Drinks industry feels under the weather
Nielsen consultant Graham Page on summer sales patterns
In July, with my family and grandchildren, I sat by the pool in Kissimmee, Orlando, Florida and watched a quite fantastic electrical storm against a beautiful grey-pink sky.
The thunder and lightning were spectacular but incredibly there was no rain, although we had it in buckets most evenings. Yet it seems the real thunder, lightning and yes, rain, was back home, hammering our drinks industry and retailers hard. We watched in amazement on American TV as Britain appeared to be submerged.
My mind raced back to barely a year ago: 90-degree heat, the World Cup, lower interest rates, inflation under control, disposable income rising, house prices booming, pensions and insurances recovering. Magners, Bulmers and other ciders poured over ice cubes were taking over from other long drinks and rosé wines were driving wine growth. Blimey - what a difference a year makes.
My thoughts returned to the present, dwelling on the fact that it can barely be a year on and we are having a totally monsoon summer, no World Cup, four interest rate hikes, smoking bans, another Scottish Prime Minister, a mess in the Middle East and the stock market getting the jitters. I considered staying in the US, where everything seems so cheap at $2 to the pound and even with rain the weather is warmer.
It is, of course, a simple reminder that the only certainty in life is that tomorrow will be different from today. If companies, suppliers or retailers prepared their 2007 budgets based on 2006 figures, with the usual growth hike on top, I imagine there would be some very unhappy and worried people out there. But is it really all that bad and should we not take a three-year view of things, against a more typical 2005 summer? At Nielsen we have been doing just that, but I'll leave that subject until the end.
First, let us look at the current GB off-trade market numbers. Up to mid-June, we saw total liquor volumes in the off-trade up 3 per cent, beer up 4 per cent, light wine up 2 per cent and total spirits up 2 per cent (all figures: MAT).
In a way, steady as you go.
Then the British monsoon arrived, coinciding with the English smoking ban. The off-trade market reeled, as did the on-trade market, along with the weather onslaught.
Lazy days watching football on TV and barbecues in the garden became distant memories, while floods severely affected anyone residing or retailing on a floodplain. Consumers - understandably - stayed indoors, battening down the hatches, while their spending was getting literally rained in and the stock market wobbling.
The effect on the drinks market in the on and off-trades was severe by mid-July. Taking the 12 weeks to mid-July and the four weeks to mid-July compared with the same period a year ago, we can see the real effects. Beer has taken a very big hit - partly because May and June sales in 2006 were so spectacular - with the worst figures I have seen in this sector for years.
Light wine has done well in the off-trade, though not so well in the on-trade, driven by great rosé growth and the Germans strengthening their position in the market. Champagne has continued to grow, despite large volumes going towards the Far East.
Perhaps the British still insist on celebrating, despite everything. Spirits, on the face of it, have done very well, but this needs to be seen against a very poor 2006, with a lot of activity on price and promotion trade this summer driving volume.
Even the mighty growth of cider and its long drinks renaissance has slowed and I suspect council tips are melting with piles of unused ice cubes. The weather still has such a big part to play in the fortunes of summer drinks, as does the televising of major sporting events - particularly world or European football championships. Our ambient temperature was well down on last year, as were sunshine hours.
A prime barometer of a good or bad summer is soft drinks sales. In the four weeks to July 14, with the exception of energy drinks, every soft drinks category was in decline over the same period of 2006. There is evidence that value has increased and that suppliers have been able to negotiate price increases. Clearly soft drinks volumes suffered alongside the liquor categories.
Looking at June we can conclude that, while performance was poor, it had not screwed up likely full-year trends too much. However, the addition of July has really pulled the rug from under the drinks industry's feet.
Our analysis concludes that summer drinks categories such as lager, sparkling wine, RTDs, cider and perry, and speciality drinks saw MAT growth of 2 per cent to July 14, but a 14 per cent decline in June/July 07. This equates to a £101 million loss against June/July 2006, but bear in mind the boost to sales through hot weather and a World Cup last summer.
The last four weeks to mid-July would have been expected to achieve sales of £362 million. Actual sales were £318 million, implying a loss of £44 million due to severe weather. Over the eight weeks to mid-July, £81 million has been lost by summer drinks categories.
If we include ale, RTD and soft drinks declines and slowing cider growth, this loss increases further.
To put 2007 into perspective it might be sensible for affected suppliers and retailers to look at 2005, 2006 and 2007. Comparisons with 2005's average summer may make this year's numbers look less horrendous, but they won't remove the pain.
Nielsen figures quoted are all volume and sourced from Nielsen General Market data trends in Ons and Offs, Pub*Track EPOS managed house service and GB Off Trade Scan*Track covering the years 2005, 2006 and 2007, to mid-July and weeks leading to mid-July 2007.
GB off-trade total sales volumes
12 weeks to July 14 4 weeks to July 14
Total Liquor -1.3 per cent -7.8 per cent
Beer -7.4 per cent
-17.9 per cent
Ale - 5.8 per cent -12.8 per cent
Lager - 7.5 per cent -18.6 per cent
Spirits + 5.9 per cent +6.1 per cent
Light Wine + 5.4 per cent + 8.4 per cent
Cider + 18.5 per cent + 12.8 per cent