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Wednesday, October 29, 2008
Aussies drinking less beer - and getting choosier
By FoodWeek Online @ 11:48 AM 0 Comments Article Rating Retailing_Trends

Australians drink a moderate 9.89 litres of (pure) alcohol each year, making us moderates by world standards, and putting us behind the UK but ahead of the US.

But we do love a brew. And while beer is still our favourite drink, per capita consumption is declining, and the growing popularity of wine and ready-to-drink mixed spirits presents the domestic brewing segment with a substantial challenge, according to a new report from Ibisworld.

The alcoholic beverage market in Australia is worth around $16.3 billion, comprised of beer ($7.9 billion); wine ($4.8 billion) and spirits ($3.5 billion). Within the beer sector, premium beers have a 7.8% share of the market; full strength beer has 70.6%; mid-strength holds 12%; and light beer has 9.6%.

Low-carb beers account for 2.4% of industry revenue, with their share growing by a massive 127% per annum, albeit off a low base.

Imported beers are gaining popularity, and growing by 6.9% per annum in value terms. We largely import beer from Mexico (39.9%); the Netherlands (15.2%); Germany (10.1%); and the USA (4.6%), and favourite brands include Corona, Heineken, Grolsch, Becks and Budweiser.

Last financial year, Australian manufacturers exported around 5.6% of their total production to our major markets: Thailand (19% of export value); Vietnam (16.7%); Korea (15.8%); and Japan (15.1%).

The thirstiest Australian beer drinkers are aged between 18 and 30, a demographic which responds well to change, innovation, and clever advertising campaigns, and that’s exactly what they’ve been getting recently.

Ibisworld general manager (Australia), Robert Bryant, said the past 18 months has been action packed for the beer industry, as major industry players have acquired stakes in a number of up-and-coming boutique beer brands in a bid to boost revenue through the value of premium beer sales, which have been growing by between 15 and 20% a year (although it still accounts for less than 10% of total industry revenue).

Packaged beer accounts for nearly 40% of sales through retail liquor outlets, and Ibisworld figures reveal that last year full strength beer sales rose by 2.1%; low alcohol beer by 7,5%; mid-strength beer by 11.2%; while premium domestic and imported beers grew by 11.3%. Bryant said premium imported beer sales rose 20.8%, compared to 2.4% for premium local brews, but he expects that to change.

“With major breweries investing in boutique operators and the number of microbreweries constantly rising, we should see more local outfits increasing their share of the premium market pie,” he said. “And the main factor driving this change is consumers’ mounting demand for variety, and a shift in preference away from standard beers to their more costly competitors."

A trend which favours larger producers over boutique operators is consumers' heightened health consciousness. As we’re encouraged to watch our waistlines we’ve seen the introduction, and subsequent proliferation of low-carbohydrate beers, led by Fosters’ Pure Blonde, Bluetongue Brewery’s Bondi Blonde, James Boag’s Classic Blonde and Hahn Extra Dry.

“What is interesting is the fact that despite an overall decline in beer production and per capita consumption in recent years, this trend towards higher-end beers hasn’t abated. However, we’ll have to wait to see what impact tougher economic times and financial uncertainty will have – perhaps we’ll see punters ditch their designer beers for whatever’s on tap instead,” said Bryant.

And it’s not just brewing giants Fosters (48% market share with brands including Victoria Bitter, Crown Lager, Light Ice and Carlton Cold) and Lion Nathan (33.5% market share with popular labels such as Tooheys, Hahn, West End, XXXX and James Squire) that are servicing the premium market, but a number of geographically diverse microbreweries (producing up to 30,000 litres).

The local industry has been characterised by acquisition and change in recent times, said Bryant, with Lion Nathan’s purchase of James Boag from San Miguel in November for $325 million as well as becoming a major shareholder in Fremantle’s Little World Beverages Limited (which produces the Little Creatures and Rogers brands).

In addition, Adelaide-based family run Coopers Brewery Limited (which has 5% market share through unique varieties such as its Sparkling and Premium Ales, Genuine Draught and Birell Ultra Light) fought off a hostile bid from Lion Nathan in 2006 to hold onto its position as the country’s third largest beer manufacturer.

In other activity, Fosters and Carlsberg have entered into a long-term agreement for the former to brew and distribute a number of Carlsberg beer brands in an alliance which reflects the global trend of companies licensing their products to third parties to drive distribution of their beverages.

In spite of all of this, Ibisworld believes new player Pacific Beverages poses the greatest competitive threat to the sector in its current state, with ambitious plans to supersede Coopers as number three in the local market.

Formed in 2006 by major international company SabMiller and Coca Cola Amatil (CCA) to distribute premium beers including Nastro Azzurro, Miller Genuine Draft and Pilsner Urquell, Pacific Beverages laid down its intentions by last year purchasing Newcastle-based Bluetongue Brewery for $23 million and announcing plans for a new 500,000 litre brewery in New South Wales in 2010. It will also begin producing SabMiller-owned brands in Australia.

“We expect Pacific Beverages’ growth to be rapid, given that it can capitalise on the market power and distribution systems of CCA. This increased competition within the sector will spur significant promotional activity and advertising spend, with price competition likely to occur to a limited extent. This, combined with aggressive promotion, will drive revenue growth overall,” he said.

Despite the fact national brewers (7% of total breweries) account for over 85% of the volume of beer Australia produces, 75% of our breweries are classified as “microbreweries”, while 18% are regional breweries, and Ibisworld believes the number of enterprises entering the industry is steadily rising. While microbreweries have a minimal impact on the overall market, they have been successful in serving niche sectors, and this is encouraging new players to have a go.

“Microbreweries account for a significant proportion of all new products in the marketplace, sometimes coupling brewery operations with hospitality ventures. Buoyant consumer demand for variety bodes well for smaller operations, however just as there are plenty of new players entering the industry, there is also a high rate of attrition. Only extremely small producers, manufacturing less than 30,000 litres, receive an excise rebate (60% of excise paid), but for the rest of the industry’s smaller businesses, high fixed costs and excise payments put them at a huge cost disadvantage compared to more established brands,” said Bryant.

“With modern technology, small brewing facilities can achieve economies of scale if they produce more than 500,000 hectolitres per year, however the additional capital required for automated packaging often precludes smaller breweries from expanding into large scale production to successfully compete in the national market.”

As a result, Bryant said new entrants were often limited to distributing their product within a small geographical range of their production facilities. Some are establishing a number of sites to reduce their reliance on distribution channels, such as Little Creatures, which has purchased a site in Victoria to improve its presence in that region, and reduce transport costs from west to east.

IBISWorld forecasts that over the five years to 2013, beer consumption by volume will rise, while per capita consumption will fall slightly. Price increases and growth in premium beer sales will drive revenue growth by around 2.9% a year to reach $5,897.3 million.

Beer manufacturing is likely to be affected to some extent by lower consumer confidence, which will make it tougher for premium beers to turn a profit, particularly the newest operators, however, beer may enjoy a small resurgence at hospitality venues on the back of higher excise taxes on ready-to-drink spirits.
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