Decision to raise duty on FABs leads to sales slowdown
The flavoured alcoholic beverage (FAB) sector has slowed down following Chancellor Gordon Brown's decision last April to raise duty by around 65 per cent.
ACNielsen figures released last week reveal that there has been a definite slowdown in FAB sales since April, especially in managed, tenanted and leased outlets. In recent years, the FAB market has been one of the fastest growing drinks sectors in the on-trade, at around 40 per cent, but the data monitor company estimates that between May and July that figure has been slashed to eight per cent.
Even taking a slow summer season into account, the news will come as a blow to FAB brand owners who reacted angrily to Mr Brown's much-maligned decision earlier this year.
"Following the rise, the whole market became extremely turbulent and it was impossible to gauge how things were doing," said Steve Perez, managing director of GBL International, owner of Vodka Kick.
"People rushed to buy in bulk in order to beat the duty, then it was really quiet - we weren't completely sure whether or not that was due to stockpiling."
While many brands, such as Bacardi Breezer, Metz and Red Square, have reduced their ABV to soften the blow, it appears that once again the consumer has borne the brunt of the price hike. Pubs and bars have taken the opportunity to raise the price of FABs by anything between 20 and 50 pence, a rise way above the duty increase of 12p per 275ml bottle ordered by Gordon Brown.
"We've seen no change in those venues where they've kept the cash margin", said Joe Woods, managing director of Beverage Brands, producer of WKD. "But in those outlets where they've tried to maintain the percentage margin, consumers are turning to premium packaged lagers."
Ultimate Leisure, the late-night bar and club operator, is one company unwilling to push its luck with FAB followers.
"We put our Smirnoff Ice prices up by 20p following the budget but, frighteningly, in order to achieve the same margin, we would have needed to increase the price of each bottle by 49p which, needless to say, we didn't dare do," said Bob Senior, managing director.
As drinkers realise they are getting less alcohol for more money, there may be trickier times ahead for those brands that have reduced their alcohol content.
Nick Hunt, senior trade marketing manager of Bacardi Breezer, a brand that has reduced its ABV from 5.4 to 5.1 per cent, believes, however, that the premium FAB sector will absorb the change.
"Bacardi-Martini's own extensive consumer research in the UK has suggested that it is important for premium FAB products to maintain their parent brand as an alcohol base. The research also showed that it is vital that premium brands require an ABV content above five per cent."
Graham Page, consultant at ACNielsen, said: "The FAB marketplace has been weaned on products boasting a high ABV.
"Now, in many instances, the consumer is getting less bang for their buck but no-one really knows yet what the effect is going to be. Will they simply drink more or walk away from these brands?"
Related articles:
PPSs hit by 65 per cent duty rise (18 April 2002)
