The UK Good Beer Guide 2014 reports that the number of businesses in the UK producing beer is 1,147, up a staggering 187 on 2012 and the highest

Transcription

1 INSIGHTS Crafting Success Insight and Analysis of the UK Retail Premium Bottled Ale Market December 2013

2 The UK Good Beer Guide 2014 reports that the number of businesses in the UK producing beer is 1,147, up a staggering 187 on 2012 and the highest number for 70 years. Crafting Success Insight and Analysis of the UK Retail Premium Bottled Ale Market November 2013

3 At the time of writing Scottish breweries totalled 76; however this is increasing on an almost weekly basis, with start-ups across the nation. Inspired by the craft beer revolution in the US the vast majority of new Scottish breweries are small-scale, manufacturing less than 50,000 litres a year and focused on supplying a very local geography whilst others, such as C&C s joint venture with Williams Brothers, clearly have plans for growth further afield. Such is the pace of manufacturing growth that almost two-thirds of brewers in Scotland have been in operation for less than ten years. But to put things into perspective; according to the US Craft Beer Association there are 39 craft brewers in Florida across a population of 19 million, while in Scotland there are 76 brewers with a 5 million population. The following research and analysis aims to answer as many of the key questions as possible whilst identifying the numerous opportunities and threats that lie on the road to crafting commercial success for the resurgent Scottish brewing industry. The Scotland Food & Drink INSIGHTS team, with the support of Scottish Enterprise, has brought together a multitude of data sources, market intelligence, trend spotting and years of FMCG experience to produce this report which focuses on Premium Bottled Ales (PBA) within the context of the crucial multiple retail market. We recognise, of course, that each brewer will have its own strategy for growth and you will have our own questions regarding the market and we welcome further enquiries. Please do not hesitate to contact us using the details at the end of this report. Andrew Niven INSIGHTS Manager Kenny Martin INSIGHTS Analyst INTRODUCTION So, there are many questions that arise from such rapid growth. Is demand keeping up with supply? Exactly where are the growth opportunities in the UK market? Are new shoppers being brought into the category? Are new entrants making an impact or are the bigger players shutting them out? How are the multiple retailers responding? Who do I target with my marketing?

4 Market Background The UK Beer industry faces challenges as category sales continue to fall. Recent figures from the British Beer & Pub Association estimate a decline of 4.8% in the second quarter of 2013, with losses in the on-trade (pubs, bars and restaurants) running at 5.8% and off-trade sales falling at a slower rate of 3.6%. The reasons behind this are well documented; rising prices driven by duty increases and barley costs, austere consumer spending, increased health awareness levels, a widening disparity between in and out-of-home pricing and multiple grocers strong discounting. These factors have all contributed to changing consumer social habits, with an increased proportion opting to switch some of their beer drinking from the pub to the comfort of their own homes. A recent Brand Desire Study conducted by Clear, showed that beer languishes near the bottom of those brands which consumers build a connection with, with only financial services, energy and tobacco below it. Only Guinness scored a higher than average desirability with respondents citing little differentiation between the leading beer brands, disappointing for a category associated with fun and social occasions. Lager has borne the brunt of Britain s changing drinking habits, with four of the top five brands in sales decline. Volume driving promotions have become less attractive to shoppers in general and are also failing to attract new buyers to the category. However it is important to look at the context. Overall beer sales were expected to have reached 16.5bn in 2012, with lager s 12.1bn dwarfing sales of Ale and Stout. There is an increasing trend for the discerning consumer, someone who seeks out flavour and authenticity, who opts for local artisan producers with a product story. This is having a direct impact on the category, creating a greater desire for a broader array of beers than ever before, leading to experimentation amongst drinkers, and with that comes less loyalty to the established brands. PBA Volume has increased by almost 20% over the last 5 years, with the boom in the number of craft brewers providing a huge choice to the more selective drinker. Sales of craft ale in the UK are estimated at 438m, with close to a 50/50 split between the off-trade and Take Home channels. This is closely aligned to the off-trade share of total beer consumed in the UK, reported at 48% by BBPA. UK BEER SALES - LAGER 12.1BN ALE 3.5BN STOUT 0.9BN Source: HMRC/BBPA/Mintel/based on SymphonyIRI Group InfoScan

5 82 % 18 % SNAPSHOT OF PBA DRINKER Typically Men aged 35+, core Married/living as married Affluent with real AB bias Working or Retired Unconstrained couples, Mid-Life Independents or Empty Nester lifestages 25,096 25,096 25,096Source; TGI2013 D Average Personal Income before tax (vs GB average 18,881) D C B A - AB 45% B - C1 29% C - C2 15% D - DE 11% A D C A - Married living as married 71% B - Single 19% C - Widowed 4% D - Divorced/Separated 6% B C A - Full time 48% B - Part Time 12% C - Retired 27% D - Other/Not working 23% B A A 76 % Comfortable or coping

6 Sales figures from earlier this year underline the strength of PBA performance, showing it as the strongest performing sector within the Beer category, however despite the strong performance the category is still only 1/7th of lager s value in Grocery Multiples. Drinking at home remains a popular activity, with 9 in 10 adults having done so in the last year, 58% at least weekly, with male higher earners the most likely to do so at least once a week, a close demographic fit to the 21.5% who buy bottled ale. The opportunity for Ale as a whole was highlighted in a recent report published by Martson s Beer Company which compared Ales off versus on-trade share of mouth. Continued low pricing of lager and cider with deep promotional offers, especially in Grocery Multiples, represents a substantial consideration for shoppers when thinking about their alcohol purchase. They estimate a 1bn Take Home sales opportunity for Ale, with PBA representing 50% of this. Total +1% Lager +1.4% Ale +1.3% Bottled Ale +11.8% Premium Canned Ale +3.3% Since the economic downturn, consumers have cut back on everyday products where possible, but affording themselves a treat, there is a changing in mind-set in beer drinkers, with an increasing proportion of the market opting for higher quality products and drinking less often, quality over quantity. Standard Canned Ale -6.2% 1bn opportunity 9% 25% 21% Off Trade On Trade Source Neilsen MAT 05/01/12 Source CGA Brand Index 29/12/12 11% 2% 68% Ale Cider Stout Lager 6% Stout -6% Mergers and acquisitions are likely as the larger brewers cash in on the popularity of premium craft ales and others seek to achieve production economies of scale. Many brewers maintain beer production at less than the 600,000 litres tax break ceiling, with industry sources warning that the relief scheme is encouraging medium sized brewers to scale down operations to take advantage of these benefits. However SIBA predicts that as production efficiencies improve the merging of micro breweries will make economic sense. With more larger breweries, the small players will have to market themselves particularly shrewdly. As well as mergers in the sector, larger brewing companies may well look to buy fast-growing craft ale brands, allowing the smaller players access to a broader array of retail channels and export markets, an attractive proposition to some brand owners, but not to others. This has worked well for those perhaps not too heavily tainted by the association with large global industrial-scale beer manufacturing. Mergers are taking place across continents; Belgium s Duvel Moortgat Brewery has announced that it would buy the Boulevard Brewing Company in Kansas City for $100m. PBA drinkers are more likely to make informed decisions, seeking out reviews in printed quality press, with an liking for brands and paying special attention to product origin. Influencing the potential consumer through print media and having standout packaging on shelf to attract the eye of the shopper are going to be key for driving trial of PBA. Source; TGI 2013 UM MI PRE *CGA Strategy Food & Drink Consultants August 2013 **Nielsen 52 w/e 17 August 2013 (based on up-weighted UK Multiples) Based on the profile of the top-selling, national PBAs, drinkers can be characterised as male, 35+ with higher than average earnings. Scots are the least likely to drink the top selling nationally listed PBA brands, which presents an opportunity for Scottish brewers offering a quality product with drinkers more inclined to pay more for good quality beer. 74% Agree it s worth paying extra for quality ANCE N ROVE IRI Feb 13 The PBA Consumer 74% pay attention to where the food they purchase is grown RAL TU 43% NA 438M Beer Sales Value Performance With the number of sales channels not increasing at the rate of those producing Ale, many are of the opinion that with so many new entrants, the saturation point of the UK Brewing Industry may be approaching. This will present the industry with a challenge on how it continues to grow sustainably, with competitive pressures certain to squeeze margins and disitrbution opportunity. are prepared to pay more for foods without artificial additives RMED O INF Total Craft/Bottled Ale P OFF-TRADE PBA 214M** Consolidation Looms 59% thoroughly research products before buying them 58% Consolidation looms Market PERFORMANCE ON-TRADE Craft Ale 224M*

7 Sales figures from earlier this year underline the strength of PBA performance, showing it as the strongest performing sector within the Beer category, however despite the strong performance the category is still only 1/7th of lager s value in Grocery Multiples. Drinking at home remains a popular activity, with 9 in 10 adults having done so in the last year, 58% at least weekly, with male higher earners the most likely to do so at least once a week, a close demographic fit to the 21.5% who buy bottled ale. The opportunity for Ale as a whole was highlighted in a recent report published by Martson s Beer Company which compared Ales off versus on-trade share of mouth. Continued low pricing of lager and cider with deep promotional offers, especially in Grocery Multiples, represents a substantial consideration for shoppers when thinking about their alcohol purchase. They estimate a 1bn Take Home sales opportunity for Ale, with PBA representing 50% of this. Total +1% Lager +1.4% Ale +1.3% Bottled Ale +11.8% Premium Canned Ale +3.3% Since the economic downturn, consumers have cut back on everyday products where possible, but affording themselves a treat, there is a changing in mind-set in beer drinkers, with an increasing proportion of the market opting for higher quality products and drinking less often, quality over quantity. Standard Canned Ale -6.2% 1bn opportunity 9% 25% 21% Off Trade On Trade Source Neilsen MAT 05/01/12 Source CGA Brand Index 29/12/12 11% 2% 68% Ale Cider Stout Lager 6% Stout -6% Mergers and acquisitions are likely as the larger brewers cash in on the popularity of premium craft ales and others seek to achieve production economies of scale. Many brewers maintain beer production at less than the 600,000 litres tax break ceiling, with industry sources warning that the relief scheme is encouraging medium sized brewers to scale down operations to take advantage of these benefits. However SIBA predicts that as production efficiencies improve the merging of micro breweries will make economic sense. With more larger breweries, the small players will have to market themselves particularly shrewdly. As well as mergers in the sector, larger brewing companies may well look to buy fast-growing craft ale brands, allowing the smaller players access to a broader array of retail channels and export markets, an attractive proposition to some brand owners, but not to others. This has worked well for those perhaps not too heavily tainted by the association with large global industrial-scale beer manufacturing. Mergers are taking place across continents; Belgium s Duvel Moortgat Brewery has announced that it would buy the Boulevard Brewing Company in Kansas City for $100m. PBA drinkers are more likely to make informed decisions, seeking out reviews in printed quality press, with an liking for brands and paying special attention to product origin. Influencing the potential consumer through print media and having standout packaging on shelf to attract the eye of the shopper are going to be key for driving trial of PBA. Source; TGI 2013 UM MI PRE *CGA Strategy Food & Drink Consultants August 2013 **Nielsen 52 w/e 17 August 2013 (based on up-weighted UK Multiples) Based on the profile of the top-selling, national PBAs, drinkers can be characterised as male, 35+ with higher than average earnings. Scots are the least likely to drink the top selling nationally listed PBA brands, which presents an opportunity for Scottish brewers offering a quality product with drinkers more inclined to pay more for good quality beer. 74% Agree it s worth paying extra for quality ANCE N ROVE IRI Feb 13 The PBA Consumer 74% pay attention to where the food they purchase is grown RAL TU 43% NA 438M Beer Sales Value Performance With the number of sales channels not increasing at the rate of those producing Ale, many are of the opinion that with so many new entrants, the saturation point of the UK Brewing Industry may be approaching. This will present the industry with a challenge on how it continues to grow sustainably, with competitive pressures certain to squeeze margins and disitrbution opportunity. are prepared to pay more for foods without artificial additives RMED O INF Total Craft/Bottled Ale P OFF-TRADE PBA 214M** Consolidation Looms 59% thoroughly research products before buying them 58% Consolidation looms Market PERFORMANCE ON-TRADE Craft Ale 224M*

8 SHOPPING PBA Shopping the PBA Aisle Beyond price, PBAs are generally shopped based on style and brand provenance. Most ale brands will offer a range of beers across the three styles, and possibly a lager, sold in a bottle with a front label and back story telling of provenance and taste notes. With the PBA drinker often seeking something different from their core favourites, driving trial is obviously key to becoming part of the regular repertoire. The shopper faces a daunting choice of provenance and heritage in many outlets, within a relatively narrow choice of styles. Most larger off-trade outlets merchandise PBA s by Brewer and brand which does not tend towards the shopper making choices with confidence. Research conducted by Marstons showed that the category is shopped by beer style, so encouraging retailers to merchandise in this way will simplify the category for shoppers, particularly the inexperienced ones. However the disadvantage of this from a brand owner s perspective is the loss of presence if a range of PBAs are scattered across a fixture. It is the lighter PBAs that are driving category performance, offering the entry point for lager buyers seeking a premium and tasty alternative to their current repertoire shop. DARK INCLUDES Mild & Porter Ales TASTING NOTES fuller bodied MARKET SHARE 14% GROWTH 5% AMBER INCLUDES Pale Ales & Bitters TASTING NOTES Malty MARKET SHARE 63% GROWTH 6% GOLDEN INCLUDES Blonde Beers TASTING NOTES light & refreshing MARKET SHARE 15% GROWTH 20%

9 Ranging The increasing amount of PBAs available will lead to a battle ground for space in both the on and off-trade channels, with several brewers calling for retailers to increase shelf space for driving continued category growth. However there is an argument to suggest that this is not yet required to ensure future category health. Often a large share of fixture space is taken by the established national brands, so offering a clear alternative to these lines is paramount. A squeeze on space is partly being driven by rapidly expanding own-label ranges, with retailers pursuing higher prices for their own lines. Branded products that offer differentiation for both the retailer and consumer will stand the best chance of success in terms of driving trial and establishing a rate of sale that will deliver category growth. Packaging, beer style, story and of course price are the differentiators to allow for a PBA to bring new buyers into the category and be chosen by the browsing shopper ahead of the leading products whch currently enjoy a strong share of space. PBAs are modern beers with the reappraisal of branding and packaging central to the target audience. Whether a label has a retro or lo-fi feel, a modern feel or bespoke illustrations from Ralph Steadman the craft in packaging design is often a key selling point. With so many beers & brewers out there, a clear and consistent, fresh approach to branding is essential to generating interest and ensure beers stand out in the increasingly crowded bars and shop shelves. PBA ranging Despite some of the larger players lobbying for increased shelf space from multiple retailers, there are clearly some fixtures that provide excessive shelf facing to lines. Therefore there is an opportunity for current and new suppliers to gain listings by arguing that instead of increasing space retailers should ensure the correct number of facings are being allocated to products to ensure an efficient return on fixture space.

10 UK GROCERY MULTIPLES PERFORMANCE PBA Category - Fast Facts; UK Mulitples UK Grocery Multiples Premium Bottled Ale Performance Nielsen 52 w/e HIGHLIGHTS Bottled Ale is widely available, sold in 99% of Multiple Retailer stores the average store category turnover is 320/week, about 170 units of bottles sold Own Label remains small with brands accounting for 98.7% of category sales the Top 20 Brands account for 62% of category sales +3.7 % 5.47M Litres 177.8M 99.6M Units +3.8 % 3.25/litre +4.8 % Tesco +8.7 % Bottled Ale lines listed vs weighted depth of distribution 152 Sainsburys Asda Morrisons Of the Multiple Retailers, Tesco list the most bottled ales with 268 lines selling over the last 52 weeks, followed by Asda and Morrisons. The majority of lines are listed on a regional basis, in stores that account for less than 10% of total grocery turnover. Co-op Waitrose +90% lines 50-89% lines 25-49% lines 11-24% lines <10% lines Ales with a strong geographic and cultural identity can quickly appeal to an established but perhaps restricted target consumer which is likely to limit distribution to a particular region. 80% of overall turnover is driven by only 9% of brands average category price per litre is 3.25, 1.79 per bottle Bottled Ale depth of distribution % 10% 14% 9% 66% 3% 23% 19% 7% 48% 5% 10% 5% 16% 64% 8% 31% 10% 10% 40% 0% 12% 10% 20% 58% 8% 15% 5% 12% 60% +90% lines 50-89% lines 25-49% lines 11-24% lines 0 Tesco Sainsburys Asda Morrisons Co-op Waitrose <10% lines

11 Top 20 Selling PBA Brands; UK Multiple Grocery VALUE SALES - S ACTUALS TRADING COMPANY BRAND 52 WE WE GREENE KING OLD SPECKLED HEN 13,772,390 15,665,087 2 MARSTONS PLC HOBGLOBIN 8,619,757 10,295,053 3 SHEPHERD NEAME SPITFIRE ALE 9,296,921 9,837,537 4 HEINEKEN UK NEWCASTLE BROWN 8,256,812 8,350,137 5 FULLERS LONDON PRIDE BEER 7,427,076 7,774,472 6 HALL & WOODHOUSE BADGER FURSTY FERRET 5,221,529 5,696,632 7 HEINEKEN UK THEAKSTON OLD PECULIER 5,493,386 5,359,403 PRIVATE LABEL PRIVATE LABEL 4,497,741 4,513,554 8 BLACK SHEEP BLACK SHEEP 3,777,304 3,950,365 9 MARSTONS PLC MARSTONS CLASSIC 3,931,784 3,865, MARSTONS PLC MARSTONS PEDIGREE 3,262,253 3,624, WELLS & YOUNG S MCEWANS NO1 CHAMPION ALE 3,743,325 3,397, SHEPHERD NEAME BISHOP FINGER STR KENTISH ALE 3,362,854 3,016, GREENE KING GREENE KING ABBOT ALE 3,393,351 2,980, GREENE KING OLD CRAFTY HEN 3,562,474 2,972, WELLS & YOUNG S BOMBARDIER 3,769,060 2,928, HALL & WOODHOUSE BADGER GOLDEN CHAMPION 2,125,056 2,678, INNIS & GUNN INNIS & GUNN ORIGINAL 2,252,252 2,473, HALL & WOODHOUSE BADGER TANGLEFOOT 2,582,122 2,447, ST AUSTELL BREWERY ST AUSTELL TRIBUTE 1,816,999 2,437, ADNAMS ADNAMS BROADSIDE STRONG ALE 1,975,069 2,376,703 TOP 20 PBA BRANDS Greene King s Old Speckled Hen is the top selling PBA in UK Grocery with sales of over 15m The top 20 brands, plus Private Label, account for 60% of overall sales The top selling lines sales tend to be driven by UK wide national listings. Old Speckled Hen is sold in roughly 90% of stores Nielsen estimate that Multiples Retailers sell 83 % PBA BRAND TURNOVER; MULTIPLE GROCERY of off-trade Bottled Ale in the UK 32% 40% 17% 4% 6% 1% < 10k 10k - 100k 100k - 500k 500k - 1m 1m - 5m 5m +

12 SHOPPING PBA Opportunities and Trends Understanding market performance, distribution opportunities, assessing rate-of-sale performance and the profiling of shoppers and consumers on an on-going basis are all key to gaining a sustainable commercial platform. Foresightng too is critcal in order to stay ahead. Can can? Cans are associated with the massmarketed and mainstream brands found on supermarket shelves but PBAs and sharing bottles have been steadily eroding the can share of overall beer, currently 64% (Kantar Worldpanel). However this may be about to change. With sunlight and oxygen the arch enemy of craft ale, the emergence of smaller, less expensive canning lines and improved packaging technology is beginning to challenge perceptions and both large and smaller scale premium brewers have begun to invest in canning lines. Budvar s 330ml Coke style can allows them to offer lower price points than the increasingly promoted 660ml bottled market, and also to target off-trade venues which prohibit bottle sales (such as music venues). Trendy hostelries such as Hoxton s Meat Liquor are offering Czech craft brew Hobo in this format. London s Camden Town Brewery recently installed the UK s first micro-canning line, citing product quality, durability, stackability and the ability to chill product quickly the key benefits.

13 Rock on a roll Anything that brings a little more theatre to the category is welcome in order to increase browsing time. Beer loving musicians have extended their brands into Craft Ale, with Iron Maiden s Trooper enjoying sales of over 300k in one multiple retailer, selling alongside Elbow s Build a Rocket Boys and Professor Green s Remedy lines. In the on-trade, Madness draught Gladness Ale is available in at least one chain of pubs. Sporting events such as The Ashes and the 2012 Olympics have also presented an opportunity for brewers to launch limited editions to grab the attention of like-minded drinkers, often younger than the core male. Traditional Future Reclaiming traditional beer styles and presenting them with a modern twist to capture the imagination is the forte of the craft beer movement. Scottish brewers might take note that the current Scotch Ale World Champion is the Wee Heavy, brewed by Dry Dock Brewing Company of Aurora, Colorado.

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16 INSIGHTS Designed and produced by Oui3 Brand Communication, Edinburgh Scotland Food & Drink 3 The Royal Highland Centre Ingliston, Edinburgh, EH28 8NB Telephne andrew.niven@scotlandfoodanddrink.org kenny.martin@scotlandfoodanddrink.org Web Follow us on