Premium Ale INSIGHT REPORT. Hall & Woodhouse Premium Ale Insight Report 2016

Transcription

1 Premium Ale INSIGHT REPORT 2016

2 Contents 02 Introduction:...03 Category Overview:...04 Beers, Wines & Spirits Performance Beer Category Trends Premium Ale Performance & Trends Deflation:...14 Impact of Deflation on Beers, Wines & Spirits Categories Premium Ale Category Cost of Deflation Premium Ale Customer Measure Trends Bottled Ale Multipacks Changing Landscape:...26 Changing Shopper Behaviour Convenience Channel Discounter Channel On-line Channel Grocery Retailer Performance & Drivers Customer Evolution Premium Ale Category Sources of Growth New Product Development & Category Trends Bottled Ale Style Trends Craft Beer Driving Value:...56 Building Value into Premium Ale Bottled Ale Customer Considerations Bottled Ale Category Tiers Badger Commercial Break:...67 Glossary & Contact:...68 Contents

3 Introduction 03 The Premium Ale category is in an enviable position during a time of challenging market conditions, enjoying sales growth of 9% driven by the continued increase in the popularity of Premium Bottled Ale. Bottled Ale shopper numbers have increased by 1.5 million over the past 5 years. Premium Canned Ale is also attracting new shoppers but no value growth has been added due to increased investment levels. Macro trends in the Grocery market, and the resulting changes to retailer strategies, offer both opportunities and challenges. With an increasing shopper appetite for authentic, premium products and BWS becoming increasingly diverse, innovative and competitive, Premium Bottled Ale has to ensure it does not miss the opportunity. Whilst much has been done to enhance the Premium Ale category in store, shoppers are still presented with a seemingly uniform range and category offer at a time when there is an increased desire for information and diversity. Opportunities remain to differentiation through pack design, product communication via packaging and at fixture to highlight the really new and different. David French Beer Company Director Hall & Woodhouse Ltd Introduction

4 Category Overview 04 Category Overview

5 BWS Category Value Sales (including duty and VAT) Source: Nielsen ScanTrack, total coverage, MAT to 02/01/16 vs year ago Total BWS 15,789.1m +1.3% YoY Wine 6,808.6m LADs 5,012.8m Spirits 3,967.6m +1.9% YoY -0.9% YoY +3.4% YoY Total beer 3,745.8m Cider and perry m RTDs 229.0m -0.1% YoY -2.8% YoY -5.6% YoY 05 Beer, Wines and Spirits are growing in value year on year; as a category dominated by brands and perceived by shoppers as more of a treat, alcohol tends to be more resistant to deflation than categories such as Household, Frozen & Bakery. Remarkably, with a growing proportion of UK adults choosing not to drink alcohol, an increase in the number of households buying BWS over the last year has helped drive growth, and shoppers are spending more. Quantities purchased per trip have declined, reflecting both the shopper trend towards smaller, more frequent shopping trips, and also changing retailer promotion strategies across a number of BWS categories. The Wine category attracted 600,000 new customers in 2015, meaning that household penetration has reached 75% of the UK. An overall reduction of Wine promotions, in conjunction with less aggressive discounts on offer, is also leading to wine buyers paying more per litre. Volumes purchased per trip are declining due to lighter shoppers entering the category in addition to a decline in the number of case deals, in favour of price reductions on single bottles. Normally we would expect frequency of purchase to increase as a result; however a reduction in display space given to Wine in Grocery Multiples has, in fact, reduced this slightly. Category Overview

6 BWS Category Value Sales (including duty and VAT) 06 Sparkling Wine remains the sector in strongest growth, increasing by 130m driven by the continued growth of Prosecco brands such as Plaza Centro, Canti and Dino. Most Spirit sub-categories are in year on year growth, but outstanding performances come from Gin & Vodka, each growing by 35million in Spirits are performing extremely well; deals on 1 litre bottles of standard Spirits, at c25% discount versus 70cl equivalents, are driving volumes, whilst growth of premium brands is protecting average category price per litre. In addition, increasing display space and premium product introductions are bringing in valuable new customers who are younger and more affluent. Most Spirit sub-categories are in year on year growth, but outstanding performances come from Gin & Vodka, each growing by 35million in Smirnoff Red, with growth of 25million, has now overtaken Fosters lager to become the second largest alcohol brand by value in the off trade. Long Alcoholic Drinks (LADs) are not faring as well, with Beer, Cider and Ready to Drink (RTDs) in value decline. Although Cider is attracting new households via canned & glass bottle formats, growth rates of flavoured Cider are slowing and large PET Cider bottles remain in steep decline. Shoppers are also increasing the variety of alcohol they drink, leading to Cider being bought less often. Category Overview

7 Beer Category Trends Source: BWS Nielsen Scantrack MAT Ale figures to Beer customers are buying less volume each shopping trip, driven by the increase in popularity of single bottled beers and new, lighter shoppers entering the category. Customers are, however, buying more often as a result. Price deflation is having a greater impact on Beer than on other BWS categories Canned Ale Standard Canned Ale Lager, which accounts for over 80% of Beer category sales, is declining slightly year on year. Customers are shifting spend to Ale and Craft beer, in addition to buying a wider range of other alcohol categories. They are therefore buying Lager less often & in smaller quantities. Ale, driven by bottle format, remains in strong growth. Despite falling prices, Standard Canned Ale volume continues to decline, with its customers leaving the Ale category altogether, dropping Standard Canned Ale from their Ale repertoire, or shifting spend to other BWS categories such as Wine Lager Ale Premium Canned Ale Bottled Ale All major Standard Canned Ale brands are losing distribution and display as a result, leading to the remaining customers buying less often, the main contributor to category decline. In addition, the increase in price cut promotions vs. multibuys is driving down volumes customers buy each trip. -12 Vol % Chg % Chg Category Overview

8 Bottled Ale 5 Year Volume Trend (indexed to 2010) Source: Nielsen Scantrack MAT to Bottled Ale remains one of the strongest performing categories within BWS, significantly outperforming total Beer and growing by 130million over the last 5 years Bottled ale total beer Category Overview

9 Bottled Ale Key Performance Indicators Source: Nielsen Homescan MAT to Although decreasing prices held back Bottled Ale growth in 2015, ½ million new households bought into the category and penetration remains the main growth driver. Price per Ltr ,950k -8.7% Penetration (HH Num) 26.5% + 19,816k +6.7% Freq. 7.6 trips Vol per Trip 1.64Ltrs + 7,195k +2.8% +2% -20,000k -10,000k 0 10,000k 20,000k 30,000k + 5,148k As a result of new category entrants buying less and the movement from multi-buy activity to increased price cuts, fewer single Bottled Ales are being purchased each trip. This has, however, been counteracted by the success of Bottled Ale multipacks, which are driving total Bottled Ale trip volumes. Households are adding bottled ale multipacks to their repertoire and sales are shifting from most other BWS categories, particularly Canned Ale, Single Bottled Ale and Cider. Households are adding bottled ale multipacks to their repertoire and sales are shifting from most other BWS categories. Price Contribution (52w) penetration Contribution (52w) frequency Contribution (52w) trip volume Contribution (52w) Category Overview

10 Top Bottled Ale Brands 10 Source: Nielsen Scantrack Total Coverage MAT to 02/01/ saw the rise of large, international brewers within the Bottled Ale category. morland Wychwood marstons Sharps Badger Shepherd Neame fullers private label newcastle brown greene king brewdog st austell +3% +26% +11% +72% -9% -6% -4% +5% +1% -3% +115% +30% % Value Growth (Market +11.3%) Under Molson Coors, sales of the Sharps brand remain in strong growth. High rates of sale, growing distribution of new product introductions and the successful roll out of the Doombar 6 pack has driven the Sharps bottled ale brand to become the 4th largest in the UK. Diageo s Guinness Golden Ale & Porters are also performing well. Following a strong launch plan and good distribution growth, Guinness became the 13th largest bottle ale brand by the end of Heineken entered the growing golden style section of the bottled ale category with the launch of John Smith s Golden Ale. To date, although distribution growth has been strong, sales would suggest that the ale is struggling to appeal to either bottled ale shoppers or existing John Smith s customers. Brewdog s success has continued in 2015, with increased investment and steady distribution build doubling the number of households that buy the brand and driving growth of 5.5 million value share volume share A key factor impacting bottled ale brand performance over the last year has been the ongoing price matching of Discounters by the major grocery multiples. This has driven strong growth of Wychwood s Hobgoblin & Hobgoblin Gold bottled ales. Morland was also affected although the level of price reduction subdued value growth. Category Overview

11 Premium Canned Ale Topline Sales Trends Source: Nielsen Scantrack Total Coverage MAT to 02/01/16 11 VALUE (Thousands) Value Sales and % Change YA 77,428 81,195 81,384 +5% +0% Volume (Thousands) Volume (1000s HLs) and % Change YA % % Premium Canned Ale has faced a challenging year. During 2013/4, the category enjoyed strong volume and value growth, whereas in 2015, average price reductions of 5% year on year has continued to grow volume but at the expense of value. 0 Mat 2ya mat ya mat ty 0 Mat 2ya mat ya mat ty Price per Litre price per volume % -5% 0 Mat 2ya mat ya mat ty Category Overview

12 Premium Canned Ale Key Performance Indicators Source: Nielsen Homescan MAT to The Premium Canned Ale category is currently in a precarious position. Vol per Trip 3.66Ltrs - 3,496k -5.6% Price per Ltr 2.14 Penetration (HH Num) - 3,188k -5.1% 5% Freq. 5.6 trips + 492k + 3,433k +4.6% +0.8% Despite falling prices, moving away from multibuy promotions in this category has dramatically reduced quantities bought by shoppers. Frequency has not, as would be expected, increased as a result; a decrease in the amount of display given to Premium Canned Ale, in addition to an increase in on-going lower pricing (not highlighted on shelf), is failing to remind shoppers to purchase. In categories that are shopped infrequently, with customers who have a wide BWS repertoire, this strategy potentially risks long term category health. Over reliance on price reductions, whilst removing other sales drivers, will simply erode category value. Although new customers are now buying into Premium Canned Ale, they are more likely to be lighter shoppers, thus not mitigating the loss. -8,000,000-6,000,000-4,000,000-2,000, ,000,000 4,000,000 trip volume Contribution (52w) penetration Contribution (52w) Price Contribution (52w) frequency Contribution (52w) Over reliance on price reductions, whilst removing other sales drivers, will simply erode category value. Category Overview

13 Top Premium Canned Ale Brands 13 Source: Nielsen Scantrack Total Coverage MAT to 02/01/16 morland mcewans Badger Greene King wychwood fullers Gold Label newcastle brown bass Wells Ruddles marston s % +3% -9% -3% +10% +20% -5% -11% -16% -21% -17% -29% % Value Growth (Market +0.2%) As a consequence of these challenges, the major Premium Canned Ale brewers are experiencing very little growth. Of these, Wychwood are being driven solely by the launch and distribution roll out of Hobgoblin Gold canned ale, whereas Fullers are recovering from a poor performance during the previous year. There are emerging Craft style brands within Premium Canned Ale that are in good growth. Albeit from a small base, American brands Broadway Brewing and Founders, and UK brands producing American style Canned Ales such as Fourpure, Beavertown & Roosters, are starting to make inroads into the category. There are emerging Craft style brands within Premium Canned Ale that are in good growth value share volume share Category Overview

14 Deflation 14 Deflation

15 BWS Category Segment Performance Source: Nielsen Scantrack Total Coverage MAT to 02/01/ Volume % Chg value % Chg The BWS category enjoys a level of protection against the current price war and the resulting changes to retailer strategy, with customers prepared to pay more for premium products or treats. Wine and Spirits are both in growth, with value sales rising ahead of volume. Within these, the mix of fortunes across subcategories is managing to maintain value growth Total BWS Volume % Chg Total Beer Wine value % Chg Cider & Perry Long Alcoholic Drinks RTDs Spirits Long Alcoholic Drinks Segment Performance Wine and Spirits are both in growth, with value sales rising ahead of volume Deflation

16 BWS Category Segment Performance Source: Nielsen Scantrack Total Coverage MAT to 02/01/16 16 Volume growth through price reductions Champagne MAT Price per Litre % Change Unprofitable decline Ale Lager MAT Volume % Change Sparkling Wine Spirits Light wine Growth by premiumisation Profitable category growth Fortified Wine Cider RTDs Increasing prices impacting volume growth Light Wine & Fortified Wine volumes have fallen marginally as average prices increase, whereas Champagne has grown volumes but at the expense of price. This however is balanced by the increase in popularity of Sparkling Wine, which has held average prices, whilst driving strong volume growth. Similarly, Spirits category volumes are being driven on core brands with price cuts on 1Ltr bottles, whilst increased in-store displays and new premium product launches are increasing customer numbers and maintaining category value. Lager remains on the cusp of falling into unprofitable decline. The volume growth enjoyed by Stella Artois has been as a result of increased price investment, whilst Fosters, Carling & Carlsberg are declining despite cutting average prices. Due to their availability in a wide range of pack formats, major Lager brands are also under threat as retailers reduce breadth of ranges across the store. Lager remains on the cusp of falling into unprofitable decline. Deflation

17 Ale at risk of becoming devalued Source: Nielsen Scantrack Total Coverage MAT to 02/01/ % Can Premium -4.8 Single Bottle +14.2% MAT Price per Litre % Change % -4 Can Standard -3.2 Can % Volume growth through price reductions Bottle +14.7% Unprofitable decline +5% Ales % Multi Bottle -0.6 MAT Volume % Change Although Bottled Ale remains in strong growth, this is mainly being driven by price reductions. After a number of years helping to maintain total Ale category value, Bottled Ale average prices have declined considerably over the last 2 years. Due to the expansion of ranges and growth of the category within the Discounter sector, Bottled Ale has become increasingly susceptible to price matching by the Grocery Multiples, which has impacted on the rate of value growth. For Premium Canned Ale, Discounter price matching is less of a challenge as Aldi & Lidl s ranges are limited. Price matching across the top 5 Grocery Multiples, combined with retailer corporate strategies creating a more value led offering, threatens to drive Premium Canned Ale down the commodity route suffered by Standard Canned Ale. Despite a 5% reduction in average price, premium canned ale value is flat year on year. Bottled Ale has become increasingly susceptible to price matching by the Grocery Multiples... Deflation

18 Premium Ale Category Cost of Deflation Source: Nielsen Scantrack Total Coverage MAT to 02/01/ m - 4m - 6m Bottled Ale Premium Canned Ale - 4,100,000 In total, the cost of deflation to the Premium Ale category over the last year has been almost 15 million. - 8m - 10m - 12m - 10,500,000 Deflation

19 Premium Ale Category Penetration Change Source: Nielsen Scantrack Total Coverage MAT to 02/01/16 19 Bottled Ale There is, of course, an argument that sharpened retail pricing and deeper promotional discounts have attracted new customers into the Premium Ale category. Premium Canned Ale 6, Whereas household penetration is in growth for Premium Canned Ale, and is the main driver for Bottled Ale, over reliance on price as a lever to recruit new customers is often not sustainable. This is particularly the case for Premium Canned Ale. 1, The investment required to attract each new customer to the category is currently costing more than the average Premium Canned Ale customer spends per year Households LY 000s Incremental Households TY 000s Category Cost of Recruitment per Household Household Recruitment Cost Average Annual Category Spend per Household Bottled Ale Premium Canned Ale Over reliance on price as a lever to recruit new customers is often not sustainable. Deflation

20 Base & Incremental Volume by BWS category 20 Source: Nielsen Scantrack Grocery Multiples MAT to 02/01/16 100% 90% 80% 70% 60% 50% 40% 30% 20% Spirits 64.6% 35.5% 62.5% 37.5% 61.4% 38.6% Light Wine Beer Bottled Ale 55.4% 44.6% 58.1% 41.9% 59.7% 40.4% 72.2% 27.8% 73.5% 26.5% 76.6% 23.4% 76.2% 23.8% 78.8% 21.2% 84.4% 15.6% Premium Canned Ale 80.3% 19.7% 78.7% 21.3% 86.1% 13.9% Other wider changes taking place within UK retail are also risking the health of the Premium Ale category. Base volumes (volume which would have been sold at full retail price) across most BWS categories are growing, which is in line with changes to retailer s strategies across the store towards on-going lower prices and away from promotions. From a retailer s perspective, an EDLP strategy does offer benefits; reduced activity implementation costs, smoother demand and simplified supplier support. In many categories, high low strategies may been seen to be punishing regular, loyal shoppers or risk encouraging promotion dependency, but moving to an EDLP approach is less appropriate for Premium Ale. Premium categories, that attract a lower proportion of customers and are shopped less frequently, need to remind shoppers to purchase, particularly as people s BWS repertoires continue to expand. 10% 0 The removal of promotional offers can reduce Premium Ale s visibility and shopper focus, within an increasingly crowded section of the store. MAT mat mat mat mat mat mat mat mat mat mat mat mat mat mat 2ya YA TY 2ya YA TY 2ya YA TY 2ya YA TY 2ya YA TY Base Volume Incremental Volume Deflation

21 Premium Ale Display by Retailer Source: Nielsen Scantrack MAT to 02/01/ Bottled Ale Wtd Dist Feature & Display MAT YA MAT TY Grocery Multiples tesco Sainsbury s asda morrisons waitrose Premium Canned Ale Wtd Dist Feature & Display MAT YA MAT TY A valuable tool in increasing awareness and prompting purchase of Premium Ale is secondary display in store. With available display space becoming increasingly sought after by all categories across the store, Premium Ale is coming under pressure. Bottled Ale display, although flat year on year, has been cut in Sainsbury s and significantly in Tesco, who account for a significant proportion of category sales. Levels of Premium Canned Ale display have been reduced across all major Grocery Multiples bar Waitrose. With available display space becoming increasingly sought after by all categories across the store, Premium Ale is coming under pressure. 0 Grocery Multiples tesco Sainsbury s asda morrisons waitrose Deflation

22 Bottled Ale - Customer Measure Contribution to Growth Nielsen Homescan Rolling 12wk periods to trip volume contribution 52w frequency contribution 52w price per Eq contribution 52w penetration contribution 52w 125m 100m 75m 50m 25m 0-25m -50m -75m 29 mar APR may JUN JUL AUG SEP oct nov dec jan jan feb mar apr may jun jul aug sep oct nov dec jan 2016 These factors are leading to a challenging environment for Premium Ale. For Bottled Ale, decreasing pricing is bringing in new customers, but sales to these lighter category shoppers are not mitigating the value lost; they typically buy less and shop the category less often. This is compounded by display reductions in Tesco and Sainsbury s, failing to remind existing customers to buy and thereby reducing purchase frequency further. Although volumes purchased each shopping trip rose over Christmas due to the increase in bottle multipack purchases, trip volume is not a key growth driver for Premium Bottled Ale. This is due to how the category is generally consumed in low volumes per occasion. As a consequence, trip volumes have remained unchanged over the last 10 years. Deflation

23 Premium Canned Ale - Customer Measure Contribution to Growth Nielsen Homescan Rolling 12wk periods to trip volume contribution 52w frequency contribution 52w price per Eq contribution 52w penetration contribution 52w 25m 20m 15m 10m 5m 0-5m -10m -15m -20M -25m 29 mar APR may JUN JUL AUG SEP oct nov dec jan jan feb mar apr may jun jul aug sep oct nov dec jan 2016 In addition to a more profound reduction in display, for Premium Canned Ale these trends have been compounded by an increase in 4 pack price cuts rather than multibuy promotions. In a category with an average basket size of between 7 and 8 Cans, moving away from two 4pks for X activity has seriously impacted trip volumes. Including the drop in average price per litre, the total decline of Premium Canned Ale customer measures far outweighs any growth driven by new shoppers. Deflation

24 Multipack Volume Share of Bottled Ale Nielsen Scantrack Total Coverage MAT % 90% 80% 70% 60% 11.2% 11.2% 11.6% Multipack & Single bottled ale average price per litre last 3yrs Multipack Bottled Ales enjoyed strong growth in 2015, particularly over Christmas where they contributed over a 1/3 of absolute category sales growth. Driven by increased display, multipacks have gained share of total Bottled Ale. Although performing well, multipacks have limited appeal with bottled ale households, with less than a third of shoppers likely to purchase. These customers are however, very valuable to bottled ale. They are the most knowledgeable and confident, the least price sensitive and buy the most across the year. 50% 40% 30% 20% 10% 0% 88.8% 88.8% MAT 2YA MAT YA MAT TY Single Bottled Ale Multipack Bottled Ale 88.4% MAT 2YA MAT YA MAT TY Single Bottled Ale Multipack Bottled Ale Although average pricing has been fairly stable over the last year, multipacks command an average price per litre well below that of single bottles; the deflationary effect of multipacks on the category is c 5.5million per year. As they do not drive trip volumes outside of peak periods, price positioning of multipacks needs to be managed carefully to ensure that the value of these core category shoppers is maintained. Driven by increased display, multipacks have gained share of total Bottled Ale. Deflation

25 Bottled Ale Multipack Sources of Growth Nielsen Scantrack Total Coverage MAT Actual ( 000s) Source of change % 5, , % +1.4% +2.7% +11.4% Index / Act ( 000s) Shifting Gains/Loss % canned Ale lager Total spirits cider single bottle ale total light wine fortified wine Bottled Ale Multipack Shifting Gains / Losses champagne STout Multipack growth is predominantly being driven by spend shifting from other categories and by BWS shoppers adding bottle multipacks to their repertoire. In addition to shifting gains from single Bottle & Canned Ale, sales are also shifting from a wide number of BWS categories. Once introduced to bottle ale, multipack buyers are very loyal to the pack format and are less likely to progress to buying higher margin single bottles. This, combined with the only shifting losses being to Ale Kegs, suggests that there are a proportion of customers that are bulk buying ale infrequently for specific occasions. As these will be more impulse driven purchases, availability & visibility of a multipack offering will be more important than price discounts. 2, % Total Mkt pen awop repertoire shifting all other rtd SParkling wine all other wine bottle ale multipack 0 0 Perry 56-1 ale keg 1, Once introduced to bottle ale, multipack buyers are very loyal to the pack format and are less likely to progress to buying higher margin single bottles. Deflation

26 Changing Landscape 26 With an evolving retail market structure, increasing customer expectations, price wars and the expansion of new BWS subcategories, the grocery market presents many opportunities as well as challenges for Premium Ale. Many developments play directly to the category s strengths. Increased demand for provenance and authenticity mean consumers search for real from producers with authentic brand stories and depth of character. Renewed interest in beer in part can be attributed to this, with craft supporting the growing number of micro-breweries and consumers having a greater understanding of beer styles and ingredients. The Bottled Ale market has benefitted, with value growth of over 60% in the past 5 years. Changing Landscape

27 Changing Shopper Behaviour: implications for Premium Ale Source: IGD Retail Analysis bn 40.4% 34.7% +0.3bn 20.0% 17.8% Shopping habits are expanding across different retailers and formats - Build premium ale offering outside of main estate supermarkets over a 1/5 of Bottled Ale customers buy most often in other outlets - Tailor range, pack formats & promotional activity by trade sector to increase category purchase frequency Grocery Channel Value Share Forecasts bn 21.2% 22.0% 7.2% 11.6% 5.0% 8.6% 6.2% 5.4% superstores and small convenience discount online other hypermarkets supermarkets bn Change total +23.1bn +10.5bn +8.3bn -0.3bn Despite the movement towards every day lower pricing, promotions are still a key part of shopping habit - Activity is still required to maintain focus on categories that are shopped less frequently, such as premium ale Shopping little and often / mission based - Ensure appropriate product presentation is available (chilled premium ale) - Understand changing shopper missions across different formats e.g. meal for tonight, which offer increased opportunities for BWS categories Shoppers perceive convenience stores as more expensive - Price marked packs to reassure - Simple & clearly communicated promotional offer Shoppers are switching tiers; to cheaper brands to save money but also to more premium - Differentiate tiers within Ale to maintain category value and offer a reason to buy outside of price Customers expect more: - Choice: of store, in-store, of format. Real NPD within premium ale, differentiated ranges - Availability: key for bottled ale. Ensure brands have adequate facings on shelf to satisfy sales demand - Ease of selection: rationalise ranges whilst retaining core category signpost brands - Information: range segmentation, ale styles, brewer, ingredients - Real: convey provenance of premium ale, highlight British heritage - Personal: targeted activity, consistent loyalty building campaigns Changing Landscape

28 Convenience Channel Growth: opportunities & challenges for Premium Ale 28 Source: IGD ShopperVista 2016 Top convenience store shopper missions 1: Top-up on staple products 54% 2: Snack between meals 27% 3: Buy a newspaper/magazine 4: Buy alcohol 27% 23% 5: Buy something for an evening meal 23% 6: Top-up on fruit & vegetables 23% 7: Use cash machine or get cash back 8: Buy lunch - cold food-to-go 9: Buy cigarettes or tobacco 10: Buy a lottery ticket 21% 18% 18% 18% Total meal on the go = 26% (Lunch cold or hot food or breakfast) Total Lottery = 23% (Lottery ticket or scratchcard) Buying alcohol is the 4th highest convenience store mission. Changing Landscape

29 Convenience Channel Growth: opportunities & challenges for Premium Ale 29 Convenience shoppers value local & British products; recognisable brands names reassure shoppers of quality An additional 38% of Convenience store shoppers would buy alcohol than currently buy (23%); suggesting that the range on offer is not satisfying demand - Expand the range of Premium Ale in sector to satisfy increasing number of category shoppers - Clear promotional strategy; mechanics that take into account smaller basket size Impulse sector currently under trades in ale by 100m vs. total BWS - Stimulate impulse purchase by increasing availability of chilled Premium Ale (60% of customers drink their Bottled Ale chilled) - Increase Premium Ale display to highlight category availability - Feature Premium Ale in promotional leaflets to drive category shoppers to store - Include Premium Ale within seasonal events to drive penetration Convenience shoppers value local & British products; recognisable brands names reassure shoppers of quality - Point of sale to highlight provenance of Premium Ale - Stock key category brands to highlight category quality credentials - Regional origins of Premium Ales (NB. local to actual store less important) Long Drinks are in decline within Impulse, driven by Lager & Cider; Premium Ale is in growth - Drive growth and total Long Drinks category value by offering a core range & highlighting Premium Ale availability in store - Adapt offering to store location, shopper missions & demographics e.g. selection of chilled ales for immediate consumption - Include Premium Ales in meal solutions to encourage increase in consumption occasions Value for money is a key factor in choosing where to top-up shop - Increase of value focussed Convenience (One Stop Local Value, Booker Family Shopper) may be a challenge for Premium Ale; ranges are more likely to be based around Canned Lager and Standard Canned Ale - Price marked packs reassure shoppers as perceived to offer honest value - Clearly displayed promotional offers Appropriate pack formats are important but more challenging for Bottled Ale - Bottled Ale carry packs, branded bottle holders, smaller multipacks Changing Landscape

30 Discounter Channel Growth: opportunities & challenges for Premium Ale 30 Source: Nielsen MAT Growth shopping missions within Discounter sector are main shop (38% of shoppers) and evening meal (22%) - Increase in missions that are more likely to include alcohol Discounters will be looking to expand their branded ranges as they aim to recruit more customers to do their main shop Conversion of beer shoppers is low; 58% of beer purchasing households shop at Discounters, but less than a third of these actually buy beer in this trade sector, due to non-availability of brands they want Almost half of all Discounter Beer & Cider sales are own label (driven by lager & cider); whereas almost 80% of total BWS sales in UK are branded......and 92% of Beer consumers are brand loyal Since the introduction of a more branded offering, beer & cider share of sales through discounters has grown & is approaching that of total grocery Value % Share of Total GB, Beer & Cider 8.7% 7.3% 6.7% Total discounters MAT TY MAT YA MAT 2YA Own label bottled ale sales make up less than 5% of the total category. Expansion of brands within this category in Discounters has driven strong growth, leading to a 26m over trade versus their share of total Beer - Leading to increase in price matching by Grocery Multiples, risk of devaluing overall category - Product portfolio needs to be managed carefully to reduce conflict; separate Discounter strategy required 27% of bottled ale shoppers have purchased bottled from a Discounter over the last 3 months, however only a fifth of these name it as their main channel - Discounters have the potential to become a key choice for core bottled ale customers - Added interest is needed within Discounter ranges to increase customer engagement and reduce sole focus being price e.g. bespoke brands, style information, British focus Changing Landscape

31 Discounter Premium Ale % Share of Trade vs. Beer Source: Beer - PanelVision , Ale - Nielsen Homescan MAT Bottled Ale in the Discount sector is now worth 50m, significantly overtrading versus their share of total beer. Following a very strong year two years ago, sales performance is now in line with total Beer, but behind Discounter s total grocery growth rate. Premium Canned Ale growth rate has accelerated rapidly over the last year, but this is from a very small base; a very limited number of brands are available in this sector 14 % Value Share % +31% +8% +25% Share of Beer Share of Bottled Ale Share of Premium Canned Ale MAT 2YA MAT YA MAT TY % +3% Bottled Ale in the Discount sector is now worth 50m, significantly overtrading versus their share of total beer. Changing Landscape

32 Discounter Premium Ale Share Trend Source: Nielsen Homescan MAT Bottled Ale Share growth plateaued briefly when Grocery Multiple price matching intensified in Q It soon recovered, albeit at a slower rate of growth due to a poorer performance from Aldi. bottled ale rolling mat value share premium canned ale rolling mat value share feb mar mar apr may jun jul aug sep oct nov dec jan feb mar mar apr may jun jul aug sep oct nov dec jan jan feb mar apr may jun jul aug sep oct nov dec jan 2016 Changing Landscape

33 Discounter Bottled Ale % Category Conversion Source: Nielsen Homescan MAT A high % of Discounter customers buy Bottled Ale as the range contains a high proportion of branded products versus other BWS categories. 14% 12% 10% Aldi conversion has dropped year on year, with 130k households leaving the category, either completely or shifting to other retailers. Lidl have attracted almost 300k households to their Bottled Ale category, outperforming Aldi and attracting PBA spend from most other major retailers 8% 6% 4% 12% 10.2% 8.5% 9.9% 2% 0% aldi lidl LY Ty Changing Landscape

34 Aldi Bottled Ale Performance Factors Source: Nielsen Homescan MAT Actual ( 000s) Source of change % -3, % -1.4% Shifting Gains/Loss % Index / Act ( 000s) tesco bottled ale 53.5% morrisons bottled ale 47.5% sainsburys bottled ale 5.2% Despite a strong performance at total Grocery level, Aldi bottled ale performance is faltering. Although increasing customer numbers overall, they are failing to convert these into bottled ale shoppers. Existing customers are also buying less and, although bottled ale spend is being gained from Tesco & Morrisons, sales are shifting to other retailers, particularly Waitrose, Lidl & Asda -2, % aldi bottled ale 0 0 total coops bottled ale -18.1% % -1.7% all other -19.5% waitrose bottled ale -26.2% lidl bottled ale -67.5% asda bottled ale -75% Despite a strong performance at total Grocery level, Aldi bottled ale performance is faltering. Total Mkt pen awop repertoire shifting Changing Landscape

35 Lidl Bottled Ale Performance Factors Source: Nielsen Homescan MAT Actual ( 000s) Source of change % 6, % Shifting Gains/Loss % Index / Act ( 000s) sainsburys bottled ale 30.3% Conversely, Lidl had a strong year with bottled ale. As overall customer numbers increase, a higher percentage of these are shopping the category and buying more. Households have added Bottled Ale from Lidl to their repertoire and significant shifting gains have been seen from all major retailers except Tesco & Asda 1, % all other 27.1% morrisons bottled ale 25.6% , % aldi bottled ale 13.6% total coops bottled ale 8% , % +12.8% waitrose bottled ale 4.6% lidl bottled ale 0 0 asda bottled ale -4.6% Households have added Bottled Ale from Lidl to their repertoire. tesco bottled ale -4.6% Total Mkt pen awop repertoire shifting Changing Landscape

36 On-line Channel Growth: opportunities & challenges for Premium Ale Source: Nielsen Homescan Data to 52 WE Vs YA +28.3% 23.2m 28.7m Value Sales 12.7M 14.8M +16.5% +33.9% 10.2M 13.7M Ale Online sales Penetration % of on-line shopper missions are big shops with average spend of 75, only 17% are top up - Modify deals to upweight ale volume purchased at peak period or during events e.g. 8 ale bottles for X - Opportunity for larger pack formats Reduced delivery lead times and click & collect will drive top up and meal for tonight missions - Increase in missions that are more likely to involve BWS purchases - Reduces immediate consumption barrier to purchase Need to simplify hierarchy to enable shoppers to find Premium Ale - Reflect ale drinker s language - Allow customer to also shop by brand, brewery and style ale bottled ale canned ale MAT YA MAT TY Although in strong growth, the share of Ale sold on-line remains very small at under 7% - Immediate consumption requirement is barrier to purchase - Bottled Ale customers, in particular, enjoy perusing range of ales on shelf (Bottled Ale on-line share is <6%) - Opportunity to increase information available; style of Ale, ingredients, regionality, food matching recommendation ale bottled ale canned ale MAT YA MAT TY Significant opportunity as a quarter of UK households shop on-line, with Ale only being bought by 3%! - Tailored activity such as coupons, free samples, recommendations, meal deals, product suggestions - encourage customers to shop for Premium Ale on-line Opportunity to add excitement and encourage impulse purchases - Bespoke area within site dedicated to Ale, with additional information for enthusiasts such as guest expert views, new product, ale style or ingredient features, recipes, brewery features - Increase disruption food matching, meal deals, Ale suggestions alongside complimentary BWS categories such as Wine or Whiskey - More compelling pack shots? Lifestyle images to showcase each Ale - Increase relevance of Premium Ale by including in on-line events to encourage impulse purchases and attract new on-line Ale shoppers Changing Landscape

37 Premium Ale Performance & Drivers by Major Grocery Retailer H&W Bottled Ale Customer Research Base: Total buyers (1000) Customer trade sector preference Bottled Ale bought pba from in last 3 months buy pba from most often Conversion (l3m/most often) 37 Large format stores will remain the place where most groceries are bought and the Grocery Multiple sector accounts for almost 90% of all Ale volume. Over the last 3 months, 97% of Bottled Ale customers have purchased from a supermarket. Price matching, range rationalisation, reduction of promotional activity, increasing hurdle rates to obtain secondary display space are contributing to an increasingly challenging environment, for both retailers and suppliers. 100% 80% 80% 60% 40% 20% 10% 22% 13% 35% 10% 0% 14% 17% 0% supermarket Pub discount store off-licence supermarket local corner shop brewery cash & carry specialist drinks Website Website 97% 78% 30% 3% 27% 6% 24% 3% 20% 7% 20% 2% 10% 0% 7% 1% 6% 1% Changing Landscape

38 Retailer Bottled Ale % Share of Trade vs. Beer Source: Beer - PanelVision , Ale - Homescan MAT Tesco have reduced their Bottled Ale undertrade versus total Beer which has been driven by a declining share of total Beer in conjunction with growth of Bottled Ale total beer bottled ale tesco discounters sainsburys morrisons asda coop waitrose Bottled Ale Over/ under - 5.1m 25.9m - 1.0m 0.6m m - 3.8m 7.5m trade vs. Beer A number of existing customers have stopped buying Bottled Ale in Tesco, partly due to a reduction in display and shifting sales to Craft Beer, but non-category shoppers have been attracted. These are customers shifting spend from Canned Ale, taking advantage of deep price cuts on leading bottled brands such as Old Speckled Hen and Hobgoblin, and also customers, new to Ale, buying Bottled Ale multipacks. A fall in Tesco total customer numbers, with Grocery sales shifting to all other major retailers, means that a greater proportion of remaining Tesco shoppers are now buying Bottled ale. Existing customers are also buying more volume, driven by the performance of multipacks over Christmas and increasing purchase frequency. Net shifting is flat; Tesco Bottled Ale spend is being lost to Asda, Aldi & Co-op, but attracted from JS, Waitrose & Lidl Changing Landscape

39 Bottled Ale % Category Conversion by Retailer Source: Nielsen Homescan MAT % Ly TY Sainsbury s are losing grocery customers as a whole and, with reductions in display, also Bottled Ale households. With spend shifting to most other retailers, the % of their shoppers who buy Bottled Ale has fallen. 10% Those remaining are buying more, shopping more frequently and buying into multipacks over Christmas, but Sainsbury s is still underperforming the market. 8% 6% Despite having the largest under trade versus Beer, Asda has increased Bottled Ale category customer conversion, with display increasing over the last year. 4% 2% 0% 10.3% 10.8% 6.0% 7.0% 9.5% 8.6% 6.4% 7.1% 4.2% 3.5% 7.8% 9.3% Tesco asda Sainsbury s Waitrose co-op Morrisons Although they are losing grocery shoppers overall, with sales shifting to all other major retailers, Bottled Ale is bucking this trend, with spend being attracted from JS, Aldi & Tesco in particular. With increased display prompting more frequent purchase, their existing customers are also buying in greater volumes Changing Landscape

40 Major Retailer Bottled Ale Shifting ( ) Source: Nielsen Homescan MAT sainsburys bottled ale asda bottled ale morrisons bottled ale waitrose bottled ale total coops bottled ale tesco bottled ale Morrisons are driving Bottled Ale volume, but at the expense of value growth which remains behind the market. They have increased display significantly and, as a result, converted a higher proportion of their customers to the category. Morrison s are also attracting new Grocery Multiple customers to Bottled Ale, plus spend is being gained from most other major retailers. However, rotating 1 per bottle deals have led to volume growing far ahead of value. Combined with an increasingly flat category offer, this could reduce the ability to drive volume growth outside of price investment. aldi bottled ale lidl bottled ale all other 0.5m 1m 1.5m 2m 2.5m sainsburys bottled ale asda bottled ale morrisons bottled ale waitrose bottled ale total coops bottled ale tesco bottled ale aldi bottled ale lidl bottled ale all other Changing Landscape

41 Retailer Premium Canned Ale % Share of Trade vs. Beer Source: Beer - PanelVision , Ale - Homescan MAT total beer Premium Canned Ale Premium Canned Ale is heavily reliant on Tesco & JS due to the proportion of category sales they account for. Although they overtrade versus Beer, a reduction in Premium Canned Ale display in both retailers has reduced customer numbers. Trip volumes are also declining, particularly in Tesco, due to reduced multibuy activity in favour of price cuts on Premium Canned Ale 4 packs Tesco attracted sales from Morrison s over the period that Morrison s stocked a reduced range, but has lost the equivalent amount to Aldi & Co-op tesco sainsburys asda discounters morrisons coop waitrose Premium Canned Ale Over/ 10.2m 10.7m - 2.0m - 3.3m - 2.9m - 2.4m 0.7m Under Trade vs Beer Premium Canned Ale is heavily reliant on Tesco & JS due to the proportion of category sales they account for. Changing Landscape

42 Premium Canned Ale % Category Conversion by Retailer Source: Nielsen Homescan MAT Ly TY 3% 2.5% 2% 1.5% 1% 0.5% 2.8% 2.7% 0.8% 1.1% 1.9% 1.6% 1.2% 0.9% 0.4% 0.9% 1.0% 1.1% Both Sainsbury s & Tesco have reduced the percentage of their customers who buy Premium Canned Ale. 0% Tesco asda Sainsbury s Waitrose co-op Morrisons Changing Landscape

43 Major Retailer Premium Canned Ale Shifting ( ) Source: Nielsen Homescan MAT total coops premium canned ale waitrose premium canned ale morrisons premium canned ale Morrisons are attracting customers back to Premium Canned Ale after expanding their range to satisfy the wider repertoire of core category shoppers. They have gained sales from Asda and Co-op, but a lack of display has held back recovery & their performance is behind the market. asda premium canned ale sainsburys premium canned ale tesco premium canned ale aldi premium canned ale lidl premium canned ale all other 200, , , ,000 total coops premium canned ale waitrose premium canned ale morrisons premium canned ale asda premium canned ale sainsburys premium canned ale tesco premium canned ale aldi premium canned ale lidl premium canned ale all other Changing Landscape

44 Bottled Ale Customer Evolution H&W / Insitas Customer Segmentation Research Base: Shoppers - Sainsbury s buyers 2010 (1261); All supermarket buyers 2016 (1000) 44 Percentage of category shoppers who drink Bottled Ale Over the last five years, over 1.5million new customers have entered the Bottled Ale category, which has fundamentally altered the profile of the Bottled Ale customer. 100% 80% 60% Indicates sig diff vs. 95% The composition of Bottled Ale shoppers has been one of the key changes. Category shoppers who also drink Bottled Ale now account for a greater proportion of the market. In 2010, non-drinking shoppers bought a significant percentage of the category (31% volume). Understandably, these shoppers had less Bottled Ale knowledge and were less engaged with the category. As a result the main factor driving their purchase decision has always been price. 40% 20% 0 38% 22% Shopper only (does not consume) 62% 78% Shopper who consumes Now in 2016, we have seen a reduction in the size of this more price sensitive customer segment, who now account for just 15% of Bottled Ale category volume sales. Category shoppers in 2016 are therefore a much more engaged audience, with 4 in 5 being consumers. Over the last five years, over 1.5 million new customers have entered the Bottled Ale category. Changing Landscape

45 Bottled Ale Category Shopper Demographics H&W / Insitas Customer Segmentation Research 2016 Base: Drinkers bought from Sainsbury s 2010 (707); bought from any supermarket 2016 (750) Indicates sig diff vs. 95% Age (%) 50% Gender (%) 40% 30% 20% 10% % 36% 50% 40% 33% 24% under over 55 Social Grade (%) 78% 68% Men 22% 31% 16% 12% 5% 22% 32% women 15% Bottled Ale drinkers have also changed demographically; comprising of far more females and a much younger profile; over a third are under % 35% 17% 19% 7% 9% A B C1 C2 D E Changing Landscape

46 Bottled Ale Shopper Attitudes 2016 vs 2010 H&W / Insitas Customer Segmentation Research Base: Shoppers - Sainsbury s buyers 2010 (1261); All supermarket buyers 2016 (1000) Indicates sig diff vs. 95% I like to try a different ale every time I buy one I spend a long time at the shelf choosing which beer to buy I know a lot about real ale I find the large range confusing I buy bottled ale as a treat, it s not my main drink I look out for beers of the month/seasonal ales 29% 50% 42% 62% 26% 42% 10% 26% 43% 49% 48% 54% Along with consumer s younger age profile, the growth in size and choice of the Bottled Ale category since 2010 is reflected in a shift in attitudes. The increasing diversity of Premium Ale, and of BWS as a whole, has helped consumers become more experimental and knowledgeable, who love the variety that Bottled Ale offers and appreciate anything new and different. As customer s repertoires of total BWS expands however, Bottled Ale does face increased competition from other categories. With Bottled Ale less likely to be customer s main drink, the category needs to work harder to hold their interest, deliver excitement and remain relevant. With Bottled Ale less likely to be customer s main drink, the category needs to work harder to hold their interest, deliver excitement and remain relevant. Changing Landscape

47 Premium Ale Category Sources of Growth Source: Nielsen Homescan MAT Multiples 47 Actual ( 000s) Source of change % 13, % Bottled Ale Performance Factors Shifting Gains/Loss % Index / Act ( 000s) standard Canned Ale 56.9% 87 2,835 Bottled Ale s main source of growth is new customers. These are a combination of new customers to the ale category, many via multipacks, and shifting spend from Canned Ale, attracted by price match discounts on key Bottled Ale brands. 3, % all other 22.9% 140 1,140 Existing customers are also buying in greater quantities driven by multipack growth. 5, % premium canned ale 18.3% Outside of Ale, spend is shifting from Lager, Cider & Wine, shoppers again attracted to heavy discounts on single ale bottles and to multipacks during peak periods % ale keg 1.8% ,979 Total Mkt pen awop repertoire shifting +2.1% Bottled Ale s main source of growth is new customers. Changing Landscape

48 Premium Ale Category Sources of Growth Source: Nielsen Homescan MAT Multiples Actual ( 000s) Source of change % -3, % Premium Canned Ale Performance Factors Shifting Gains/Loss % Index / Act ( 000s) all other 15.1% After gaining sales from Standard Canned Ale, Bottled Ale and most other BWS categories in 2014, Premium Canned Ale suffered significant losses last year. Customers are dropping Premium Canned Ale from their repertoire and spend is shifting back to Standard Canned and Bottled Ale , % -1.6% +0.4% ale keg 3.0% standard canned ale -42.9% bottled ale -75.2% Despite decreasing prices, remaining Premium Canned Customers are also buying less, with the reduction of multi-buy promotions and levels of display reducing purchase frequency and trip volume. Outside of ale, Premium Canned Ale spend is shifting to many other BWS categories, including Sparkling Wine, Spirits & Cider -1, % Total Mkt pen awop repertoire shifting Customers are dropping Premium Canned Ale from their repertoire and spend is shifting back to Standard Canned and Bottled Ale. Changing Landscape

49 New Product Development & Category Trends Source: Nielsen Scantrack Data to 52 WE Vs YA 49 NPD contribution by category 1B 800M 600m 400m 200m 0-200m -400m -600m -800m 16% 17% new growth decline lost 26% 7% spirits wine (light) cider lager 70m 60m 50m 40m 30m 20m 10m 0m -10m -20m 10% bottled ale new growth decline lost 27% Premium canned ale Spirit growth is mainly being driven by core category brands, including Smirnoff & Bells, featuring in regular 15 price cut deals on litre bottles. Sales declines are being suffered by own label products as shoppers trade up to the brands on offer. Premium trends are evident in Lager. Growth is being driven by Corona, Stella Artois, San Miguel and Peroni, and half of total NPD sales are coming from Fosters Rocks Spiced Rum and Desperados Red. Bottled Ale NPD is all about golden style ales. Guinness Golden Ale accounts for a quarter of NPD sales, with Spitfire Gold and John Smith s Golden Ale also contributing. Sharps Doombar and the Guinness Porters are strong performers within the bottled ale growth skus, with Hobgoblin Gold a significant new product despite loss of Tesco distribution. -1B NPD has been prolific within the Cider category, accounting for 26% of annual growth. Much of this however is due to the churn of Cider flavours, with other variants in decline or dropping from the category. Key growth drivers are premium world ciders such as Kopparberg and Old Mout, plus the continued success of Strongbow Dark Fruit. -30m There are three themes driving NPD in the Spirit category: low price, premium and flavours. Glen Stag Scotch, retailing for 16, and Glenlivet Founders Reserve at 48 are the two best-selling launches, making up almost 40% of all NPD value. Flavoured non-cream liqueurs also feature, particularly Jack Daniels Honey and Tennessee Fire. Hobgoblin Gold is also a key brand within Premium Canned Ale NPD and is, along with Brewdog s Punk IPA, a major contributor. An accelerating trend, albeit still small in value terms, is the plethora of new Craft canned ales which look set to gain further distribution over the next year. Changing Landscape

50 Bottled Ale Style Trends Source: Nielsen Scantrack MAT to Total GB (based on brands making up 83% category, excludes mixed packs & smaller regionals) Performance by Bottled Ale style Total Bottled Ale +11% YOY 50 Bottled Ale style trends are being influenced by younger consumers entering the market; premium lager drinkers, who are adding ale to their beer repertoire, and more experimental customers who have a higher degree of knowledge of, and interest in, different styles of beer. Golden ale launches, combined with the growth in popularity of pale ales, has maintained Light/ Golden as the fastest growing style within Bottled Ale. Darker ales are also in strong growth. The well supported launches of the Guinness porters are driving this, along with Wychwood s Hobgoblin, one of the key skus caught up in Grocery Multiple matching of Discounter pricing. Although still contributing over 50% of category value, sales of Amber ales are fairly flat by comparison. Amber 52.3% Share +3% YOY Dark 24.2% Share +16% YOY Light/ Golden 23.4% Share +33% YOY Impressive growth by Sharp s Doombar and Timothy Taylor Landlord has been somewhat mitigated by the decline of a number of core brands such as Shepherd Neame Spitfire, Badger Fursty Ferret, Greene King IPA and Fullers London Pride, under pressure in an expanding, increasingly innovative market. Changing Landscape

51 Bottled Ale Style Preferences H&W / Insitas Customer Segmentation Research Base: All supermarket buyers (1000) 51 Percentage of total customers without a style preference From a consumer perspective, style preferences bear out these category trends. 45% 38% Versus research findings in 2010, customers in 2016 are more likely to have a preferred style, although this still does not factor in the purchase decision for more than 1 in 3 customers. Of those who do have a preference, almost 40% seek out Light/Golden ales, suggesting that there is plenty of headroom for the growth of this style. This could possibly be at a cost to more traditional Amber ales Preferred style % share of customers who expressed a preference 25% 37% 38% dark amber golden/light Of those who do have a preference, almost 40% seek out Light/Golden ales, suggesting that there is plenty of headroom for the growth of this style. Changing Landscape

52 Ale Bottle Colour Preferences H&W / Insitas Customer Segmentation Research Base: All supermarket buyers (1000) 52 Percentage of total customers without a bottle colour preference From our research we also know that customers do want to try different ales, but within a fairly narrow range of styles. An increasing preference for clear bottles suggests that shoppers welcome ways to reduce the risk of buying ale they won t enjoy. 81% 56% Other initiatives are helping to make the selection easier such as style information on shelf, simplified ale descriptions on bottle labels, category leaflets and increased information on retailer websites Preferred bottle colour % share of customers who expressed a preference Off shelf display, showcasing a range of different Bottled Ale brands with similar styles would also increase shopper confidence, drive purchase frequency and expand customer repertoires. This, in turn, would help build category loyalty, increasing the breadth of choice available to each consumer within their preferred style range. Clear brown 53% 47% Clear brown 57% 43% An increasing preference for clear bottles suggests that shoppers welcome ways to reduce the risk of buying ale they won t enjoy Changing Landscape

53 Craft Beer Source: Nielsen Scantrack MAT to 02/01/16 vs year ago 53 Definitions of what qualifies as a Craft Beer vary widely. 60k 50k 40k 30k 20k 10k Craft Beer, Total Coverage, Value Sales 000 s 36, % 48,387 12m 10m 8m 6m 4m 2m Craft Beer, Total Coverage, Volume Sales (000 s) 8, % 11,840 Unique flavours, higher quality, traditional production methods, with smaller volumes produced, are all cited by consumers as necessary attributes in a Craft Beer. Unfortunately, with these requirements difficult to quantify, larger manufacturer s launching craft style sub brands and with an increasing number of Craft brewers being acquired by large, international breweries, the lines between types of premium beer have become blurred, with the term Craft being dropped by some brewers as it becomes increasingly ambiguous. Based on Nielsen s categorisation, Craft Beer remains in strong growth, outperforming total mainstream beer but in line with Premium Ale performance. 0 Mat ya Matya 0 Mat ya Matya Growth is being driven by new customers adding Craft to their repertoire, with customer spend shifting from Bottled Ale, Wine and Lager. Existing customers are also increasing volumes by shopping the category more frequently. Changing Landscape

54 Demographic Breakdown of Craft Beer Buyers Source: Nielsen Homescan MAT to Multiples % 10% 14.4% 30.7% 33.1% households buying brand 14.3% 39% 25.9% 19% 1.8% households buying brand Social Class 14.2% 6.7% 11.9% 26.7% 40.5% % expenditure Age Main Shopper 22.3% 38.6% 21.6% 17.4% 0.3% % expenditure e d c2 c1 ab % 10.8% 4.2% 9.1% 10.4% 1.7% 11.9% 6.4% 9.1% 20.4% households buying brand Region 15.9% 7.1% 3.6% 8.2% 6.9% 1.4% 6.7% 4.9% 19.7% 25.7% % expenditure Craft Ale customers are more affluent, with slightly older shoppers (45yrs+) accounting for over half of category sales, roughly in-line with Bottled Ale customers. Sales by region highlight a marked difference between Craft Beer and Premium Ale. There is a significant bias towards London and the South East for Craft, with over 45% of sales through these regions (vs. 29% for Premium Ale), due to the expansion of on-trade Craft Beer interest in this area. With a 16% share, Scotland also buys a far greater proportion of Craft Beer than of Premium Ale (7%) or total Beer (9%). This is predominantly due to the success of Brewdog; almost a fifth of Brewdog UK sales are in their heartland. Central & North scotland lancashire & borders North east yorkshire Wales & west south west central east of england south & south east london Changing Landscape

55 Craft Beer Drivers & Trends Source: Nielsen Scantrack MAT to 02/01/16 vs year ago % 90% 80% 70% 1.03% Value % share Share of Craft Beer category by pack format 3.51% 100% 90% 80% 70% Volume % share 1.09% 3.89% This initially created merchandising challenges but retailers are now adapting layouts to accommodate the 330ml/355ml Cans. Often sold as singles, their natural position is alongside Craft bottles, offering a wider range of beers in a format that has become increasingly prevalent and popular in on-trade Craft bars. Due to the wide range of styles and high level of activity in the category, other distinct Craft Beer sales trends are less immediately apparent. 60% 50% 40% 98.1% 60% 95.77% 50% 97.74% 40% 95.12% Thwaites skus currently account for over 20% of the category growth driven by NPD, with Curious Brew from Chapel Down and Bootlegger Prohibition, an apple speer from Dockyard Distillers, also featuring. 30% 20% 30% 20% Other fruit flavoured Craft Beers are not faring as well, with a number in decline alongside wheat beers. Brewdog alone accounts for over 30% of category growth. 10% 0 Mat ya Mat ty bottled craft Although still representing a small percentage of the market, canned formats are gaining share of Craft Beer. 10% 0 Mat ya canned craft Mat ty Brewdog and Thwaites 13 Guns are currently driving much of this growth but an increasing number of British and American canned brands are starting to gain meaningful distribution in mainstream retailers. Although Craft Beer is currently a small category, around a 1/10th of the size of Premium Ale, the value of the media coverage, and subsequent customers it attracts, cannot be underestimated. As Craft Beer and Premium Ale/Lager categories become less distinct, an increasing number of consumers will be looking to broaden their repertoire, providing a route into the Bottled Ale market and driving value into Beer as a whole. Changing Landscape

56 Driving Value 56 Driving Value

57 Beer Subcategory Average Pricing Nielsen Scantrack MAT to /Litre Sales m MAT Jan 15 MAT Jan Beer lager ale total standard premium stout craft bottled canned world/ Bottled canned canned Beer* craft* craft* discovery ale ale ale Beer* 3,746 3, *not exclusive categories, also included in Ale or Lager Wine with the growing popularity of Prosecco; even Lager pricing has remained almost flat due to Premium Lager gaining category share at the expense of Standard. With the Spirit category this is particularly apparent. Whilst still offering lower priced options for more value conscious category shoppers, Core Spirit brands such as Bell s, Bacardi & Gordon s have driven volume through regular price deals, predominantly on 1 litre formats. This increased category investment has been offset by the growth of Premium Spirits. Consumer interest in Premium Spirits continues to grow, driven by the on-trade, cocktail trends, the increase of craft distillers and the resulting media coverage. Premium Spirits are offering customers something different, either through provenance, craft production and quality ingredients as with Grey Goose Vodka and Williams Chase Gin, or with the promise of a new experience from products like Haig Club Whisky or Jack Daniel s Tennessee Fire. Whereas average prices of Wine, Spirits & Cider have increased, all Beer subcategories are falling in price except Bottled Craft beer. Other BWS categories have been able to effectively manage the product mix in order to drive value ahead of volume. Whilst this may not always drive absolute category growth, it does enable retailers and brand owners to balance the value delivered by ranges across different types of product. Cider average price is being maintained by the development of Premium World & Craft Ciders, Premium Spirits are attracting more experimental consumers and are justifying their premium price points by clearly communicating product benefits, through media, on packaging and on-line. At fixture, their point of difference is also made clear to shoppers; premium brands tend to be merchandised together, above core Spirit ranges. Driving Value

58 Premium Spirits Key Performance Indicators Nielsen Homescan MAT Price per Ltr m -2.3% Penetration (HH Num) 26.5% m +9.7% Freq. 2.9 trips Vol per Trip 0.76Ltrs + 9.9m m +2.9% +4.6% The primary source of growth for Premium Spirits is new customers, adding to their repertoire and trading up from Standard Spirits. Volumes are also increasing, with customers being drawn to the fixture more often and buying in greater volumes. Although there has been increased investment in Premium Spirits, they are gaining share of the total Spirits category and, commanding a 10/litre price premium, are helping to maintain overall category value. Premium Spirits are also changing the demographics of total Spirits, attracting younger, more affluent customers. In addition, as the category is offering excitement to shoppers and generating incremental sales, Spirits have gained additional display space in store over the last year. -10m 0 10m 20m 30m 40m 50m 60m price per volume frequency households trip volume As the category is offering excitement to shoppers and generating incremental sales, Spirits have gained additional display space in store over the last year. Driving Value

59 Building Value into Premium Ale Nielsen Homescan MAT to Total BWS average annual spend per Buyer Premium Ale shoppers are important to retailers. They spend, on average, a large amount on the BWS category as a whole; Bottled Ale customers spend 80 more per year than Wine shoppers. Premium Canned Ale shoppers spend the most annually, and, although Canned Ale forms a large proportion of their repertoire, they also spend the equivalent amount across other BWS categories Premium Premium standard stout bottled standard spirits world bottled light cider rtd canned canned canned ale canned Beers lager wine Ale lager Ale lager Bottled Ale customers spend 80 more per year than Wine shoppers. Driving Value

60 Bottled Ale Customer Considerations H&W / Insitas Customer Segmentation Research Base: All supermarket buyers (1000) Don t know Completely disagree Disagree Neither agree nor disagree Agree Completely agree I love the fact that there is such a wide variety of different ales I like to buy new brands of bottled ale Total BWS average annual spend per Buyer Total agree The average Bottled Ale customer is now younger and more knowledgeable about brewers, ale styles and ingredients. Over half always read the label when making a selection and the heritage of breweries and authenticity of ales are important factors. Although customers are becoming more experimental, the Bottled Ale category is shopped fairly infrequently and customer spend is shifting to Craft Ale and Spirits. This would suggest that the increasing need for something different is not currently being met. I often buy bottled ale on impulse, when I have gone into the shop for something else I like to try a different ale every time I buy one I like to buy ales with flavours other than hops (e.g. elderflower, honey etc.) The average Bottled Ale customer is now younger and more knowledgeable about brewers, ale styles and ingredients. Driving Value

61 Customers are prepared to pay a premium for Bottled Ale H&W / Insitas Customer Segmentation Research Base: All supermarket buyers (1000) 61 Don t know Completely disagree Disagree Neither agree nor disagree Agree Completely agree I like to buy the more premium brands of bottled ale Bottled ale is a treat, it s not the main drink I buy If a brand is always on offer, I believe it s not worth its full price Total agree In general, Bottled Ale customers are more affluent (63% ABC1), with flavour/taste the most important factor when making a selection rather than price. Driving Value

62 Share of Category Shoppers & Spend 2016 vs 2010 H&W / Insitas Customer Segmentation Research Base: All supermarket buyers (1000) 62 Shopper only shopper & consumer Category shoppers who do not drink Bottled Ale are the most price sensitive customer segment. With less category knowledge, they have little, other than price, upon which to base their decision. 100% 90% Over the last five years the importance of this segment to the category has been reduced as a greater proportion of buyers now also drink bottled ale. 80% 70% 60% 50% 62% 78% 70% 86% 40% 30% 20% 10% 0 38% 30% 22% 14% % households 2010 %households 2016 % spend 2010 % spend 2016 Category shoppers who do not drink Bottled Ale are the most price sensitive customer segment. Driving Value

63 Core & Premium Bottled Ales Category Shares Nielsen Scantrack MAT (based on single bottles in distribution 10%+) Pricing based on 500ml Bottle equivalent 63 core premium This is borne out by actual shopping behaviour. The more premium or discovery brands within the Bottled Ale category are outperforming the core mainstream brands, despite selling at an average price over 20% higher. 100% 90% 80% 17% 1.92/btl 20% 1.87/btl +29% Shoppers are prepared to trade up; less reliant on promotions they are paying an additional 34p per bottle in order to buy something special. 70% 60% 50% 40% 30% 20% 10% 0 83% 1.61/btl Mat yag 80% 1.53/btl +10% Mat ty The more premium or discovery brands within the Bottled Ale category are outperforming the core mainstream brands, despite selling at an average price over 20% higher. Driving Value

64 Bottled Ale customers remain cautious or confused H&W / Insitas Customer Segmentation Research Base: All supermarket buyers (1000) 64 Don t know Completely disagree Disagree Neither agree nor disagree Agree Completely agree I tend to buy ales that are on offer I spend a long time at the shelf choosing which beer to buy Total agree Customers are however, looking for help whilst navigating the category. While some shoppers spend longer at fixture by choice in order to peruse the range, the purchase decision can still be challenging. Bottled Ale is commonly presented as a homogenised category, with little to differentiate between brands. As such, shoppers often default to using promotional activity to guide their decision. Promotional activity is still important to highlight the category and remind infrequent shoppers to purchase, but customers need to be given a reason to buy outside of just price. I d like to try new ales, but I don t know which ones to go for I find the large range confusing Bottled Ale is commonly presented as a homogenised category, with little to differentiate between brands. Driving Value

65 Bottled Ale Category Tiers H&W / Insitas Customer Segmentation Research Base: All supermarket buyers (1000) Bottle Size - Customers who expressed a preference 65 Bottle Size Preference Replicating the successful model seen within other categories, i.e. building a tiered structure highlighting a selection of more premium Bottled Ales, would: Help customers navigate the fixture to find new and/or more interesting beers Allow brewers to create some real innovative NPD rather than me too products that simply move spend around the category Add interest to the category, giving shoppers a reason to come back Attract customer spend back from categories seen as more innovative, such as Spirits or Craft Beer Stimulate trial by customers seeking more variety from BWS Encourage customer interest in authentic ales, specialist ingredients and brewing methods Elevate customer perception of Bottled Ale quality and craft credentials Creating a tier of more premium, discovery bottled ale does present a number of challenges: A uniformed pricing structure and flat category promotional offer are limiting Bottled Ale product development as new brands need to fit within current market constraints Shoppers have been conditioned to expect a standardised Bottled Ale offering Increased alcohol content is not sufficient as a point of difference. Stronger ales feature regularly in category deals; customers have noticed and taken advantage of this! Reducing bottle size may not be a successful way to convey premium within this category. 4 in 5 Bottled Ale consumers prefer 500ml bottles Merchandising tiers within the existing range may be more difficult in some retailers if ale style merchandising also has to be taken into consideration The introduction of tiers needs to fit alongside category multibuy strategies 20% 330ml 80% 500ml Driving Value

66 Bottled Ale Category Tiers 66 Primarily, in order to create a Bottled Ale category that delivers what customers are looking for, whilst also driving value growth, requires a more collaborative approach between brewers and retailers. Retailers cannot artificially construct tiers within a range without sufficient justification; it is predominantly the responsibility of Brewers to communicate to consumers why their ales should be viewed as more premium. If an ale offers consumers more, be it specialist brewing techniques, unusual ingredients or a unique style and flavour, it needs to be presented as such, showing customers why it commands a higher price point. Continual inclusion in deep category deals, or launching products at 1 per bottle, risks the complete opposite. To convey an ale s premium positioning, it needs to be communicated at all points of contact with customers; on bottle labels, at shelf, in all media content and where the product is sold. Brewers wanting their brands to be ubiquitous across all trade sectors and retailers can be a contributing factor to category value pressures. A brand needs to ensure that its distribution is consistent with its intended positioning. The development of elevated Bottled Ales which not only offer a genuine point of difference for customers, but are also treated as such, will enable retailers to showcase these as a more specialised offering. This, in turn, will interrupt Bottled Ale customers automated shopping behaviour, satiate their need for added excitement, create interest for, and drive trial by, new customers and give existing consumers a reason to visit the category more often, ultimately driving long term, sustainable growth. If an ale offers consumers more, be it specialist brewing techniques, unusual ingredients or a unique style and flavour, it needs to be presented as such. Driving Value

67 CATEGORY FLAVOURED BEER: FRUIT CATEGORY FLAVOURED BEER: HERB & SPICE CATEGORY PALE BEER: PALE ALE