Minimum pricing will take fizz out of own label alcohol, claims SymphonyIRI

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Ware: expect more added value promotions

Ware: expect more added value promotions

Proposed minimum prices for alcohol change the game for brands and retailers, argues David Ware, director of grocery at research company SymphonyIRI Group

The Government’s proposed strategy to set a minimum sale price of 40p for every unit of alcohol in a bid to combat underage drinking, crime and death in England and Wales has met with some doubt as to whether it will succeed.  

In the strategy document prepared by The Home Office, it clearly states cheap alcohol is too readily available and industry needs and commercial advantages have too frequently been prioritised over community concerns. By applying a minimum price per unit, the Government hopes to tackle the scourge of violence caused by binge drinking and the drain on resources caused by high consumption of alcohol.

The Government plans to work in partnership with business on all the proposals in the strategy, including the drinks industry, who they say are playing their part to take one billion units out of the market by 2015. So, how will the battle for the units that remain in the market be fought?

An over-reliance on price promotions – such as 33% extra or buy three bottles for £10 – in recent years has created a dilemma for alcohol brands. Marketers will be busy devising other ways to meet profit targets since price promotions will be irrelevant under the proposed pricing changes. 

As much as 67% of all alcohol sold in the UK by the major grocery stores is currently sold using promotions. This strategy is what puts the price of some alcohol products below the 40p per unit minimum price the Government is proposing. However, brewers will not be likely to inflate the price of the product higher than they already will have to with the new regulation, just to discount it again. Today’s smart consumers will never tolerate such practices. 

Instead, marketing strategies will need to focus on other ways to differentiate the brand. This is no bad thing given shoppers are weary as well as wary of over used promotional deals and price claims in the last few years. In fact, the UK has the highest promotional density in the world, with more than one in every two products being sold on promotion. Alcohol in particular has been a highly promoted category. The volume of alcohol sales sold on promotion has risen from 60% in 2010 to 67% in 2012 (data from 20 Feb 2010 to 18 Feb 2012). Beer and cider are the most heavily promoted products in this category. 

Despite a brief respite in promotional escalation over the summer last year, retailers continued to increase their use of price promotions to tempt shoppers. But as shoppers lose sight of the real price and the ‘value’ products represent when they are continuously sold on promotion, brands too can erode the consumer value they rely on to support their price position.

With this inability to leverage price promotions to sell products, brewers will have to change the way they sell completely. Loyalty, and other ways of creating differentiation, will once again become a focus for alcohol brands. Many will look to establish a premium strategy and packing and branding too will be key to their success. 

Promotions will not cease, but they will change. Instead of the price based offers, we expect to see more cross brand promotions or added value promotions. This might include providing a free pack of crisps or a branded gift with every pack of beer purchased. Traditionally, the types of categories that would promote well with beer would be snacks, but it has been known that alcohol has been cross-merchandised with headache pills. 

Brewers will give away branded items such as t-shirts or glasses and some will even give away hospitality such as tickets to a popular football match. Other areas that could be included are barbecue products or fresh meat for barbecues in the summer, ethnic beers (Cobra) with ready meals (curries, for example) and possibly any fresh food or ready meal products. Doritos and any dips/dipping products as a cross-promotion with party drinks is another possibility.

New challenge for retailers’ own label

Retailers will be impacted by a reduction in alcohol promotions since they use such branded promotions frequently to drive footfall around key sporting events. They will also have to raise the price of their own label alcohol offers, putting them in the same price range as their often more premium national brand competitors. This will require a sustained focus on branding and innovation from retailers. They can however learn from the success of own branded food products, which now command a 49.2% share of all FMCG products sold in the UK, according to the latest SymphonyIRI Group research on private label.  

The balance of power between retailer’s own label brands and national brands has shifted. The Symphony report shows the continued economic uncertainty is creating a new generation of smarter shoppers who are increasingly turning to private label products as opposed to national brands to make their shopping budgets stretch  bit further.

Minimum Unit Pricing (MUP) could be catastrophic for all own label alcohol products where high volumes are currently sold solely on price. Consumers purchasing these products are value conscious and more likely to migrate to branded products or stop purchasing altogether when the price playing field between retailer own label and national brands is equal. 

The battle for units will not be played based on absolute price, but on the consumer perception of whether product provides value. Driving stronger brand loyalty will be critical for all brewers and retailers alike and could necessitate a fundamental shift in both brand and trade marketing strategy.