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WSTA highlights changing drinks market

More than 100 members of the Wine & Spirits Trade Association (WSTA) gathered in London yesterday (Wednesday) for its annual conference. James Graham was there for The Drinks Report

Opening the proceedings, Tim How, WSTA chairman noted that the event was being hosted “later than usual in the year” but its autumn date meant it provided a good opportunity “to reflect in the run up to the busiest period of the year.”

Like speakers throughout the morning, How took pains to outline that in the last 12 months “the industry had never faced greater challenges. It’s been an eventful year!”

How pointed to two initiatives WSTA had been involved in over the last year, with mixed results. The launch of the Campaign for Smarter Drinking has been successful while the WSTA’s lobbying to delay or defeat the increases in excise duty and escalator failed.

He concluded his welcome by saying that, with recessionary pressures and a growing health lobby, “all of us are under the spot-light” in a way the industry had never been before. This comment found much support from the delegates.
In the first session, ‘Current market position in the on- and off-trade for wines and spirits’, speakers from key market research agencies gave an overview of how the market has changed in the last 18 months.

Stewart Blunt of Nielsen painted a picture of a vibrant off-trade industry, a common theme of the morning. He said: “The UK off-trade is worth £13.5 billion. It has just passed this milestone. Our data shows that 37.3p in every £1 is spent on wine while 22.9p in every £1 is spent on spirits.

“In the UK, some 140 million cases of wine are sold annually. Seventy percent of this wine is sold in retail multiples.”

Nielsen has calculated that the average price of a bottle of wine paid by the UK consumer is now £4.28, the highest-ever price reached. Last year, 98m cases were sold in the off-trade to create close to £5bn. Significantly, 12 out of every 100 bottles were rose.

Blunt said: “It is possible that the growth of rose is the only driver of the growth of wine consumption. This growth is definitely US pink-led.”

In fact, the volume of rose wine being imported into the UK, especially from California, has helped push French wine into third place, after Australia and US
Nielsen’s research has indicated that there might be key structural changes in the market that is pushing up the average price of wine.

Drinkers are trading down from nights out to nights in and reducing the frequency of their purchases. Some low income drinkers are also exiting the market. They are more significant buyers of the sub-£3.50 bottles of wine. Their departure skews the average higher.

Blunt said: “Some drinkers will quit the market as fixed or low incomes are squeezed.”

In the on-trade, this squeeze is already being felt: “Some 1.6m cases have been lost to the on-trade out of the 17m cases sold annually.”

However, he left his observations on a hopeful note: “Last year, the surge at Christmas saved 2008. It is clear that the off-trade is likely to clear 100m cases worth £5bn very soon,” he said.

The next speaker, Jon Collins, chief executive of CGA Strategy, painted a less rosy view of the condition of the on-trade. He said: “We know the state of play. The pub estate is down to 137,000 outlets. Much has been made of the 52 pubs a week closing down. But this decline is slowing. Those pubs that remain are moving from wet sales to food sales.

“The hot topic at present is that wine is out-performing all other drinks in the on-trade. We are witnessing a shift from RTD or pre-mixed drinks to rose in particular.”

Another significant growth area is draught wine: the trend for consumers to purchase wine by glass measure is noticeable.


Britons love wine

Richard Halstead, COO of Wine Intelligence, gave delegates a positive note for future market growth: “Britons love wine,” he said. “Britons have a serious love affair with wine that won’t go away. Seven out of 10 drinkers drink wine regularly. Almost four out of ten drinkers say wine is their favourite drink,” he said.

His company had discovered that in the off-trade, wine is considered the best value drink by purchasers. However, in the on-trade, it is only ranked third in best value by drinkers. This could also go some way to explain why drinkers are abandoning wine in on-premises and switching to off-trade purchasers.
Halstead, however, added a warning note.

He said: “The core wine drinker is aged 40-55 and is a middle class professional. It is exactly this purchaser who is being badly hit in the current recession. There could be a million such professional unemployed at present.”
He concluded the session by making some predictions for the next 12 months:

• the off-trade will recover
• the on-trade will remain in the doldrums
• off-trade brands that challenge will succeed
• 3 for £10 offers will go thanks to duty rises
• online will become the most exciting sales channel


Need to adapt

The second session looked at how retailers and the supply chain adapt to the changing wine and spirits world over the coming years. Bibendum managing director Michael Saunders started the session by admitting the last year “had been the trickiest 12 months in his career.” Drinkers are trading down and his customers are purchasing some 10 percent less than before.

His special concern as a wine merchant is the rise in numbers of customers ceasing business.

“I am worried by the trend of customers going bust. I am concerned about the rise of pre-packed administration. Often a customer gives no indication of trouble and the next day we are told we will not be paid,” he said. “This is tough in a world of extremely tight margins.”

Concluding his element of the panel discussion, Saunders predicted there had been a significant, long-term change in buying habits: “I see no return to conspicuous consumption in buying behaviour,” he said.

Greg Wilkins, Brand Phoenix managing director, was quick to point out a little observed danger to the wine and spirit industries that many overlook yet can be a ticking time bomb on the bottom line: currency exchange. He said: “I am amazed at how few companies in this industry have live currency feeds to their offices. It’s quite simple: if a currency moves 20 percent and you have margins of ten percent, you are in trouble on your bottom line. The US dollar, Euro and Australian dollars have all moved that much this year.”

While admitting this had been “quite an eventful 12 months,” he was fairly positive as to prospects up to and beyond the vital Christmas period.

Concluding the first half of the conference, Jeremy Beadles, WSTA CEO said: “Those in authority know what we think as an industry on issues which touch on alcohol in this country.”

He outlined that the WSTA had a public policy agenda covering alcohol duty; English and Welsh alcohol strategy; Scottish alcohol strategy; Northern Ireland alcohol strategy; labelling issues; and the European wine regime. He said: “We are having grown up conversations on behalf of our members interests.”


Shift in drinking patterns

The second half of the conference dealt with the seismic shift in British drinking; what is happening, how it can be handled; and the opportunities the new realities bring.

Starting the first session, Mark de Witte, CEO Bacardi Brown-Forman Brands, was blunt: “All in the industry know it is in crisis, this is not news,” he said.

Acknowledging the shift from on- to off-trade purchasing, de Witte remains convinced there remains good foundations to the on-trade.

“I am convinced that the idea of a ‘millionaire’s treat’ remains a powerful incentive for a visit to an off-trade location though there is a definite trend towards off-trade sales,” he said.

His company is determined to capture the business the off-trade has lost by developing products that work well on licensed premises and can be enjoyed at home.

“That is why we developed the ready to serve Mojito to allow drinkers to enjoy the pub experience at home,” he said.

Hew Dalrymple of Cosmic Consulting echoed the decline of the on-trade yet was surprised by the resilience of the premium spirits sector, which is holding up well despite the down turn.

He noted that as purchasers became more value-conscious, the industry was seeing the rise of ‘me-too’ products that brand owners must be aware of and challenge.

He said: “There is going to be a rise in me-too and cheaper brands. Vodkat is the fastest growing brand at the moment. In fact, this taps into many current themes; value priced, lower alcohol and easily available.”

The morning was concluded by a talk from Mike Penning, MP, the shadow health minister and former publican.

Taking the opportunity for a little pre-election campaigning, Penning used his experience as a publican to indicate his sympathy with much of the WSTA’s ambitions. He said: “Since this government came in, they have passed 40 laws and regulations concerning this industry. I am certain no-one in this room can name 20 of them, not 10 or even five. I suspect most can only name the last one.

“If we win the next election, we will abolish 24 hour drinking, which we opposed at the time. We will not ban advertising and we oppose minimum pricing.”

He also pledged action on proxy purchasing, making it an offence, and his party would introduce a ‘three strikes and you’re out’ policy for retailers.
He explained his key interest in the alcohol industry: “If we win the next election, we will create a department of public health. My portfolio will include A&E, ambulance services, hospitals and your industry. My remit will be to reduce the effect of binge drinking. In this I will work with the industry; we do not want to destroy the industry,” he pledged.

arising from the conference:
• Consumers are demanding lower alcohol wine
• Many lower income drinkers are leaving the market
• Health lobby gaining ground
• Scottish legal regime for alcohol becoming tougher
• All on-trade venues declining
• Night club scene in double digit fall
• Rose wine is soaring in sales
• Average wine bottle has never been more expensive
• On-line sales of alcohol booming

1 September 2009 - James Graham