In December 2012, the French government implemented a new tax on beer. The new budget law, applicable from 1 January 2013, increases excise tax by up to 160% (see table below). This legislative initiative has two objectives – firstly, to tackle alcohol abuse mainly among young people and, secondly, to curb France’s growing national deficit. The tax is likely to accelerate already established trends.
Changes in French Excise Rates
The Tax Factor
Improving health by cutting down consumption and raising income at the same time has become common government practice in France. Indeed, the beer tax comes into effect one year after the implementation of the so-called soda tax and the hefty tax hike on spirits.
In bars, the price of a glass of beer has already increased by €0.10-0.25 (around 10%). At the time of writing, small price increases were witnessed in supermarkets/hypermarkets as distributors stocked up on products at 2012 prices before the New Year. However, a pack of six cans of 33cl is to increase by €1 or around 15%.
Unsurprisingly, the tax hikes have been met with fierce criticism, particularly when considering the current economic environment. Beer consumption in France has been going downhill steadily in recent years, with volumes declining by a 1% CAGR between 2007 and 2012. Consumers have moved from quantity drinking to quality drinking. Moreover, with the continuing poor economic climate, along with the smoking ban, increased drink-driving police controls and tougher legislation regarding the consumption of alcohol in the on-trade, many bar owners have been forced out of business. Since 2008, France has lost an average of 40 bars a week.
What will be the impact of the new beer tax?
It is worth noting that it is always difficult to determine exact cause and effect as there will be other factors at play, for example a weakening economy. However, the tax hike will just exacerbate the long-term reduction in the consumption of beer in France.
The same was witnessed with the substantial tax increase on spirits at the beginning of 2012. Blended Scotch whisky went from healthy growth to gloomy growth. Another undisputed loser of the tax hike was aniseed-flavoured spirits, whose total volume sales fell by 3% in 2012 compared to a 1% decline in the previous three years. On-trade volume sales saw a more severe decline than the off-trade, and the same is expected for on-trade beer sales, with volumes set to drop by an estimated 4% in 2013 compared with a 2% decline in 2012. The rise in excise duty will simply push consumers further away from bars.
While some might believe that the premiumisation trend is under mounting pressure in France, it might actually grow stronger. French consumers are drinking less but what they are drinking is better quality; they are researching new tastes and experiences. There is a growing interest in craft and speciality brands with distinct identities and local provenance. Fruit-flavoured extensions of popular wheat beer brands have also been successful so far and could have a bright future ahead because they provide an alternative to male beer drinkers and a welcoming offering to female audiences.
New challenges for brewers and on-trade operators
The new tax will not be the ruin of the beer industry in France. It might certainly drag down beer demand but it will also spur a fair amount of product innovation.
Some beer categories could really benefit from this tax if brewers and on-trade operators play their cards right. Focusing on product authenticity and uniqueness and offering flavour, texture and character will pay great dividends. In addition, France is a wine drinking country with a strong aperitif culture. Crafting something different, designed to tempt wine drinkers to drink beer instead as an aperitif, would give the moribund category a new lease of life. After all, the word aperitif is French.