Innovation has long been a major factor in the drinks sector. But, where once the beer industry could be relied upon for a steady stream of new launches, activity in the sector appears to have gone flat and niche brands have been left to inject some fizz into the market.
Bulmers’ launch this week of Strongbow Spice, a ginger-laced cider in a 275ml bottle, is an attempt to cash in on two trends in the drinks market (MW last week).
Strongbow Spice will take on the likes of Bacardi Breezer, Metz and Source: flavoured alcoholic beverages (FABs) are the fastest-growing sector of the drinks market at the moment. It is also part of the current fashion for spiced alcoholic drinks such as Guinness UDV’s Smirnoff Mule, which also contains ginger (although it has recently been replaced by lemon-flavoured Smirnoff Ice as the focus of Guinness UDV’s FAB marketing). It comes after Seagram (now also Diageo-owned) has spent the past 18 months launching Morgan’s Spiced rum across the UK.
Not all brand extensions work
Just adding spice is no guarantee of success, however – remember Bacardi Spice, from the world’s biggest rum maker? It was withdrawn in January. Or Ginzing, the then United Distillers’ herbal alcopop that died a quick (and deserved) death?
Strongbow’s own brand extensions have not all stormed the market – whatever happened to Strongbow Ice, launched a few years back to take on the iced beers? It is still around, according to Bulmers, though it’s not a great seller.
Still, it seems most of the action in the drinks market is coming from spirits companies, cider makers and niche brewers such as St Peter’s Brewery, which last week launched King Cnut Ale, a premium English beer.
Meanwhile the big brewers have been accused of failing to inject much excitement into the market. Pub owners have smartened up their outlets and succeeded in raising prices at the bar, but some industry executives say the brewers are so concerned with wrapping up international deals and trying to build global “superbrands” that they have failed to innovate in the beer market.
They are spending too much time with corporate bankers and too much effort trying to please investors. They have forgotten the people they are supposed to be serving: beer drinkers.
Heineken business development director Nick Holmes says: “The brewing industry is preoccupied with restructuring and brand rationalisation, and in that kind of period there is less focus on the consumer. The industry will have to get back to a more innovative kind of attitude because it’s rather boring at the moment.”
Asda beer buyer Mark Sparrow agrees: “There have not been many brand launches in the past year.” But he adds that Asda’s premium lager sales have been buoyant in recent weeks, thanks to a few spells of good weather.
And he says there has been a battle between the onand off-trades for custom. Pubs have been revamped and turned into trendy bar-cafés or family-friendly eateries, but as they often charge up to &£2.50 a pint Sparrow believes some drinkers are deciding to buy takeaway beer and stay at home.
Another highly placed brewing source says: “There’s not a lot happening in the beer market, not a lot of innovation to keep consumers interested. All that’s happening is consolidation, but we still have the same old nationally available beers in the pubs. The last spell of serious innovation in beer was in 1995 with Caffrey’s and the Ice beers, which had everybody jumping on the bandwagon.”
All the excitement these days is coming from the FABs, he says.
Brewers getting bigger
Consolidation in the brewing industry still has some way to go, but there has been frenetic activity over the past year. Just a fortnight ago, Interbrew bought Beck’s for &£1.1bn, grabbing it from under the nose of UK distributor Scottish & Newcastle. Meanwhile Interbrew is waiting to hear whether it will be forced to break up or sell off Bass, which it bought in June 2000 for &£2.3bn. Competition authorities are pondering solutions to the Bass problem – together with Interbrew’s Whitbread brewing interests, Bass puts it out in front in the UK beer market with, the company claims, a 32 per cent market share.
Most observers believe the OFT will force Interbrew to sell off its Carling lager brand, while allowing it to hang on to the Bass business in Scotland and Northern Ireland. The Department of Trade and Industry has just received the OFT’s report, and says it will make a ruling as soon as possible. But whatever the outcome it will take some time for the recommendations to be put into practice. And when they are, there will be a lengthy period while the businesses restructure and make appointments. This could all take a year or more, by which time beer drinkers will be falling off their bar stools with boredom, waiting for some innovation to spice up the market.
Scottish & Newcastle’s takeover of Courage in 1994 gave it more brands than it needed, though it claims to have now sorted out its portfolio. It is pursuing a policy of becoming a world player, and last year it secured Danone’s brewing interests, which included Kronenbourg lager.
In truth, sales of beer and cider have been in slow decline in the UK for the best part of 30 years. Between 1995 and 2000 volume sales of cider rose by just 1.5 per cent, much of this after fierce discounting – value sales were up by only 2.5 per cent to &£1.25bn. Meanwhile, lager volumes fell 1.5 per cent, and value rose 2.6 per cent to &£8bn – but alcoholic soft drink sales rose by 25 per cent to &£330m, according to Datamonitor. In the beer sector as a whole, volume sales slipped by 0.7 per cent over the five years, and value inched up by less than two per cent, to just over &£16bn. Taking into account half a decade’s worth of inflation, this is a real terms value decrease of seven or eight per cent. However exciting the FABs may be, they only account for two per cent of the beer category.
Interbrew denies there has been a lack of innovation in beer. UK marketing director Richard Evans says: “You don’t have to look too hard to see that there’s quite a lot of innovation going on in the industry. The last decade has seen the launch of widgets, FABs, the ‘Irish’ ales, the development of wheat beers and organic beers, innovations in dispensing equipment and a revolution in packaging.”
He claims that Interbrew has stepped up its product development programme and that there are “revolutionary” drinks on the way. In addition, Interbrew is considering UK launches for some of its overseas brands. Evans also refers to Interbrew’s innovative advertising, citing Heineken’s “musical blackmail” campaign.
To be fair, there have been new brands launched in the past couple of years. Bass is rolling out its Arc super-chilled lager, but this is aimed at high-end style bars, and the process of cooling – a special pouring mechanism which creates a head of ice crystals in the glass – makes it an unlikely candidate for mass-market stardom. Scottish Courage, meanwhile, has tested Theakston Cool Cask, a real ale which is slightly cooler than traditional rivals.
Mysterious vanishing lager
Then there is the strange tale of GB Lager, launched last year in the Granada and Central ITV regions by Whitbread, before its brewing interests were bought out by Interbrew. At the time of the launch, one analyst told the Dow Jones International newswire that the introduction of GB was just “window dressing” to make the brewing division more attractive to predators. And sure enough, since the Interbrew takeover, advertising support for GB has disappeared, although Interbrew says it is “pleased” with the brand’s performance.
Not everyone accepts that the lack of successful innovation in beer can be blamed on the brewers. Some see it as part of the natural cycle of technological developments.
Caffrey’s, launched by Bass in 1995, is seen as the last great innovation which inspired a host of imitators, though most of these have faded away and the brand is no longer as popular as it was.
The “nitro-kegs” came about as an offshoot of widgets, which were developed to allow the likes of Guinness and real ales such as Boddington’s to be sold in cans. The nitrogen technology was successfully transferred to draught ales, giving them a creamy texture, and a new sector was born.
According to George Riddiford, a partner at design agency Brewer Riddiford, and a former Whitbread marketer, the definition of innovation has changed. It used to mean coming up with a completely new product with a different name. But these days the cost of doing that has become prohibitive, he says, and beer companies have lots of existing brands with plenty of mileage in them. “Beer is beer. There is a limit to the amount of mucking around you can do with it. There are just little niche things that happen around it, such as wheat beers,” he says.
Riddiford expresses some surprise that Bass failed to follow up on the success of Hooper’s Hooch, the first FAB or alcopop. In the early Nineties, Bass was a powerhouse of innovation. The 1989 Beer Orders forced brewers to sell off many of their pubs, and as one of the worst hit Bass was obliged to develop strong brands consumers actually wanted, rather than pumping out the same tired old product through its tied pubs. Under marketing director Seamus MacBride the brewer developed up to 23 experimental brands, and out of the laboratory came Hooch and Caffrey’s.
A similar radical approach to beer development is needed once more. But with the future of the brewers in the hands of corporate lawyers, bankers and the academics of the OFT rather than marketers, it may be some time before successful innovation returns to the beer market.