Drinks industry must innovate to survive as it prepares for five years of pain

27 September, 2012

The drinks industry was told to expect five more years of pain before growth speeds up by leading economists at the WSTA annual conference.

While last year’s conference focused on health and the Responsibility Deal, with then health secretary Andrew Lansley the keynote speaker, this year it concentrated on business.

Nick Hyde, chairman of the WSTA and of Diageo Wines Europe, said: “The current business environment is as difficult as I can recall, and sadly my memory goes back a long way.

“I don’t think I can recall a time more threatening, more complex or more volatile. It’s a really heady mix of politics and economics.”

Keynote speaker Sir Howard Davis, a leading economist and chairman of the FSA, brightened up the mood when he took the stage ahead of a coffee break and said: “At the end of this, I think you will need an alcoholic drink rather than a coffee, but I think that can be provided at a WSTA event.”

He went on to say that the US and German economies are back to the size they were before the economic collapse of 2007, but that the UK is still 4% behind and falling again.

“We should be 12% above where we were in 2007 so it’s actually 16% behind,” he said.

He added that the economy will move gently sideways for five years before improving, but said: “The top end in the alcohol industry looks good, but the Jacob’s Creek and own-brand Scotch markets in the UK could remain challenging.”

Leading industry figures shared their ideas on how to achieve growth in a low-growth environment.

Key points they made included scrapping promotions, using targeted niche marketing and pushing innovation.

Alison Levett, chief executive of Entoria, said: “I think from a supply point of view the industry is crying out for consolidation.

“Consumers have pressure on their purse strings, and they are going to continue to expect discount wines – wines sold for a 1% or 2% margin. Some of out deals are down to a 0.5% margin.

“Supermarkets are looking for more deals but it becomes impossible.

“If we keep acting in little islands we can never put an end to the deals.

“I think as an industry we need to shift from low pricing to the value of the experience.”

Glenn Caton, managing director of Laithwaite’s Wines, said: “Promotions aren’t good for anybody but it’s about driving footfall.

“Retailers and suppliers need to get together and invest in a better shopper experience.”

And Denis O’Flynn, managing director of Pernod Ricard UK, added: “Promotional activity is rewarding disloyalty. We are reviewing our level of promotion on an ongoing basis and bringing value back into the market.

“We see ourselves playing the premium sector.”

On the topic of marketing and innovating, Caton said: “You can’t be stuck in the middle or you will die, you will get punished.

“You need to differentiate in a way that is meaningful.

“The days of mass marketing are dead.

“Consumers are more intelligent and have more choice.

“We have been slow to respond to the trends and we are in the process of transforming our business model, focusing on loyalty.

“And we are trying to grow the category rather than simply grow our share of the category.”

O’Flynn said: “How do we work through the issue of the smaller economy? You have to look at things like differentiation.

“We need to target the 30-35 age group who have the highest leverage, and we need to do more to target people over 50, who have money.

“We need to target different groups separately through fragmentation and niche marketing. Digital will come into that.

“We need to push innovation but not for the sake of it. It’s a way to differentiate and it’s increasingly important but it needs to be used to drive category growth.”




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