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On-trade review 2008: Graham Page, Nielsen

Published:  13 March, 2009

What a year 2008 was for the on-trade. When we had the wettest summer on record and the smoking ban was introduced back in 2007 we thought things couldn't get much worse, but 18 months on and in the thick of a depression one has to consider the long term viability of the British on-trade.

What a year 2008 was for the on-trade. When we had the wettest summer on record and the smoking ban was introduced back in 2007 we thought things couldn't get much worse, but 18 months on and in the thick of a depression one has to consider the long term viability of the British on-trade.

The 2007 'double whammy' was compounded in 2008 in the form of a second dreadful summer, and all the misery that the credit crunch and impending recession brought as consumer confidence plummeted and people began to reign in their spend. In fact, the Nielsen Consumer Confidence Survey found that consumers said their spending on going out dropped drastically between October 2006 and October 2008. In 2006, 30% of consumers said they spend spare cash on out of home entertainment. By last October this number had almost halved, to 18%.

When we consider the divergence of on and off-trade pricing it is little wonder why staying in is the new going out. On trade drinks' retail pricing has increased at two to three times the RPI, helping drive the on-trade to off-trade volume switch, whilst prices in the off-trade have barely moved in 10 years (allowing for inflation).

Furthermore the foodie culture at one end of the spectrum and take away junkies at the other, digital TV (particularly for sports), internet, computer games and health concerns are all driving consumers towards the home as a venue for socialising, entertainment and, inevitably, alcoholic drinks consumption.

The drinks market is a huge £33.4 billion market overall with on trade sales by value accounting for 61% of this. Decline for the year to November 2008 stood at 4% in the on -trade while sales increased by the same percentage for Offs. At this rate, values will converge then the off-trade will overtake the on-trade sometime around 2015. In volume terms the off-trade is already ahead with 53% of the 6.8billion litre market.

Beer remains the largest Great Britain on-trade contributor, at £12.1bn, with £3.35bn in Great Britain off-trade. But within this on-trade beer was - 9% on volume and - 5% on value, to November 08 compared to the off-trade's near static -1% in volume and +1% on value, year to December 27th 2008.

BBPA industry numbers in the last quarter of 2008 were the worst beer figures since the 1930's depression. Beers decline is of major concern to brewers and pub companies as it still accounted for nearly 57% of on-trade alcoholic drinks sales volume in 2008.

Yet Great Britain off-trade dominates spirits, wines and soft drink sales and now the grocers are after adding to their 24% of beer sales. The focus of global companies appears to be on big national or international brands. Nothing wrong with that, but with spirits holding their share and cider, wine and soft drinks growing theirs, beer is getting large chunks taken out of it, despite better than market trends from some cask ales. Wines have progressively been taking beer's position as the drink of choice in the home, for entertaining and with food.

So what will make the difference if operating in the on-trade? If you are a retailer then the post-smoking ban environment should offer many potential benefits, as on-trade becomes more attractive to all consumers over the years ahead. Once we are through the recession greater numbers of non smokers should get drawn back to on-trade outlets, because they are nicer places to be.

The current success of food focussed outlets would tend to support this. Outlets should concentrate on getting the basics right, good food and a good wine list will make a difference and excellent service levels will differentiate and make for repeat, loyal customers.

For drinks' manufacturers innovation will continue to be core and given that Great Britain consumers usually embraced new drinks products when launched first in on-trade outlets this will provide opportunities for retailers also.

Should innovation continue throughout the recession? This seems to be the billion dollar question at present and there is certainly evidence to suggest that where a new offering is fundamentally solid, success will be inevitable no matter what the economic clime is.

Younger drinkers tend to be more experimental and if innovation is targeted at this demographic it stands a good chance. The credit crunch has put a holt to many 20-somethings getting onto the property ladder and while they languish in the family home, both the desire to go out and disposable incomes here remain ripe for tapping into.

At the other end of the scale, by 2016 over 50% of the UK's population will be 50 plus. The age of the well-heeled "Grey Panther" is fast approaching. Currently the off-trade is winning here but with the right offering and tight targeting here, tapping into this segment is potentially the golden chalice for on-trade.

We should prey for a scorcher and hope that the poor sterling will keep people in the British Isles for the summer. Sacrificing the foreign holiday could well lead to a greater impetus to get out and about at home and this theme should be capitalised upon.

People will also be looking for good 'value' and creativity needs to be employed here now price crash happy hours are frowned upon. Value comes in many guises and it is possible to provide this to drinkers without slashing prices.

2009 will play out to be a tough year and there is no denying that the on-trade is certainly struggling but I believe it is far from dead, perhaps just taking a long nap before it wakes up!