Market analysis
PESTEL
1. political factors
6. Legal factors
4. Technological factors
2. Economic factors
5. Environmental factors
3. Social factors
Just like it is the case in Spain, the global economy is quite weak for the moment but the premium and super-premium alcohol market is growing due to a change in strategy based on consumers. In this section, the alcohol market will be described and analysed under many different aspects such as how companies changed their marketing strategies to please the clients, where is alcohol consumption growing, how alcohol marketing is changing and finally how companies are reacting to the increasing coverage of alcohol consumption risks.
Companies in the industry are focusing on provenance of the product and aspirational consumers. This last type of consumer is the largest segment of the market, about a third of the population in developed countries and around 39% of the world population, representing around 2 billion people. Aspirationals are the first to unite materialism, sustainability and cultural influence; they care about style, status and doing things right for the planet. Alcohol retailers also have to start paying attention to provenance as most customers, with Aspirationals in the driver’s seat, are starting to base their consumption on where products come from. To illustrate this, Tito’s Handmade Vodka registered a worldwide sales growth of 61% between 2011 and 2012.
The global spirit trend is driven not only by developed countries but also by up and coming ones like the BRICs. One the one hand, cities like New York and Los Angeles are trendsetters and their ideas resonate globally but alcohol consumption is clearly diminishing. On the other hand, developing countries like China’s, Russia’s and India’s imported spirits are an expanding category with sales in China having grown by 250% over the last ten years. Studies have clearly shown that the emerging markets are the bull markets whereas developed markets are the bear ones.
On November 1st, the Belgian government raised the excise tax on alcohol. The price of spirits rose by €2.6, which led to sales being reduced by 14% and thefts rose by 11%. These political decisions are not always popular with Belgian citizens. Indeed, two out of three Belgians believe that taxes on spirits are unfair. Therefore, 4 in 10 Belgians have the tendency to buy their spirits in surrounding countries. The graph below compares the prices of spirits in Belgium, Luxemburg and France. Clearly, the prices in Belgium are the highest.
Research conducted recently discovered that along with provenance, excitement and emotional engagement are trends that advertisers are using to capture the attention of drinkers and potential drinkers. Brands are focusing the main subject of their campaigns on things drinkers care about. In this case, Jack Daniels’s advert relates to Aspirationals and their desire to become eco-conscious. Finally, another successful marketing strategy different companies undertook was associating themselves with celebrities to improve the perception of their brand. For example when Cîroc, a vodka brand, partnered with P Diddy, their sales value have increased by over 1000% since 2007
Analysis of the spirit market
New advertising and digital marketing perspectives have also contributed to the explosion of the premium and super-premium alcohol brands. Retailers are exploiting these channels to communicate directly with consumers and are changing the tone and content of advertisements to the taste of customers. For example Smirnoff, Bacardi and ABSOLUT have innovative techniques like apps and dance or cocktail competitions to connect with more drinkers. Social media has enabled companies to indirectly reach thousands of customers without having to spend big, as this Smirnoff event shows. They hosted a party named “Midnight Circus” and attendees could directly post on Facebook with a digital bracelet. As covered before, aspirational advertisements are starting to increase and are extremely important for super-premium brands
World market
The three largest multinational companies operating on the spirits market own around 53% of the worldwide market shares. Diageo plc, a British company, is the largest producer of spirits, with a turnover just under €20.5 billion in 2015.
Belgium
We plan on selling our product on the Belgian market and therefore it is normal to analyse this market in much more detail than the global market. In order to analyse the Belgian market, several hypotheses were necessary as we didn’t find enough data about our national market. As many analyses were available for free for the United Kingdom’s market, we decided to set as a hypothesis that their alcohol consumption was similar to ours. Indeed, geographically, the United Kingdom is near Belgium and, culturally, our countries are quite similar as they are based upon a comparable European culture.
While conducting interviews with barmen to collect data about the market, we found out that Belgium was regularly late regarding trends and takes more time to implement different successful alcohols to its market. Analysing trends in England thus gives a good insight on new fashions and their probable arrival in Belgium.
Globally, alcohol consumption is falling back is most European countries. The United Kingdom infringe this rule and, as the graph underneath illustrates, alcohol consumption went from 11.6 Litres of Pure Alcohol (LPA) in 2004 to 9.4 LPA in 2013. Following our hypothesis, we deduced that Belgium has followed a similar downfall as the UK. Indeed, Belgium had an annual consumption of 10.8 LPA in 2014, so we can see that the consumption levels are comparable.
This reduction in alcohol consumption must be put into perspective: a decrease in alcohol volume consumed by one individual in not always tied to a decrease in alcohol spending. Indeed, as stated earlier, many “alcohol premiums” appeared on the market and the market saw the demand for better quality spirits rise. In the table below, the turnover of the three subsidiaries of the three largest alcohol companies is put forward. We can observe that despite a reduction in alcohol consumption, they succeed, either in stagnating (like Pernod Ricard) or in raising their turnover (like Diageo and Bacardi-Martini).
The spirits market is divided in this manner in the UK: Vodka (30.1%) is the most consumed alcohol, followed by Whisky (25.2%) and flavoured alcohols (19.8%). Gin (9%), Rum (9%) and Brandy (6%) end the list. It is also noticeable that Tequila, Cane and National Spirits pop up in the UK’s market shares. Thanks to the data and the total alcohol volume consumes in the UK (279 million litres), we have been able to estimate the volume of alcohol consumed by alcohol and see the different changes in volumes according to trends (see graph below).
UK spirits sales: relative market share
Total: 279,117,000 L
Vodka: 84,014,217 L
Whisky: 70,337,484 L
Flavoured Spirits: 55,265,166 L
Gin / Juniper: 25,120,530 L
Rum: 25,120,530 L
Brandy: 16,747,020 L
Tequila: 1,953,819 L
Cane: 195,382 L
National Spirits: 139,558 L
Opposite, we can observe different growths in sales depending on the alcohol type. These growths are calculated on a yearly basis (from 2012 to 2103) and on a five year basis (from 2008 to 2013). As we can notice, apart from Whisky and Brandy, all the alcohols are on the rise. However, we will focus on two alcohols that seem interesting to analyse in more detail: Gin and Tequila. The first one because it was covered in the first part of the analysis and the second because his growth was substantial.
In the same way as above, we calculated the volumes of the different progression:
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Gin went through a progression of 6% between 2008 and 2013, which corresponds to a rise of 1,422,000 litres of gin sold.
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Tequila progressed by 36% between 2008 and 2013, which corresponds to a rise of 530,000 litres of Tequila and a progression of 9% over the last year, a percentage that amounts to 200,00 litres.
Firstly, we can thus notice that Gin consumption continued to rise in a considerable way, something that leads us to believe that the “Gin trend” is not finished and opportunities still exist with that alcohol. Indeed, Belgium is often late when it comes to trends (compared to Spain, the UK and the USA for example). Secondly, one can notice that Tequila sales skyrocketed with regards to growth percentage even though in terms of volume it is quite small. This rise in Tequila volume sales is something to compare with the answers obtained from the interviews in the bars. Indeed, most of the interviewed barmen admitted that tequila was one of the future trends in Brussels.
The consumers’ preferences change quickly due to seasonal trends. Every summer, people drink something different, something new so it is hard to adapt to these changes. Companies need to react quickly to follow the different trends and adapt their marketing campaigns. Megatrends dictate how consumers act in the long term. For the moment, a megatrend many consumers are starting to turn to is the ‘local’ factor. Companies like Monkey 47 understood that and used it to their advantage to enter the market.
One problem the alcohol market is facing regarding growth is the increasing concern about the effects of excessive drinking on health and appearance. Therefore regulations are being implemented worldwide to reduce alcohol consumption: taxing (for example, in Russia they taxed beer 200% recently) and banning alcohol advertising are becoming normal in many countries. To maintain a positive bran image, companies are investing heavily in alcohol and launching innovative responsible drinking campaigns. The three major actors have committed to removing inappropriate user-generated content from their social media pages and restrict access to websites from people uner-18. In addition, brands don’t hesitate to team up with stars like Rafael Nadal, when Bacardi launched one of its new mottos “champions drink responsibly”.
The spirits market has a technological side quite different than other markets, as its technology lays more in the way it is produced rather than the technology associated with the production. Indeed, producers are taking basic spirits and improving them by adding ingredients and combining flavours to extend their range. A basic example is gin, which used to be limited to just a few ingredients outside juniper berries. Nowadays, companies mix as many ingredients as they like (47 for Monkey 47) to offer various flavours and types of gin.
The environmental impact of producing spirits can be divided into three categories. Recycling, water waster and raw material usage.
First of all, in Europe and Belgium, glass recycling is a major concern and governments and glass-recycling companies invest massively to make sure glass is recycled and correctly collected. Moreover, glass can be recycled endlessly and it is quite easy to do it.
Following that, water consumption is another problem and it also is one of the main ingredients necessary to distil alcohol. As the environment is a big issue for every type of business, spirits companies have to take it into consideration and are trying to avoid wasting water.
In Belgium, people cannot drink beer and wine until their 16th birthday and for spirits, they need to be 18 years old. Moreover the state is more and more concern about problems caused by alcohol and raise taxes like explained before in order to deter them from mass consumption.