Beverages
Delivery Director
Bluefin Solutions
Tough times for the brewing industry
The UK brewing industry is currently operating in a very challenging environment. Over the past 30 years, volumes have shifted from the higher margin on-premise channel, where products are consumed in pubs and restaurants, to the lower margin off-premise channel - the "take-home" market. The smoking ban and unpopular but unavoidable price increases have driven people to do more of their drinking at home and to buy more of their alcohol from supermarkets, which constantly apply downward pressure on manufacturer margins and will even promote cheap beer as a loss leader.
Consumption down, prices up
The amount of beer sold in Britain has fallen 14% in the last six years. Of course pubs have seen the steepest declines, where beer sales have dropped 31%, leading to the closure of many. Whilst there has been some switch to wines and spirits, overall we are drinking less as a nation: according to the British Beer & Pub Association, alcohol consumption fell 6 per cent last year, the sharpest drop since 1948. It is the fourth annual fall in five years and means that drinkers are consuming 13 per cent less alcohol than in 2004.
To compound the effects of these long term social trends the pub price of a pint of beer, which has doubled in the last 19 years, looks set to climb further next year as poor barley harvests in Eastern Europe and export controls imposed by Russia threaten to hit brewers while they are forced to push through VAT and duty rises.
Across the wider industry the UK can therefore be viewed as a troublesome area. This summer's second round exit for England in the World Cup hasn't helped and has been coupled with somewhat unfavourable weather. The average cost of a pint of draught lager in pubs was £1.40 in 1991 but rose to £2.81 last year - an increase of 68% before inflation. VAT will increase in January by 2.5%, and duty is scheduled to rise at 2% plus inflation under the beer duty escalator, suggesting another 4% duty increase. I predict we will be paying £4 a pint in 2011.
Grow market share, increase profit
Amid this rather gloomy outlook it's clear that in developed markets, such as Western Europe, the overall growth rate will be almost zero. Growth in these markets will mainly come from the premium/import and speciality segments, which are expected to grow by about 4% per annum, at the expense of mainstream beers.
For companies who can stay ahead of the game and demonstrate the value they bring to their products, stronger customer relationships, maintaining or increasing volume and improving margins are therefore all still achievable.
Better promotions build stronger brands
These conditions mean you can no longer rely on strategies that solely focus on increasing volume. Savvy organisations will be looking to expand into new channels, win new customers through improving trade processes and via great interaction, and to move brands upwards to take advantage of growth and stronger margins in the premium sectors. Successful planning and execution of trade promotions is an essential component of this push.
What's required is to change the demand curve for specific categories and to generate demand quickly for newly released products whilst shifting slow moving inventory in innovative and effective ways. This basically means re-engineering the supply chain from push, to pull and to do this you need to approach promotional spend in a scientific manner.
Making promotion success measurable
The ability able to devise and execute the right promotions quickly and decisively to keep up with new products, seasonality and competitor innovation is what offers forward thinking companies competitive advantage and a viable future in the post recession economy. Generally in these tough times cash is king and, in addition to building strong brand portfolios, you need to maximise the benefit received from every pound spent on trade promotions.
The benefits of effective promotions planning are widely known but successful realisation of these remains elusive to many. The industry understands that the ability to target spend only on promotions that work comes about by closing the loop on promotions planning. This measurable feedback drives pragmatic, rational decision making about which promotions to run next.
What part can technology play?
Promotional budgets are often huge so being able to measure the outcome of promotional spend is key to understanding the level of success achieved, and in planning subsequent promotions. Technology offers a huge amount off scope here, supporting both short and long term decision making, where and how to spend the promotion budget, and can support consistent returns on marketing investment.
Measurability is essential in best practice promotion management, so the ability to access and analyse quality enterprise data must be a priority for a progressive company's sales and marketing business objectives. An intelligent customer focused approach will deliver forecast accuracy measures and profitability metrics as a core component, but can only come about from effective integration of business systems and data.
Fragmented, disconnected systems severely impair the ability of even the best marketing team to measure past success and target the most value add future promotions.
If you can support complete end-to-end processes and closed loop planning, measuring and analysing trade promotions is an achievable goal rather than just a utopian marketing vision.