Sector Insight: Flavoured Alcoholic Beverages - Taste Test

Article excerpt

As the number of young drinkers falls and fashions change, the future of alcopops is uncertain.

THE BACKGROUND

When alcopops first hit the market in the 1990s they were demonised in the press and adored by the public in equal measure.

Blamed for encouraging underage and binge drinking, their sweet, easy-to-drink flavours nonetheless meant sales boomed into the early 2000s.

But that growth has declined as drinkers' preferences have changed and the government has hit the category with higher duty rates. The question faced by the drinks industry is whether the flavoured alcoholic beverage (FAB) market is in terminal decline or settling at a lower but more sustainable level.

The FAB market was estimated to be worth pounds 1.2bn by the end of 2005, according to Mintel, marking a 7.5% decline on 2004. However, that decline is slowing, as the market had dropped 11% between 2003 and 2004.

Factors working against the sector include a decline in the 25- to 34-year-old demographic (down 800,000 from 2000-2005); FABs being viewed as less fashionable, with many drinkers trading up to cocktails; and higher excise duty pushing the products to a price deemed too expensive by many.

Young people are a key target group, as the sweet flavours of FABs prove a popular introduction to alcohol. Within that, C1C2Ds are the most prominent group. Most FAB drinkers are women, but the top two brands, Smirnoff Ice and WKD, remain more male-focused.

The product types within this sector have changed over the years. While the market was established with alcoholic carbonates such as Hooch, this category declined as premium packaged spirits (PPSs) such as Bacardi Breezer and Smirnoff Ice took off.

Furthermore, changes in excise duty rates have led the brand manufacturers to reduce the ABV of the drinks in recent years to avoid the higher ready-to-drink (RTD) tax. Brands have reformulated from their previous level of about 5.5% ABV to 4% for commodity brands and 5% for more premium products.

Gender divide

The clear brand leader in the market is Diageo's Smirnoff Ice - a blend of Smirnoff vodka and lemon juice introduced in 1999. In August 2002 it added Smirnoff Black Ice, aimed at young men who wanted a less sweet alternative to the original. Launched in the on-trade, it is now also on sale in off-licences.

Diageo's FAB portfolio also includes Archers Aqua, a sparkling blend of Archers Schnapps and a fruit flavour. Its core variants are peach, cranberry and raspberry, although it has launched other limited-edition flavours.

Diageo has engaged in NPD in this category, and last May added Archers Vea, a low-sugar FAB positioned as having a more refreshing taste. Its attempt to extend its Baileys brand into this category, Baileys Glide, did not do well, however, and was withdrawn last August.

Its most recent launch in the category is Slate 20, a bourbon drink flavoured with lime and ginger aimed at 18- to 30-year-old men, who its research suggests prefer dark-spirit mixes. Its debut was supported by a pounds 2m ad campaign.

Jane Sutcliffe, European marketing manager for Smirnoff Ice, says: 'As well as delivering marketing campaigns that connect with consumers, we will continue to innovate in the RTD category. Success will be achieved by renovating existing brands and extending the category by creating new products.'

Beverage Brands' WKD is one of the few brands growing in this declining market and has risen to second place behind Smirnoff Ice. The brand has been supported by a high-profile advertising campaign using the strapline 'Have you got a WKD side?' The brand is available in three variants: Original Vodka Iron Brew, Blue and Red.

Health considerations

Bacardi Breezer, Bacardi-Martini's foray into this market, launched in 1993 and was the brand leader until Smirnoff Ice overtook it in 2002.

It has since suffered badly, with sales crashing from pounds 419m in 2002 to pounds 194m in 2004. In an attempt to recover, it launched a Half Sugar variant last year, aimed at young women who had been avoided Bacardi Breezer because of its calorie content. However, it could not prevent sales of the original plummeting further to pounds 157m.

Coors now owns the Hooch and Reef brands, which were established by Bass Brewers. While Hooch effectively started this market, its sales steadily declined and it was withdrawn in 2003. However, sales of Reef, a blend of fruit juice and vodka and one of the few 'still' products in the market, have grown.

As the market for FABs has declined, so too has brands' investment in advertising. This has coincided with increased government pressure to limit the advertising of alcohol and possibly abolish self-regulation in the sector. As less money is invested above the line, many manufacturers have turned to more targeted work such as PR and sampling.

Brand diversification

As the alcohol companies continue to introduce new products, there is some evidence that the market's decline is levelling out. NPD has tended to focus on diet products, shots and wine-based drinks as well as the more traditional new flavours or brand extensions and updated packaging.

Another area some manufacturers have tried to extend into is milk-based alcoholic drinks. Halewood International tested the waters in 1999 with Shakers Smoovies, but the first successful brand to market was Vodka Mudshake, which launched in 2003 and has proved one of the fastest-growing brands in the sector. In 2004 Anglo Drinks introduced Brown Cow, a chocolate vodka shake containing real chocolate that has had successful trials and may get wider distribution.

Despite these NPD efforts, Mintel predicts the FAB sector will continue to decline. While volume sales are expected to remain at about 240m litres between 2005 and 2010, because of heavy price discounting. their value will fall 18% at current prices to pounds 1bn. In real terms, this is equivalent to a drop of 27%.

FLAVOURED ALCOHOLIC BEVERAGE SALES BY TYPE (pounds m)

                                2004    2002   % chng
1  Premium packaged spirits     1169    1398    -16.4
2  Alcoholic carbonates          144      87     65.5
3  Pre-mixed                       0      80      n/a
   Total                        1313    1565    -16.1

Source: Mintel

FLAVOURED ALCOHOLIC BEVERAGE SALES BY TYPE (m litres)

                                2004    2002   % chng
1  Premium packaged spirits      209     260    -19.6
2  Alcoholic carbonates           46      35     31.4
3  Pre-mixed                       0      13      n/a
   Total                         255     308    -17.2

Source: Mintel

FLAVOURED ALCOHOLIC BEVERAGE MANUFACTURERS BY ADSPEND
(pounds 000)

                                2004    2003     2002
1  Diageo                       3678    9120   12,853
2  Beverage Brands              4649    5420     4422
3  Halewood International        346     748     1380
4  Coors                         332    3333     3736
5  Others                        124     217      599
   Total                      11,237  21,089   30,250

Source: Nielsen Media Research/Mintel

FLAVOURED ALCOHOLIC BEVERAGE VOLUME SHARE BY SPIRIT BASE (%)

                                2004    2002    02-04
                                               % chng
1  Vodka                          70      60       10
2  White rum                      16      29      -13
3  Schnapps                        5       6       -1
4  Others*                         9       5        4

Source: Mintel *Includes cachaca, wine base etc

Alcopops are one of the beverages most closely associated with the phenomenon of the binge-drinking young woman. And it would appear that few drinks are more likely to suffer in the event of any backlash against that phenomenon.

Over the past three years the number of over-18s (as measured by TGI) who say they are in the market to drink pre-mixed spirits and alcoholic carbonate brands has declined by about a fifth, with the number of frequent drinkers (those who consume once a week or more) declining by almost twice that level.

The most significant rates of departure from the constituency are men and those in the 25-44 age range. One can reasonably assume that such drinkers now regard the products as too young and female.

That's not to say we are witnessing a market in terminal decline - far from it. Total over-18 drinkers still number more than 9m, with one in five consuming on at least a weekly basis. But the market has retrenched in recent years to its core of 18- to 30-year-old women.

TGI data also reveals evidence that middle-aged women for whom drinking at home is the main option are also contributing to the maintenance of this product field, and have a particular affinity with Bacardi Breezer and Smirnoff Ice.

So where have the lost drinkers gone? The search for what might be seen as a more sophisticated option has taken many to wine, which has, over the years, become more reliable in quality and more recognisably branded.

An overall decline in on-trade wine sales, however, suggests this does not completely account for the missing FAB drinkers.

The main culprit is that taste preferences change with age, and alcopops are simply out of fashion.

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.