.

"Consumers have cottoned on to ever decreasing bottle sizes," says Heineken's Richard Bradbury. "They've started to realise they're getting less than they used to for their money and there's a desire to be able to get 33cl bottles for brands."

The on-trade's cold front

Standard lager has been given a much-needed boost in pubs, principally by introducing extra-cold dispense systems, and we're seeing some of the knock-on effects in take-home.

Kipling at Anheuser-Busch says: "The growth in standard lager in on-premise is being translated into the off-trade.

"Brewers have done a good job and standard lagers have stolen a lot of the quality cues that applied to premium lager, such as coldness, refrigeration and glassware."

McAllister agrees but says aspects such as La Famille Artois merchandising (a take-home spin on the Brasserie Artois fonts in pubs) will help premium lager reclaim some of the ground.

He said: "Having enjoyed [standard] brands in the pub following the introduction of extra cold, consumers have added them to their take-home repertoire. Multiple retailers have reacted to this with an increased emphasis on these brands in terms of feature and display. On-trade developments in better quality dispense for several premium lagers should have an impact by attracting more shoppers to the sector. On-trade trials proved that seeing the family displayed together increases consumer intent to buy."

Other drinks are just getting more popular

Premium lagers aren't just up against sister products of a lower abv, they've also got to overcome the threat of other liquor categories.

As Kipling at Anheuser-Busch points out: "We've seen increasing competition from cider and wine which have grown by 16 per cent and 25 per cent since 2002, a period when beer has been in decline by just 1 per cent."

The major brands are also battling against influences much closer to home. "There's also been an increase in imported beers of just over 10 per cent in 2006," says Kipling, "with consumers travelling more and expecting to be able to repeat the experience of what they drink when they return."

The premium lager boom was just a myth anyway

Is it possible that the craze for 5 per cent abv lager never really happened

That we were all duped by the runaway success of a single brand into believing we were seeing a revolution in drinking habits, when what we really had was a brilliantly realised combination of marketing, selling, promotions, distribution-building and a proliferation of pack types to satisfy every conceivable consumer demand?

"The premium lager category was being driven by Stella's success four or five years ago," says Bradbury at Heineken. "As Stella has plateaued out a bit, the category has a whole has done too."

McAllister at InBev UK admits: "It is true to say that premium lager has been under pressure and, as the biggest brand, Stella Artois has felt the impact of this."

But he adds: "We are seeing a shift in consumer spending and both volume and value sales are up in recent months.

"Stella Artois has been a victim of its own success as the biggest take-home alcoholic drinks brand.

"This has made it the obvious choice for promotional support because retailers recognise that it can be used to drive footfall."

How do premium and standard lager brands compare?

Top five premium lager brands

1. Stella Artois

£537,100 (-6%)

2. Budweiser £158,100 (-2%)

3. Kronenbourg 1664 £132,600 (+5%)

4. Carlsberg Export £130,200 (+21%)

5. Grolsch £101,100 (-9%)

Top five standard lager brands

1. Carling £374,100 (+7%)

2. Foster's £320,600 (+14%)

3. Carlsberg £197,600 (+20%)

4. Tennent's £64,400 (+6%)

5. Castlemaine XXXX Draught £39,800 (-26%)

Source: Nielsen UK off-trade

year to Feb 24 2007

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