Off-Trade Spirits Market Assessment
Key Note Publications Ltd, January 2000
Overall sales of spirits in the UK have been in gradual decline for several years. Much of the increase in 1999 occurred in November/December and can be attributed to the lead-up to the Millennium. The decline has been caused by a combination of factors associated with difficulties in attracting younger drinkers, ultimately caused by competition from other alcoholic drink categories, notably wines and premium beers. Total sales stood at 201 million litres in 1999, representing a 1.6% increase on 1994.
The need to appeal to younger consumers, i.e. the under 35s, has increasingly been recognised by spirits suppliers. Spirits have their lowest penetration amongst this age category and have lost ground to other drinks categories amongst these groups. A large minority of adults interviewed in the course of the exclusive consumer research undertaken for this report agreed that they did not like the taste of individual types of spirits very much. The proportion is highest amongst the younger age groups.
The desire to appeal to younger age groups by making spirits more palatable and convenient to drink has led to the emergence of premixed spirits (also known as spirit mixed drinks). These are ready-to-use drinks combining a base spirit such as vodka, whisky or rum with a traditional mixer for that spirit such as tonic, fruit-based soft drinks, cola, etc. Premixed spirits form part of what has come to be known as premium packaged spirits. Since the mid-1990s, this has been the fastest growing of all alcoholic drinks sectors.
White spirits, particularly vodka, have gained share at the expense of brown spirits such as cognac, whisky and brandy. The association of brown spirits with the older generation and a lack of enthusiasm for the taste have partly been responsible for the relative decline of brown spirits. The major multinationals have been especially keen to target white spirits as a mixable drink to the young, often beginning with pubs, clubs and bars in the on-trade, hoping ultimately to influence trends in the off-trade. Whisky nevertheless remains the largest spirits sector by far, accounting for 37.7% of total spirit sales by volume in the UK in 1999.
Hardest hit in the UK has been cognac, with overall sales declining by 10.4% in volume between 1994 and 1999. Blended whisky has suffered too, but this has been partly offset by a growing interest in malts and imported whiskies. There is now a plethora of aged malt whisky products with a range of unique selling points to cater for a large number of drinkers looking for something new and interesting. The distillers, however, are by no means neglecting blends, which remains a very significant segment.
Liqueurs and specialities have fared well, with overall volume sales in the UK increasing by 31.8% between 1994 and 1999, albeit from a lower base than several other spirit categories. Cream liqueurs have performed best, with the traditional after-dinner segment finding it harder to gain sales. Traditional liqueur brands such as Tia Maria and Cointreau have therefore been pushing the `over ice' message more and looking for new drinking occasions for the products as well as new consumers. Tequila has grown substantially in percentage terms, but still remains tiny in terms of actual volumes sold.
Sales through the off-trade (which in 1999 accounted for 69.7% of UK spirit sales by volume) have shown even less growth than the market as a whole. Greater gains have been made in the on-trade. The on-trade is often where suppliers introduce their products to consumers at bars and trendy clubs, the hope being that consumers will eventually seek to replicate these drinks at home. Off-trade sales volumes increased by only 0.2% between 1994 and 1999, with consistent year-on-year decreases, apart from 1999, when volumes grew by 4.6% over 1998. The grocery multiples continue to gain share in the off-trade, with Tesco having the largest single share, accounting for 14% of total off-trade spirits sales by volume in 1999.
Spirits had a good Millennium, as reflected by the significant off-trade volume sales increase of 13.9% during the November/December period in 1999 on the same period the previous year. The 10.9% sales increase in spirits for the 2 months surrounding Christmas 1999 compares with an increase of 4.6% for the whole of 1999 over the previous year. The probable influence of the Millennium is further underlined by the fact that sales in November/December 1998 were only 2.8% higher than the corresponding period in 1997. The consumer research undertaken for this report shows that 15% of adults purchased more spirits than normal at the end of 1999 because of the Millennium.
Duty-free spirits are of great concern to the UK spirits trade, which loses substantial sums of money as a result of people seeking cost savings on their purchases through duty-free sales channels. The consumer research undertaken for this report shows that 16% of adults frequently purchase duty-free spirits. At the same time, 17% agreed that buying duty-free spirits significantly reduces the need for them to buy spirits locally with duty.
The spirits industry has experienced a long period of consolidation, both horizontally and vertically. In terms of companies and brands, UDV (the spirits arm of Diageo), Allied Domecq and Seagram are the dominant players across most of the spirits categories. Certain distributors, such as First Drinks Brands, Westbay (now called Bacardi Martini Ltd) and Maxxium (the distribution arm jointly formed and owned by Highland Distillers, Remey and JBB Worldwide), are also responsible for a large number of well-known spirits brands.
Market Assessment is forecasting a 3.2% volume increase in total sales of spirits in the UK between 1999 and 2004. This is a slightly higher rate of growth than in the preceding 6 years. Spirit brands will increasingly establish themselves in the drinking repertoire of younger drinkers.
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