Supermarkets likely to cut back promos

06 April, 2007

Nielsen consultant graham page reviews the on-trade versus the off-trade

During 2007, there may be opportunities to develop a value-added strategy on alcoholic drinks pricing, which can

then spread through the GB off-trade, not least because it's good business.

Politicians and anti-alcohol groups are hovering in circles around the industry, with the prospect of even more legislation, as alcohol increasingly gets treated like the new tobacco! I feel there is increasing evidence, driven by the social and political battle of the on-trade versus the off-trade and below-cost selling, that some supermarkets are looking for fewer promotions across fewer stock keeping units (SKUs) and brand ranges, while retaining clear pack and price point competitiveness.

So can beer, wines and spirits retain or grow their share of the GB off-trade, while also generating better margins for retailers and suppliers? Nielsen GB

on-trade audits and off-trade Scantrack puts beer's value share of sales at only 20 per cent, with on-trade a massive 80 per cent in 2006.

In terms of GB beer volume, the off-trade holds a 37 per cent market share, while the on-trade holds 63 per cent. So clearly a lot of beer value is simply being lost or given away.

There are clear issues with price points against the UK on-trade, where beer volumes were down by 4 per cent during the year to January, while Scantrack's volume figures are up by 3 per cent, to Feb 2 2007. Plus, there was no evidence of any attempt to drive value into the beer category last year.

While we can aim the finger at retailers, suppliers also need to take some responsibility for pricing and promotional deals. Concerns have been expressed by many multiple pub groups that brewers and grocers chasing off-trade beer volumes, at the expense of price and margin, is a major factor in on-trade beer decline.

Nielsen, using Office of National Statistics figures, has seen no real increase in off-trade liquor retail prices over the past 10 years (allowing for inflation), while in the on-trade it's nearly three times the rate of inflation.

The on-trade is definitely feeling the heat and still has smoking bans in

England and Wales to deal with.

The sale of high-strength products illuminates the on versus off pricing conflict more than ever. It raises the social principle of whether it should even be viewed as ethical to retail spirits (let alone beers, wines, or ciders) at below cost, like baked beans, bread or milk! The comments of pub groups' senior executives, brewers and supermarkets are now on record.

Let's be clear, the consumer is not complaining. They are now used to low drinks prices and great deals. The Government likes low prices and intense competition, as it keeps inflation low. Retailers are happy because they can use high-value products with premium positionings to fill their stores with shoppers.

So, the only losers are supplier margins? But hang on a minute, doesn't this mean less drinks innovation, fewer products, less consumer choice, lower value and isn't that bad for retailers too?

Drinks innovation will save your livelihood and it's good for retailers and suppliers. If suppliers feel their only marketing choice is to finance retailers in the on and off-trades cheaply, there's no way out for them and only mighty power brands will survive. The reality is that the big get bigger and the small get eaten, unless they adapt pretty damn quickly.

Based on the effects of the smoking ban in Ireland and Scotland, the impact on the English and Welsh on-trade will be significant, driving consumers to cheaper off-trade drinks and home consumption - hence widening the price gap between the two even further.

The Licensing Act 2003 does offer more flexibility to opening hours in England and Wales, but the main beneficiaries are clearly the supermarkets, as 750 of the 1,000-odd 24-hour licences went to them.

Many pubs and bars have only opted for an extra hour on Friday and Saturday nights. Indeed, on-trade operators have commented that extra hours have done little for business, and, if anything, have increased costs. The good news is it's influencing more responsible drinking habits in the on-trade, as drinks are consumed over a longer period of time.

But, isn't there an off-trade drinks pricing opportunity here? This autumn, there's the 2007 Rugby World Cup in France. While key matches will fill out outlets that have viewing facilities, it will also add further to the scramble for off-trade sales.

We may well have another good summer with barbecue conditions that last for weeks. The off-trade will have a consumer that is used to paying premium on-trade prices, and will beat a path to its door for below-price drinks and

tobacco.

So do retailers want to stack 'em high and sell 'em cheap? Is it really necessary?

Given social and political concerns and binge-drinking issues, is it actually good business, nationally or locally?

Note: BPPA Beer trends data from

The Morning Advertiser and the M&C Report. Nielsen figures are from on-trade audit year to January 2007 and GB Scantrack covering off-trade, year to Feb 24th 2007. Drinks price inflation figures are from the ONS.




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