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drinks Yearbook 2010

The domestic beer industry has been turned on its head over the past year. From above trend growth in late 2009, it is now experiencing the most diffi cult trading environment in recent memory. As an Englishman, I fi nd it all too easy to say “Aussie beer drinkers have gone soft” (the irony is not lost on me as similar issues are confronting the UK beer market). While some marketing gurus would agree with this synopsis for the Australian market particularly given the increasing prevalence of new generation ‘blonde’ and ‘midstrength’ beer brands, it doesn’t help to explain the weakening underlying market trends over the past 12 months. 142 | drinks yearbook Breaking the rules The problem in getting to grips with the current downturn is that it is breaking some well established rules for the industry. Rule #1: Beer is not discretionary Rule #2: Per-capita consumption changes refl ect longer term social or lifestyle trends, or regulatory shocks Rule #3: Innovation drives category growth Industry data shows beer has experienced the biggest boom to bust swing in the wider liquor sector. However beer is not the only category being challenged. Demand has also slowed albeit to a lesser extent for wine, spirits and RTDs. Australians are consuming less alcohol. The slowdown in beer sales is not just a function of volumes. The favourable industry price dynamic also appears to be softening. The bi-annual CPI+ price increases consistently delivered by the duopoly brewers for many years are the foundation of the staggering large industry profit pool today. On my calculations it is the most profitable beer industry in the world (on a unit volume basis). Both duopoly brewers have been exceedingly rational in their approach to pricing historically. However, price is an easy lever to pull when volumes slow. And volumes have slowed dramatically. Has industry pricing been taken too far, beyond a hypothetical tipping point? I’d suggest not. The slowdown is apparent in all alcoholic beverage categories, not just beer. The Australian beer industry: sobering thoughts Citi Investment Research and Analysis, Citigroup Global Markets Australia Andy Bowley


drinks Yearbook 2010
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