Summer is approaching and brewers' lips are smacking in anticipation at the irresistible combination of hot weather, Euro 2004 and the Olympic Games, promising fillips in beer consumption. As British drinkers continue their inexorable move away from real ale and local pubs and show a relentless thirst for ice-cold beer, new tastes and drinking at all hours of the day and night in trendy bars and clubs, it is premium lagers that look set to reap the benefits. The sector's share is growing and experts predict that by 2007 lager sales will be worth more than £7bn.
Looking at current trends in the beer market, there is one category set to reap the most reward from the combination of the Olympics, Euro 2004 and good weather this summer: premium lager.
Brands such as Stella Artois, Kronenbourg 1664, Budweiser and Grolsch are the fastest growers in the beer sector, as British consumers continue to shift away from ales and stout to lager, and within lager, to stronger continental-style brands.
According to Datamonitor, the UK premium lager market was worth £6.5bn in 2002, accounting for 44% of all lager sold and 31% of the entire £21bn beer sector. By 2007, it predicts premium brands' share of lager sales will have risen to 45.3% (£7.34bn).
Figures from Scottish & Newcastle (S&N) also illustrate the point. Since 1990, S&N says consumption of lager has grown by 10%, driven by consumption of premium draft and packaged lager, which has risen more than 50%.
Of all beer consumed in the UK, 68% is lager, 28% real ale and 4% stout (Datamonitor). By 2007, this is expected to stand at 73%, 24% and 3%; a long way from 1960, when 98% of all beer drunk in Britain was ale or stout.
The rise of premium lager has not occurred simply because consumers prefer stronger beer. As in other sectors, premium labels are 'in'. 'You can see the same strong growth of premium brands in all grocery categories,' says Leslie Meredith, marketing director of Heineken UK, which reinvented itself as a premium lager in the UK last year. 'It's a mixture of greater prosperity and the people wanting to treat themselves.
Expensive tastes
The rise of premium lager is also the result of changing drinking habits.
The shift from pubs to a bar and club culture has benefited more expensive lagers with a carefully constructed image.
This has also driven sales of bottled premium lagers and appealed to the growing number of female drinkers.
According to drinks research firm Canadean, total draft beer sales fell 2.8% between 1998 and 2002, while in the same period non-refillable glass packages rose by 1.2%. Within that, the 33cl glass bottle, the core pack-type for premium lagers, rose by 9.5%.
When it comes to brands, the category is dominated by Interbrew's Stella Artois, which has combined on- and off-trade sales of £1.5bn, and enjoys a 23% value share. According to Canadean it has volumes four times larger than its closest rival, S&N's Kronenbourg 1664.
The success of Stella is based on two factors: the distribution muscle of Interbrew, which has a 30% share of the UK beer market; and retaining its premium image while selling at deeply discounted prices. Datamonitor drinks analyst John Band says: 'Interbrew has the distribution strength to make life hard for everyone else. It can ensure almost blanket pub distribution for Stella, and has it ensconced in the off-trade.'
Although off-trade sales are growing year on year (50% over the past decade), Band says the on-trade remains the most important distribution channel. Datamonitor figures show that on-trade accounts for 80% of total beer distribution in value and 72% in volume.
Pump presence
For several key reasons, 'pump presence' is everything. As Band says: 'Awareness is built in the on-trade. Once a brand is established in pubs and bars, off-trade sales will follow.'
On-trade sales are particularly important as higher prices can be sustained compared with the off-trade, where deep discounting has made premium lager a 'volume-over-value' product. This has exacerbated another characteristic of the sector - low brand loyalty.
Meredith admits there is 'massive promiscuity' between brands. Strong on-trade distribution is one solution. 'In beer, if you win the distribution game, you automatically win volume share. People rarely walk out of a bar because it doesn't serve a brand,' she adds.
Band says this is why big brewers need a premium and standard lager brand, as it helps them win single-supply pub and catering contracts. Coors, which owns Carling and Grolsch, has such a portfolio. 'Coors has leveraged Carling's status as the country's biggest-selling lager to bring Grolsch in, which has boosted Grolsch's off-trade profile,' says Band.
Lower down the volume scale, beers tapping into market niches are also doing well. A good example is Cobra, which has positioned itself as a less 'gassy' beer to enjoy with food.
Speciality beers are another growth area within premium, with Interbrew's Belgian beer Hoegaarden the category leader. By promoting a range of Belgian beers, Interbrew is leading the charge in this sector, which Mintel estimates was worth £100m-£150m in 2002.
Reverse trend
As with brands such as Cobra and Budvar, speciality beers are reversing the trend of the bigger premium lagers by building on success in the off-trade and translating it into on-trade distribution.
Looking ahead, the brand many are eyeing with interest is Heineken. Following the expiry of Whitbread's licence to brew the weaker Heineken Cold Filtered in February 2003, the brand relaunched in the UK as the 5% ABV lager which it sells in the rest of the world.
In light of the market's leaning toward premium, the move makes sense in the long term, but in the short term it has had to take a hit. Under Whitbread, Heineken was the UK's sixth-biggest beer brand by volume (Datamonitor).
Now, while the product may taste better, the brand has dropped off the radar.
But analysts are confident Heineken can do well. Canadean's Kevin Baker says: 'It's going to be a long haul for Heineken, but it has a strong chance of success. Heineken is the closest brand the beer market has to Coca-Cola - it is ubiquitous worldwide and seen as a high-quality product."
UK BEER SHARES BY VOLUME
Brand Global owner 2001 2002
(%) (%)
1 Carling Coors 12.5 12.3
2 Foster's Foster's Brewing Group 9.7 9.6
3 Stella Artois Interbrew 7.0 7.2
4 Carlsberg Carlsberg 6.5 6.5
5 John Smith's Scottish & Newcastle 4.7 4.7
6 Heineken Heineken 4.5 4.4
7 Guinness Diageo 3.1 3.1
8 Tetley's Carlsberg 2.9 2.9
9 Worthington Coors 2.7 2.7
10 Tennent's Interbrew 2.7 2.7
11 Kronenbourg Scottish & Newcastle 2.3 2.3
12 Budweiser Anheuser-Busch 1.9 2.0
13 Miller SABMiller 1.9 1.9
14 Boddingtons Interbrew 1.9 1.8
15 McEwan's Scottish & Newcastle 1.8 1.8
16 Beck's Brauerei Beck 1.0 1.0
17 Stones Interbrew 1.0 1.0
18 Banks's Wolverhampton & Dudley Breweries 1.0 1.0
19 Courage Scottish & Newcastle 0.9 0.9
20 Greene King IPA Greene King 0.9 0.9
21 Holsten Holsten-Brauerei 0.9 0.8
22 Grolsch Coors 0.8 0.8
23 Labatt Interbrew 0.7 0.7
24 Caffrey's Coors 0.5 0.5
25 Murphy's Heineken 0.5 0.5
26 Tennent's Super Interbrew 0.5 0.5
27 Skol Carlsberg 0.5 0.5
28 Hofmeister Scottish & Newcastle 0.5 0.4
29 Marston's Wolverhampton & Dudley Breweries 0.4 0.4
30 Flowers Interbrew 0.4 0.4
31 Whitbread Interbrew 0.4 0.4
32 London Pride Fuller, Smith & Turner 0.4 0.4
33 Castlemaine XXXX Lion Nathan 0.4 0.3
34 Newcastle Brown Ale Scottish & Newcastle 0.3 0.3
35 Kaliber Diageo 0.2 0.2
36 Abbot Ale Greene King 0.2 0.2
37 Directors Scottish & Newcastle 0.2 0.2
Source: Datamonitor
ANALYST COMMENT
KEVIN BAKER, Director, alcoholic beverages, Canadean
Lager sales are heavily weather-dependent and strongly linked to football and pub culture.
So if you have a superb summer, combined with a huge sporting event such as Euro 2004, it is great news for brewers. If the England team does well in the tournament, then all the better.
Premium lager is ideally positioned to benefit, especially in pubs, where sales of bottled lagers have been increasing at the expense of those on draft for some time.
Stella Artois remains the absolute category leader in premium lager, with growth driven by a combination of distribution muscle and exceptionally good marketing. The interesting thing about Stella is that supermarket pricing policies mean it is not actually 'reassuringly expensive' as its advertising claims.
Ultimately, premium lager's rapid growth is based on a value argument.
Consumers buy it because they want a better quality product for virtually the same spend.
Supermarket discounting is one of the main drivers behind the sector's growth, but clever marketing is required to ensure the premium sheen remains.
This is the challenge facing Heineken as it attempts to reinvent itself in the UK as a premium brand.
Deep discounting by supermarkets are dangerous for it, as it hampers attempts to put clear water between its old and new positioning.
But over and above a carefully constructed brand image, premium lager brands have to ensure they have 'pump presence'. Success in this sector rests on the distribution muscle of the big players. There is very little brand loyalty, so the beers drunk most are those whose owners ensure they are sold in almost every bar in the country.
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