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What are the key trends affecting the drinks industry in the UK?
Hello! Thanks for your question about key trends affecting the drinks industry in the UK. The short answer is that changing consumer demographics (specifically the rise of Millennials); the premiumisation of alcohol experiences; an increased focus on health; and rising costs and changing dynamics from Brexit are all key trends. Gin continues to hold a prominent role in the spotlight; however, as it becomes more mainstream (thereby increasing sales volumes), other spirits may emerge to become the trendsetters.
Below you will find a deep dive of my findings.
METHODOLOGY
To answer this question I conducted an extensive media review and relied primarily on industry-specific publications.
FINDINGS
After reviewing a wide range of various sources, I identified the following trends (many of which are inter-related) as key factors affecting the UK drinks industry.
MARKETING TO MILLENNIALS
As Millennials become a more dominant consumer group (particularly for hospitality industries), marketing to this segment of the population is becoming more critical.
Millennials are characterized by a number of key factors that have an impact on the drinks industry, including: limited brand loyalty and desire to experiment; increased cost consciousness; and a demand for experiences that are perceived as novel and that are accompanied by a strong narrative.
Millennials also prefer to conduct research prior to making their purchases (often online), and online retailing of alcohol has grown significantly in recent years (although brink-and-mortar retailers continue to be the main sales channel).
Consumption volume is also being affected by the growing market role of Millennials, as they report that alcohol is now playing a less important role in their social live as for their parents. Additionally, due to their hyper-connected lifestyles, with all manner of instantaneous social media sharing, etc., the dangers of overdrinking and the associated shame/embarrassment are also leading Millennials to drink more responsibly and focus on experiences that are more likely to positively reflect on them and "what they are about".
SELLING THE PREMIUM EXPERIENCE
One of the key trends shaping the drinks industry in the UK, which is in turn likely in part inspired by the rise of Millennials, is the move towards more premium brands and experiences.
In their 2016 report on the UK alcoholic beverages market, Euromonitor reported falling overall volumes of alcoholic drinks, but a rise in the value of sales, due to the shift towards more moderate drinking, but of premium beverages.
This trend is seen in all components of the UK drinks market, including beer (craft/artisinal), premium spirits, non-alcoholic beverages, and mixed drinks (high-end cocktails).
That said, there is an element of "craft fatigue" setting in, where brands must take greater focus on refining the marketing of their products, to create the most specific and convincing narrative.
For those brands that are able to successful tap into the premium market, this can have significant positive results. Research has found that consumers are willing to spend up to 24% more on a drink that they believe as good quality. This resulted in a £719m year-on-year sales increase for premium products up to June 2016, with premium products now making up 29.5% of total beverages sales. Additionally, sales of super-premium products saw volume growth of 14% year-on-year in 2016.
"Premiumisation" is being driven by a desire for choice among consumers, with drinkers feeling like they are getting a better deal from their drinks even if they need to spend a little bit more. For bars and pubs to effectively engage with the premium trend, they need ensure that premium drinks are attached to the full premium experience including appropriate glassware, garnishing, mixing technique, etc. Although this may take more training and effort, the result can pay off, translating into better customer engagement and improved loyalty (when these things may be becoming particularly difficult due to the rise of Millennials).
The surge in premium spirits has also been accompanied by a rise in premium mixers, which are important for providing a full premium experience. The rise of premium mixers has also had the symbiotic impact of also boosting the sales of premium spirits, for example premium tonics have increased demand for premium gins.
HEALTH CONSCIOUSNESS
The introduction of premium mixers is not only being driven by a focus on experiences, but also by an increasing health consciousness among drinkers.
Premium mixers or non-alcoholic cocktails are often being marketed on their own as an alternative for health-conscious individuals who want to participate in the social element of drinking but who may not want to drink alcohol.
This increased focus on health is also driving the introduction of new ingredients for cocktails, including things such as sugarcane water and a rise of more mature flavours such as lemongrass and rhubarb cordials.
Spirits themselves are also undergoing a change, with a focus on reduced-sugar products and healthier alcohols, with lower calories or energy-boosting features. There is also a rising focus on removing alcohol from popular drinks, so that the flavour is the same but they can be enjoyed without any negative health consequences.
BREXIT & RISING PRICES
Industry analysts expect the impending Brexit to have some key influences on shaping the UK drinks market.
First of all, due to the economic uncertainty and rising inflation due to the weakening of the pound, consumers are likely to have less disposable income in 2017 and are therefore likely to drink less and make their drinking choices more focused (pushing towards premiumisation).
The weakening of the pound has also had the impact of increasing the prices for many imported alcohols, which has in turn made locally-produced spirits more competitive. In 2015, 56 distilleries opened in the UK, and this trend is set to continue, with these likely getting a boost from Brexit (both now, due to the currency depreciation, and once the deal finally goes through, due to changes in tariffs, etc.).
Another key factor set to see alcohol prices rise is the introduction of a minimum price per unit of alcohol in Scotland. After having been contested for quite some time, it appears likely that this will now be introduced. Should this be successful, there is a chance it will also be applied throughout the wider United Kingdom.
GIN HOLDING STRONG, BUT CHALLENGERS RISING
In terms of gin, even though you had specifically asked about this, it is still such a prominent topic that I did not need to complete any special research to find ample evidence of the prevalent trends.
Gin continues to be a key alcohol in the UK, with a rising number of UK producers that are now also experimenting out into less traditional, more experimental forms (to appeal to Millennials and the premiumisation trend).
The growth of new craft tonics and mixers is also helping support growing interest in craft gins. However, these tonics are also being drank as an alternative to alcoholic beverages or are increasingly being mixed with other alcohols as well.
That said, at least one industry source indicated that gin is starting to "peak" and is now becoming more mainstream. While this promises to see higher sales volumes, as gin is embraced by a wider portion of the population, the cache element of the spirit is going to wane, opening opportunities for new spirits to regain the spotlight. Indeed, one of the trends that was identified was the rise of younger whiskies, where the emphasis is more on taste than on previous "prestige" factors such as age. Other industry players identified both rum and tequila as spirits that could potentially eclipse gin as the most popular.
CONCLUSION
To wrap it up, the drinks industry in the UK has a number of key trends set to shape it in the near future. Identifying these trends, and marketing with them in mind will be key to both increasing revenues and engagement among consumers that are increasingly demanding and fickle.
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