Low-alcohol Beers: Reactionary or a Solution to Volume Decline in Standard Lager?

Are consumers looking for less alcohol in their beers or is it just the influence of marketing by the big brewers? If we were to observe the current situation in the UK and the US there are different dynamics that suggest an answer to this question. In the former market legislative action influenced the development of a lower-ABV flavoured/mixed lagers market, while, in the latter, the performance of low-ABV beers reflects consumers’ indifference to such products.

In the UK, in October 2011, a reduced rate of general beer duty for lower-strength beer was applied to beers between 1.2% and 2.8% ABV, for both domestic and imported products. This new rate lowered the tax burden on at least 1% of the UK beer market volume sales in 2012 and 2013. However, the performance of low-ABV beers in the UK following this tax change seems somewhat reactionary.

The likes of Heineken NV and Carlsberg A/S developed and promoted low-ABV radler beers that were introduced just over a year after the tax change was implemented. The introduction of Fosters Radler and Carlsberg Citrus and the noteworthy marketing campaign for the former had been the driving force behind low-ABV lagers’ double-digit volume sales growth in 2013. When looking at the market average unit prices for flavoured/mixed lagers and standard lagers in 2013, at US$5.46 and US$7.92 per litre, it highlights the potential for a volume sales push at the lower-end of the beer ABV spectrum, driven by pricing. Furthermore, it can be claimed that brewers’ excitement over flavoured/mixed lagers is due to the higher margins supported by the 2011 tax relief. Although other factors existed, such as positioning the drink to attract female consumers or offering a sweet beer alternative, they played a relatively much less significant role than portrayed by brewers’ marketing drives.

Source: Euromonitor International

 

The introduction of a tax increase on beers with ABVs above 7.5% will continue the trend of decline in average ABV strength in every lager price band. As key super-strength ABV beer brands, such as Tennent’s Super, face continued declines, the standard lager ABV spectrum in the UK will be expected to change. The ABV percentage bias of the UK beer-tax system is expected to further punish super-strength beers at the same time as boosting consumption of low-ABV ones in the 2014-2018 period. As a result of this, it is not unlikely that the ABV average in the UK’s economy lager market will gradually decline from 6.2% ABV to 5.5% by 2018.

The UK beer-tax system is favourable to the lower end of the beer ABV spectrum, but that does not necessarily reflect consumers’ demand for less alcohol in their beer. Consumer demand in the UK for low-ABV products is initiated by a push factor from brewers seeking to expand their bottom line in a category where margins are aided by the 2011 tax relief. Also, it is aided by a push from brewers’ marketing to expand beer consumer demography among females and young adults in order to counter the decline in standard lagers. However, much like the phenomenon of the low-calorie lagers in the US, the flavoured/mixed lagers market in the UK is likely to face a decline after the initial surge in performance as such brands’ marketing attention winds down.

Source: Euromonitor International

 

In the US, the competitive interaction of lagers with high-ABV markets ­– wine, craft beer, and spirits – is detrimental to the organic growth of low-ABV beers. AB InBev’s marketing push for the 2.4% ABV Select 55 brand significantly encouraged a 500% volume sales growth rate in 2010 and double-digit growth in 2011. However, the brand could not maintain a positive growth rate after 2011, much like 3% ABV Miller 64, simply because US consumers look towards the higher end of the ABV spectrum. And it must be kept in mind that these products were positioned as low-calorie products in an attempt to exploit the health and wellness trend in the food and drinks market.

Observing the performance of a longer-standing low-ABV brand, such as Heineken Premium Light with its 3.7% ABV, its underperformance highlights US consumers’ distaste for this option relative to the 5% ABV Heineken brand. Although, with the 2014 marketing push that the former brand is receiving, it is likely that it will witness flat to low single-digit growth by year end.

SelectandHeinekentheUS

Source: Euromonitor International

The low-ABV end of the beer market has been stated as being positioned to attract female consumers, health and wellness-conscious consumers, and drinkers seeking to expand their drinking occasions. However, these products are positioned less by the ABV factor and more by their alternative-taste or low-calorie-count features. Brewers have to deal with declining volume sales in standard lager and look to encourage value and margin growth. The relatively higher margins in product alternatives to beer are likely to drive future growth in product development, and, depending on each market’s taxation structure, towards the low-ABV end of the market. However, such products’ recent performance reflects a push effect on consumer demand, and, as observed in the US, it is likely that low-ABV flavoured/mixed lagers will not sustain their positive growth rate a few years after market entry.