Lager sees light at the end of the tunnel

31 May, 2013

The lager category has been battered from pillar to post in recent years by a rising duty escalator, miserable weather, falling volumes and the rise of cider and golden ale.

But the past couple of months have provided a much-needed shot in the arm for the run down sector.

First the Chancellor scrapped the crippling policy of automatically raising the price of beer by 2% above inflation each year, and lopped a further penny off the price of a pint for good measure.

Then the sun came out. After the coldest March and April in 50 years, there was a mad rush to the supermarkets to stock up on lager – along with disposable barbecues, according to Asda, and for some reason fake toenails, according to Superdrug – as Britain sizzled in temperatures higher than Majorca.

Then Justin Bieber, the most influential man on social media, tweeted a picture of himself drinking lager, no doubt sending a gazillion Beliebers down to the shops to buy a crate of Heineken to go with their copies of Heat magazine and fake toenails.

The category needs all the help it can get, as Nielsen figures show volumes are down 2.7% on last year (MAT to April 27, 2013) to 14.1 million hectolitres, and value sales are down 0.1% to £2.93 billion.

The knight in shining armour for the category has been world beer, a category that includes the likes of San Miguel, Peroni, Corona, Heineken and Cobra.

Nielsen analyst Helen Stares says: “World beer is up 11.6% in volume versus a year ago, whereas all other lager is down 3.6%.

“World beer is generally sold in smaller packs, and unit sales where there are seven bottles or cans per pack are up 1%, whereas packs between eight and 12 are down 6% and packs with more than 13 are down 7%.”

Andy Wingate, category controller at Peroni supplier Miller Brands, says: “World beers continue to flourish, driving the marketplace in a premium direction and making consumers think about what they are purchasing.
“Consumers are looking for an element of something special and world beer is capturing the public’s imagination.”

The company released its end of year results last week and said its lager brands enjoyed a 4% rise in volume sales in the past year.

Pilsner Urquell saw the most impressive growth, up 10%, while the firm now runs weekly freight trains full of lager from Italy to keep up with an increasing thirst for Peroni.

Managing director Gary Haigh describes its world beers as “an affordable luxury in a difficult financial climate”.

Another strong performer is Cobra, which grew 15.7% in value and 18.5% in volume during 2012 (Nielsen MAT to December 8, 2012).

Molson Coors has since invested in a TV ad campaign in a bid to see the Indian lager break into the UK’s top 10 beers.

Mark Cockrell, customer director at Molson Coors, says: “Cobra is performing incredibly well in the off-trade as a result of the popularity of world beers and the most successful advertising campaign in the brand’s history.”

Heineken is equally enthused about the potential of world beer, but warns retailers not to forgo the leading brands that still account for the bulk of a category worth more to the off-trade than the GDP of Albania.
Sales director Martin Porter says: “World lager is the most buoyant category with the fastest growth rate, worth more than £339m in the total off-trade market. This segment offers retailers strong opportunities for sales and profits.

“However, retailers looking to capitalise on the world lager segment should first ensure they get the basics right.

“The majority of sales still come from leading everyday national brands, with the top 10 packs currently delivering 80% of total market sales.

“Retailers should therefore ensure they stock big well-supported national brands, like Foster’s, before stocking continental beers.

“It’s very tempting to stock a range of exotic beers, but in reality, the vast majority of sales still come from the bestsellers, which also deliver the best rate of sale. “However, once the mainstream beer and lager range is correct, then a wholesaler might want to consider stocking two or three world beers that match their shoppers’ tastes, like Desperados or Tiger.”

Cockrell at Molson Coors agrees, adding: “We would always recommend that you stock products that are both popular with your customer base and help your store create differentiation from local competitors too.

“We suggest about 20% of shelf space should be reserved for ciders, RTDs or ales, depending on your shopper profile. We recommend that you leave some space for premium world beers and ensure that the bestsellers are given space and prominence. “That means that about 70% should be set aside for lagers, with familiar favourites, like Carling, front and centre.”

That claim comes just two months after Molson Coors invested millions in a new cider – Carling British Cider – showing that lager is still the main priority for the big brewers.

And the facts speak for themselves. Analyst firm Mintel recently grabbed headlines when it argued that cider has equalled lager in terms of penetration.

But cider is actually dwarfed by lager in terms of sales, with Nielsen valuing the cider category at £870 million compared to lager’s £2.93 billion.

And as cider no longer has a tax advantage over beer – and wine and spirits are actually far worse off as they continue to be hampered by the duty escalator – lager may start to claw make market space from rivals and leave retailers joining the toasts to the Chancellor.

A taste for the unusual

Gone are the days when the British consumer could be relied upon to drink can after can of mainstream lager in the company of Match of the Day and a soggy kebab.

Growing interest in gourmet food, the rising popularity of international travel, increasing health concerns from body conscious drinkers and innovations from cider and RTD suppliers have forced the lager category to forgo tradition and experiment with all sorts of weird and wonderful brews.

All the big suppliers now have hi-tech NPD departments acting like Willy Wonka’s Chocolate Factory, churning out bizarre new creations on a weekly basis.

Lager spiked with every spirit or fruit under the sun, ranging from alcohol-free brews to the 40% abv monster Schorschbock that is imported from Germany by Glasgow firm West, is catering to increasingly adventurous and demanding palates.

Nielsen analyst Helen Stares says: “No alcohol and low alcohol beer is growing, up 10.5% compared with a year ago, although it does account for only about 1% of total lager volume.

“There is also clearly more interest in launching new flavours within beers. 

“I would separate them into two types – citrus flavours such as Carling Zest, Foster’s Radler and Carlsberg Citrus, and then the flavoured beers like Dead Crow, Cuvana and Desperados. 

“It’s early days for these brands but I would expect these to make a splash in the category over the summer.”

Desperados was the trailblazer for the spirit beer category, and its success has opened a market that dozens of Willy Wonka types are busy trying to burst into. 

Nielsen MAT figures show the category grew from £12 million on September 15, 2012, to £16.2 million on March 30, 2013, and it is now up 65% in volume compared to a year ago.

Global Brands launched rum-flavoured beer Buddy’s, which is infused with honey, to join Amigos tequila-flavoured beer in its range, while Flagship Brands launched rum-flavoured lager Bachata.

WKD supplier SHS has also got in on the act, after its head of innovation and development Mark Hooper created bourbon-flavoured lager Dead Crow and rum-flavoured lager Cuvana a few months ago.

They are now stocked in the major multiples and are picking up traction among independents.

He says: “Pretty much every month now we have new customers going live. We have had genuine interest from consumers and retailers have been very positive.

“People see them as having a point of difference and the opportunity to attract new consumers.

“A lot of things classed as innovations can be flavour extensions but this is different.

“Where these beers are stocked they are performing ahead of the combined world and flavoured beer category. That demonstrates the potential.

“The spirit flavoured beers that succeed will be the ones that engage with the consumer long-term. Our plan is to invest in these brands through marketing to ensure they continue to gain momentum.”

The inventors at Heineken recently launched the 2% abv Foster’s Radler, blended with natural lemon juice, with the aim of dominating a mid-strength lager category it believes could be worth an extra £300 million to the UK drinks market.

The UK’s leading beer supplier calls it the “moderation” category and said it could represent a “£300 million category growth opportunity”.

It said the “moderation” section is worth about 0.5% of the lager market, but could go up to 5%. 

Sales director Martin Porter says: “New brands, brand extensions, flavours and pack formats are all major growth drivers as they keep the category relevant and exciting to the evolving consumer.

“Therefore innovation remains key to our sales and marketing strategy.

“A brand extension, or any piece of NPD, needs to tap into a true demand, occasion or trend to ensure audience appeal and in turn, deliver sales.

“Major driving forces at the moment are premiumisation, flavour, particularly sweeter variants that are popular with younger drinkers, and low calorie offers, which will appeal to a more female market. However, as we have seen a rise in at-home drinking there is also a corresponding demand for products that lend themselves to at-home occasions such as with food or mid-week treats.”

Where Desperados blazed the trail in the spirit flavoured beer market, Carling Zest drove the trend for lager blended with fruit. 

Mark Cockrell, customer director at Molson Coors, says: “Carling Zest was the number one new launch beer of last year, according to Nielsen.

“Following this success and coupled with strong demand from retailers and consumers alike, we recently launched Carling Zest with a Hint of Ginger, was brewed following extensive research, which found that a ginger flavoured beer would attract a further 37% of consumers.”

Back to Basics

One brewer is sick and tired of hearing about world beer, flavoured lager, smaller serves and low abv lager and urges retailers to concentrate on premium British lager.

Last month Brookfield Drinks relaunched Kestrel, one of Britain’s favourite lagers in the 1970s and 1980s, and founder Nigel McNally – the former managing director at Wells and Young’s – has stern words about the UK lager market.

He says: “The beer market continues to be down 5% year on year which obviously isn’t good news.

“To maintain profit margins, certain brewers are cutting corners by brewing with cheaper ingredients, lowering the abv of their products and reducing the size of their bottles and cans, which has led to the drinker feeling short-changed and ultimately left with something that isn’t up to scratch.

“Chancellor George Osborne dropped the beer duty escalator and reduced duty on beer by 1p per pint.

“Are we going to see those premium lager brands who dropped from say 5% to 4.8% now go back up in abv?

“I don’t think so. Kestrel relaunching in the market signals a departure from that trend.

“Recent headlines have proved that provenance is a crucial issue for consumers.

“Drinkers want a premium lager beer with genuine provenance – how can an American beer, continental beer or other world beers claim provenance when they are brewed not in their country of origin but in the UK?

“At a time when our competitors are launching smaller 30cl or 27.5cl bottles, Kestrel launches into the market with a 33cl bottle both with a 5% abv.

“We recommend that lager buyers now recognise that British craft lager is the way forward to address the decline in UK lager sales.

“The sheer diversity in the ale and cider category works rather well and is a model that could be applied to the lager market to reengage with drinkers both new and existing. 

“In order to encourage growth and reverse the decline in the lager market, the future is British craft lager. Retailers are fed up with selling premium brands at discounted prices by including them in any number of promotions throughout the year. They're looking for new brands that they can sell without the need to offer promotions, that offer diversity and quality in their range and that demonstrate true British provenance – all of which Kestrel represents.”

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