Global Alcohol Drink Trends
September 1, 2005
Global Alcohol Drink Trends
By ANNE NUGENT
Developing markets and premium products drive growth
Global volume sales of alcohol drinks reached almost 200 billion liters in 2004, up by 11.4 percent between 1999 and 2004. Overall alcohol drinks growth was driven largely by demand for beer in the two key emerging regions of Asia-Pacific and Eastern Europe, each of which registered double-digit volume growth during the past few years. In the second segment of a two-part global beverage review, Euromonitor International looks at the key regional trends affecting demand in 2004 and glimpses at 2005 and beyond.
Beer in Asia-Pacific
The impact of rising demand for beer in emerging markets has been a decline in sales of local spirits, particularly in the key growth market of China. This move toward drinks with a lower alcohol content has been aided by initiatives from the government as well as a growing consumer interest and ability to purchase non-traditional types of alcohol. Elsewhere in the Asia-Pacific region, however, Japan and South Korea saw economic difficulty — aging populations and health concerns exerted a negative impact on beer sales — while in Indonesia, beer struggled to recover from the effect of the Bali bombings on the country’s tourist industry.
Vietnam, by contrast, has been a star performer, having grown by almost 50 percent between 1999 and 2004. Its meteoric rise in the past few years, due in part to a strong economy, has prompted a number of brewers to seek a presence in this market. Carlsberg recently signed a strategic agreement with Hanoi brewer while Anheuser-Busch signed a cooperation agreement with Sabeco. The outlook for beer in this market looks very promising with Euromonitor projecting a compound annual growth rate (CAGR) of more than 6 percent for the next five years.
Other developments in the region
According to Euromonitor, China was also the most significant force behind growth in the wine sector in the Asia-Pacific region in 2004, seeing increasing volume sales underpinned by rising demand for still grape wine among urban consumers who increasingly adopted Western drinking habits. Similar trends also boosted sales in markets such as South Korea, Thailand and Taiwan, though wine continued to register a poor performance in Japan, where consumers migrated away from traditional saké products to more fashionable and cheaper local spirits like shochu.
Premium products emerging in Russia
As with China, a similar pattern has emerged in Russia, where increasing health consciousness as well as novelty and intensive marketing have played a part in persuading consumers to shift from low-end vodka to products such as beer and flavored alcohol beverages (FABs). With key cities such as Moscow and St. Petersburg now nearing saturation with around 70 liters per head, beer manufacturers are looking to expand into other less-developed regions such as Siberia. In 2004, there was a concerted effort by companies to encourage consumers to trade up to premium beer in urban areas, with particular emphasis on branding in the on-trade markets.
While demand for traditional economy spirits receded in Russia, imported products, such as blended Scotch whisky, witnessed significant growth as they gained in popularity among affluent urban consumers, due to their prestigious image. Demand for premium local vodka brands was also in evidence. Additionally, wine is growing well, even with keen price competition, particularly within the off-trade between wine from neighboring countries like Moldova and imports from France, Spain and Italy.
New spirits for Eastern Europe
Elsewhere in Eastern Europe, 2004 saw the trend toward imported products further bolstered in the countries that acceded to the European Union by the related abolition of import duties. Lower prices of imported spirits, in particular, played an important part in the relatively strong growth displayed by Poland in 2004. Wyborowa’s Passport Scotch whisky brand showed strong growth, spurred by a significant drop in prices in preparation for entry to the European Union. Trading up to imported products in several major Eastern European markets bolstered value sales in the region, which increased significantly more than volume sales at the end of the review period.
According to Euromonitor, the Ukrainian beer market, the third-largest in the region, showed dynamic growth in volume terms, with overall sales increasing by 11 percent in 2004 to reach 1.7 billion liters. Like Russia before it, growth is being driven by increasing disposable incomes, a shift away from spirits toward drinks with lower alcohol content and improvements to product quality. Per-capita consumption remains the lowest in the region due to the strong tradition of vodka but Euromonitor expects demand for beer to continue its upward trend in the coming years.
Seismic shift in Western Europe
The alcohol drinks market in Western Europe witnessed stagnation, as sales were constrained by a high level of maturity, changing lifestyles and the growing health consciousness of consumers that persuaded them to reduce their level of alcohol consumption in favor of soft drinks. A clear picture of the dynamics is exemplified by the performance of soft drinks in the region, which grew in volume by 21 percent between 1999 and 2004 according to Euromonitor, while sales of alcohol drinks were completely flat.
The region registered decline in its two largest sectors in volume terms, beer and wine. As is the case with the United States, beer is showing maturity in traditional markets such as Germany, and is seeing a squeeze from competing alcohol drinks such as wine. Meanwhile, the tradition of drinking wine with long, leisurely meals in the major markets of France, Italy and Spain, has declined drastically in the past few years as a result of accelerated lifestyles and strict enforcement of drunk driving laws. Although signs point to flattening in Spain, at least, and newer markets including the United Kingdom, the Netherlands, Ireland and Scandinavia have been flourishing. These vast traditional wine markets of France and Italy continue to dictate the overall sluggish trend within Western Europe.
The break in traditional patterns of consumption also had a significant impact on key spirits markets, with only the United Kingdom and Italy showing modest volume growth in 2004. In a trend similar to that within the United States, Euromonitor notes that it is in these countries where attempts to court fashion-conscious younger consumers with products aimed at contemporary drinking trends such as cocktails, have been successful. Generational cycles were also in evidence as, for example, demand for Scotch whisky in Spain began to fall, while vodka and rum, perceived to be modern, are in ascendance.
Economic climate dictates choice
Despite the sluggishness of the alcohol drinks market in Brazil where economic conditions remain fragile, Latin America showed a good recovery in 2004, buoyed by a return in consumer confidence within Argentina and Venezuela. The turbulent economic climate in the region saw a return to relatively inexpensive local products such as cachaça in Brazil.
The wine market rebounded in 2003 and 2004 as a result of an improved performance in the all-important Argentinean market. Chile also showed significant growth for wine, although per-capita consumption of 17 liters per head lags behind that of other producer countries, with highs of 43 liters in France. It is even surpassed by many non-traditional wine markets such as the United Kingdom where consumption is around 21 liters per head. Wine also proved increasingly popular in the potentially important Mexican market, thanks to lower prices, increased consumer familiarity and its healthy image.
Some signs of recovery in the beer market were visible in 2003 and 2004, particularly in Argentina, where volume sales increased by 7 percent. However, as a whole, the Latin-American region is still underperforming other emerging markets such as Eastern Europe.
Difficult economic conditions in major markets affected alcohol drinks sales in Africa and the Middle East during the review period. In 2004, the region’s largest market, South Africa, saw wine volume sales suffer as poor economic conditions caused consumers to switch to cheaper alcohol drinks such as beer. The negative impact of wine’s falling volume sales in South Africa was, however, partly offset by increasing wine sales in Egypt and the United Arab Emirates, which both benefited from increased levels of tourism in 2004.
An improved economy in Australasia resulted in good growth in demand in 2004. This region is noteworthy for having the highest per capita for FABs in the world, of around 13 liters per head compared to the next highest, Germany, at 5 liters, according to Euromonitor’s findings. Spirits drinks with an alcohol-by-volume content of less than 20 percent have seen recent success in Greece and the Netherlands among students and party-goers, with Ursus Roter being one of the star performers.
Hot in 2005 and beyond
Although FABs hit a peak in the late 1990s and demand since then has been on the wane, a number of key success markets continued to show good growth in 2004, including Japan, Russia, Germany and Australia. The outlook for Germany in 2005, however, is in stark contrast to previous performance, due to the imposition of taxes which are resulting in a decline in demand for spirits-based FABs. Some of this shift is benefiting beer and soft drink mixes, but a definite trend away from these products overall is developing. Nevertheless other key countries are predicted to see further growth, even if at a slower pace than in previous years.
Demand for cider, meanwhile, remained fairly flat in 2004, largely because of the stagnant U.K. market, which is easily the world’s largest. Some success was seen in France, Spain and Ireland in 2004, and all of these countries lie within the top five markets. Growth was boosted by new product launches, including organic versions, new packaging aimed at the premium end of the market and marketing initiatives such as mixing cider with ice.
Rosé wine is another hot product in 2005 with demand being driven by producers — largely within Australasia — in the shape of new product launches that hit the shelves in time for the summer season. The hot summer in 2003 boosted demand in a number of markets, including France where it was the only wine type to grow that year. In 2005, undoubtedly partly due to oversupply in Australia and Western Europe, as well as to a need to continue to drive overall demand for wine, the push with rosé is very much on creating wider consumer interest and increasing wine drinking frequency.
Within beer, a focus on premium beers — in the shape of micro-brewed or regional beers, organic brews and wheat and fruit beers — is expected to gain momentum in mature markets. Within emerging markets such as China and Russia, polarization between economy beer to draw new drinkers and higher priced beers to engage urban consumers is likely to gain pace.
NPD focuses on functional benefits
One of the key trends to watch in the future is the development of new products with functional ingredients, mirroring trends already apparent in other food and drink innovations in response to the growing health and wellness trend. A number of new products recently have been launched in the alcohol drinks market, including 3 Vodka, the first soy-based spirit, Namashibori Fiber by Sapporo which is a happoshu beer with a high fiber content to promote digestion, and Flensburger Malz, a malt beer with a low calorie content and no sugar, making it suitable for mainstream consumers as well as diabetics. Euromonitor expects a raft of new developments in this vein to surface in the next couple of years. BI
Anne Nugent is research manager at Euromonitor International, a leading provider of global business intelligence and strategic market analysis, with more than 30 years experience of publishing market reports, business reference books, online databases and bespoke consulting projects. Euromonitor International is headquartered in London, with regional offices in Chicago, Singapore, Shanghai and Vilnius.