Executive Summary

The market for all types of drinks was worth £41.39bn in 1999, accounting for 7.4% of all consumer spending. This share used to be closer to 10%, indicating the pressure on prices in the drinks market, although the British consume a wider range of drinks products than ever before.

The range covers both indigenous drinks (Scotch whisky, ale and squash) and drinks from a wide variety of foreign countries, all well established in the British diet. Drinking wine with meals or as an alternative to beer or spirits has been a major trend, while demand for pure fruit juice and bottled water continues to rise. However, beer still makes up the largest component of UK drinks, with a 40% share of drinks spending.

Whiile many drinks markets have stagnated in recent years, the headlines have been grabbed by moves towards consolidating market share, sometimes in markets where oligopolies of a few powerful brand owners already existed.

Examples of the globalisation trend in drinks from recent years have been:

• Interbrew of Belgium took the leading position in UK brewing in 2000, buying the beer divisions of Bass PLC and Whitbread PLC. Together with Scottish & Newcastle PLC, Carlsberg-Tetley PLC and Guinness (part of Diageo PLC), the leading four have over 90% of the UK market. The former domestic leader, Scottish & Newcastle, has also globalised, acquiring Kronenbourg, the leading French brewer.
• Coca-Cola and PepsiCo dominate the soft drinks market worldwide. In the UK, Coca-Cola took full control of its distribution company in 1997. (Ironically, Coca-Cola's move left its former partner, Cadbury Schweppes, to become a major force in US soft drinks). The local distributor for PepsiCo products, Britvic Soft Drinks Ltd, has been put on the market in 2000, as a result of Interbrew's purchase of the Brewing division of Bass.
• Diageo, a UK company created in 1997, is already the world's largest spirits and wines company (through United Distillers & Vintners [UDV] and Guinness), and could expand further when it floats off its food interests, possibly buying part of the Seagram drinks business, up for sale in 2000.
• HP Bulmer Holdings PLC and Matthew Clark PLC have shared over 90% of the cider market between them since the mid-1990s.

† — includes PepsiCo products
Source:Key Note

Internationally-known brands are at the core of any significant drinks operation. In the UK, and either worldwide or across Europe, the many global brands include Coca-Cola and Pepsi, Tropicana, Smirnoff, Bacardi, Budweiser, Heineken, Perrier, Schweppes, Nescafé and others.

The total drinks market is predicted to grow in value by just 11% over the next 5 years — around half the level of the 1995 to 1999 period. Low inflation, a likely economic slowdown and a lack of innovation are the factors that are predicted to cause this slow growth period.

Legislation may also have an impact on the market for alcohol. The licensing laws governing retail outlets for alcohol are overdue for reform, and taxation may be brought down closer to EU averages. Pressure on prices will increase in the take-home sector, where the largest multiple grocers have policies of attracting customers with drinks promotions.

For many years, specialist drinks outlets (i.e. off licences) have faced an uphill battle against the multiple grocers. Defensive amalgamations have taken place, leaving three major companies — First Quench Retailing Ltd (bought by Nomura, the Japanese bank, in 2000), Unwins and Parisa. A pioneering wine shop group, Oddbins, is likely to be sold in 2000, and Majestic Warehouses is the largest in its sector.

The 'on-trade' is still dominated by traditional public houses (pubs), but a large proportion of them have reinvented themselves as 'food pubs' or as themed pubs for families or entertainment. Other new drinks outlets are scattered through the leisure sector (sports clubs and shopping malls), and the newest fad is for sophisticated coffee shops. Fast food continues to grow, supplying more outlets for soft drinks (usually from Coca-Cola or PepsiCo).

Summary of Sector Trends

• Beer is the largest alcohol market, with a fairly steady 50% share of alcohol spending, but there is a gradual decline in beer consumption by volume and a shift to premium lagers. The withdrawal of British companies such as Bass, Whitbread and Allied Domecq means that international lager brands will continue to grow.
• Wine with meals is now an accepted part of the British lifestyle, although almost all of it has to be imported. All major wine-producing countries compete for the British market, led by France, Germany, Italy, South Africa and many New World origins (California, Australia and Chile). Wine is the last remaining fragmented drinks market.
• Spirits and liqueurs is a static market, with a high proportion of its value being taxes. Scotch whisky, gin and some liqueurs are the main domestic products; vodka, brandies, rum and liqueurs are the other types, characterised by international brands (e.g. Bacardi, Smirnoff and the cognac houses). Based on the international popularity of Scotch, UK spirits firms operate on the global stage. Most of the fortified wines are in permanent decline, with port bucking the trend.
• Cider is a market worth over £1bn but currently fairly static in real terms.
• A `miscellaneous' category of alcohol is growing in value rapidly. Although it includes some old-fashioned, declining concoctions, it also features the highly fashionable premium packaged spirits (PPS) such as Bacardi Breezer. The PPS is the current favourite among younger drinkers, having taken over from the notorious alcopops of the mid-1990s.
• Soft drinks depend on the summer weather each year but the underlying trend in volume is upwards, and 1999 was the best year for a while. Underlying growth is fuelled by innovation in packaging and flavours, competition in marketing, wide distribution, health-consciousness, fast food growth and strong brand images.
• Hot drinks have lost share to soft drinks for many years, and prices have been kept low by falling demand, supermarket competition, and lower prices for commodities on the world market (tea, coffee and cocoa). Market growth is coming from niche development and innovations such as new shapes of teabag or exotic coffees.

Favourite Drinking Occaisions

Field research for this report, conducted using a sample of 1,022 adults, found that there is a very wide variety of favourite occasions for drinking alcohol. The most commonly preferred are:

• Christmas/New Year (80% of adults)
• celebrations such as birthdays (78%) and parties (77%)
• on holiday (76%).

Among the less popular occasions for drinking are with meals (53%), watching television (TV — 45%), in nightclubs (39%) and as nightcaps (20%).

More Information

  Denotes a required field.