July 29, 2008

Half Empty or Half Full?

By James Thompson

Pub drinkers may be downing less beer than at any time for 70 years, but the drinks business is not feeling as flat as one might expect. James Thompson reports on higher food sales and the gains made by off-licences

So where have all the binge drinkers gone? Beer sales in pubs are now at their lowest level since the Great Depression of the 1930s, according to the British Beer and Pub Association (BBPA): down seven million pints a day from the height of the market in 1979.

The decline in beer sales is nothing new and has been occurring since 1979, when the market peaked, according to the BBPA's chief executive, Rob Hayward. But it is getting worse. There are a plethora of reasons why beer sales have continued to fall, he said, such as declining alcohol consumption per capita, an older population, which tends to drink less than youngsters, and shifting tastes towards wine.

He also cites the massive fall in factory workers heading to the pub on the way home and a growing ethnic minority population who drink much less, such as Muslims, which has contributed to pubs' closure in some areas, such as around Manchester and Bradford.

Gavin Humphreys, the client services manager for beers, wines and spirits at the market research company Nielsen, says the decline in sales of on-trade beer in pubs, hotels, restaurants and clubs has accelerated over the past year. According to Nielsen, sales of on- trade beer tumbled by 8.7 per cent in the year to May.

"It is because of the desperate weather last year, the smoking ban and the differential between the on-trade and off-trade continues to widen," he says. The smoking ban has hit beer consumption by more than he expected, he adds. "The general expectation was that beer sales would go down by about 4 per cent to 5 per cent over a period of time, as a result of the smoking ban. But what we have seen a fall of 6 per cent to 7 per cent over a much shorter time."

Above all, industry experts cite the continued growth in drinking at home, driven by the growing gap between the price of beer pubs and supermarkets, as having the biggest impact. Over the first half of this year, on-trade sales of beers fell by 9.6 per cent, but actually rose by 7.4 per cent in supermarkets and off licences.

"A big trend is to consumption at home, which we call pre- loading, and a high proportion of that is white spirits, such as vodka and wine," says Mr Hayward.

The BBPA says wine accounted for 30.5 per cent of the alcohol consumed in the UK in 2007, compared with 27.8 per cent in 2004; in that year beer, including real ales, lager and stout, accounted for 44.5 per cent of total alcohol consumed in the UK, but this tumbled to 40.5 per cent last year.

John Beaumont, an analyst at Kaupthing bank, says off-trade prices are four times cheaper, compared with a multiple of two 10 years ago. "People are buying a lot of their beer in the supermarkets rather than going to the pub."

The Campaign for Real Ale's (CAMRA) spokesman says the gap between prices in pubs and supermarkets has never been greater.

Mr Beaumont adds: "Most pubs will tell you their biggest competitor is all that home entertainment and convenience."

Beer has also become a victim of shifts in people's taste buds towards sweeter drinks, which Mr Hayward describes as "the saccharine generation".

Cider brewers have also benefited from this shift. The Irish brewer C&C Group also gave sales of cider a boost when it launched Magners into the UK in 2005 and helped to make acceptable the sight of young men and women quaffing cider in glasses rammed with ice. Nikolaas Faes, an analyst with Exane BNP Paribas, say: "For the last few years, cider has been the only growth story."

While on-trade sales of cider fell by 0.9 per cent in the year to May 2008, according to Nielsen, this was the smallest fall among any category. Over the same period, Nielsen said that sales of on-trade draught premium lager, such as Stella Artois, Grolsch and Kronenbourg 1664, fell by a whopping 13.8 per cent, which suggests that pub goers may be tiring of some ubiquitous global brands.

Mike Benner, CAMRA's chief executive, says: "I think people are tired of global lager brands with little provenance and are turning towards local and natural real ales which offer something exciting and different in pubs."

However, it is not all doom and gloom for sales of beer in pubs. In particular, the smoking ban has spurred pub groups to focus more heavily on driving sales from food. Last week, Mitchells & Butlers, which owns the All Bar One and Browns and chains, said that strong demand for food had helped it achieve 1.1 per cent growth in sales for the 10 weeks to 19 July. It said: "Market conditions continue to be characterised by robust demand for good value pub food and associated sales of drinks while on-trade beer market volumes have continued to fall by about 10 per cent over the past quarter." Kaupthing's Mr Beaumont says: "M&B have really changed their spots and they are now focusing more on the eating out segment of their trade."

Some beers - notably cask ales, which are almost entirely only sold in on-trade premises - are undergoing a renaissance. In June, the Fuller's Beer Company said that cask ale has grown its share of the draught beer market for the first time. "The decline in real ale sales is slowing dramatically - to minus 1.3 per cent compared to minus 4.3 per cent last year - and appears to be moving towards growth," Mr Benner says.

Brewers also need to be reassured that innovative products can kick start a beer's sales. Guinness managed to hang on to existing customers, and attract new ones, by introducing its Extra Cold drink in pubs. Brewers also found a new market with innovations, such as widgets in the bottom of cans that delivered draught beer in cans.

While there are a few bright spots in the on-trade beer sector, the long-term trends of declining beer sales in pubs will not be reversed. Mr Faes says: "I would expect the decline to continue and this will not be helped by the economic slowdown."

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