IBISWorld Press Releases

FOR IMMEDIATE RELEASE

11/30/2006

Low-carb beer and ready-mix bourbon top of the list for silly season drinkers

If you're planning a Christmas party this silly season then stock up on premium and diet beer and ready-mixed spirits, say business information analysts IBISWorld, as these growth markets have taken over from the traditional Aussie love affair with the ordinary brew.

Reporting on our changing consumption patterns, IBISWorld General Manager (Australia), Mr Jason Baker, says that while the spirit manufacturing industry is forecast to grow by nearly 20% in the next five years, per capita beer drinking is set to decline.

On average, we consume around 9.8 litres a year of alcohol (measuring pure alcohol content consumption for those aged over 15), which is far below the French level of 11.7 litres per capita, and around a litre more per person than Americans and our Kiwi cousins. In a typical drinking session, IBISWorld reports men drink at least seven drinks, while women knock back five or more.

Around 2.3% of household expenditure goes towards alcoholic beverages, with 8.3% of us drinking every day, compared to 39.5% every week. Residents of WA spend significantly more on alcohol than the rest of the country, forking out $27.08 per household each week compared with the national average of $23.32.

IBISWorld also reveals our image as a beer-swilling nation is somewhat misplaced, with our consumption of the amber liquid actually moderate by world standards. "We are currently ninth on the World League Table for beer drinking," says Mr Baker "just behind the UK and well below top placed Czech Republic. We do, however, still place ahead of the USA, New Zealand and Canada."

And while low and full-strength brews were once the staple drink at all Aussie events, their popularity is waning, as they're replaced by imported and domestic premium beers, wines and pre-mixed, ready-to-drink spirits. Fosters' 2006 release of 'Pure Blond' signalled the arrival of the first Australian beer marketed directly at the health conscious with its 'low-carb' label. So-called 'diet' beers are tipped to be a major growth market in years to come, as brewers look to cash in on Australians' growing interest in healthy lifestyles.

Reports showed that last year, packaged beer sales increased 4.6% on the previous year, with growth of 15% in the premium beer market - nearly double what it was the year before. The value of imported premium beer sales increased by 30%. And while full strength beers are still experiencing some growth, light beer sales fell by 7.6% last year - a decline for the second consecutive year. Price increases and growth in premium beer sales will continue to drive revenue growth overall by an annual average of 3.1 per cent.

In coming years Australian brewers are likely to achieve some favourable results in Asian export markets, with China a potential growth market for premium beer in the longer term. However, the industry will face stronger competition from imported premium beers, with the 2006 launch in Australia of Italian beer Peroni Nastro Assurro, Czech beer Pilsner Urquell and US beer Miller Genuine Draft, to be distributed by the Pacific Beverages (a Coca-Cola Amatil and SABMiller joint venture).

While premium beer is dominating growth in the brewing sector, Pinor Noir and Shiraz are the most popular drops in bottled wine this festive season, says Mr Baker, however, taking cask wine into account, white wine is still the top choice overall.

Our per capita consumption of wine has increased significantly in the past 70 years, from around 2.7 litres per person in the late 1930s to around 25 litres since the 1990s, and growing to 28.1 litres last year.

Similar to our preference for premium beer, Mr Baker says that since the 1990s there has been a shift towards semi-premium and premium wines as we seek out better quality, albeit at a slightly higher price.

But it's in the spirit manufacturing sector that we're seeing real growth, according to IBISWorld, with pre-mixed ready-to-drink spirits such as Jim Bean & Cola and Vodka Cruiser outselling traditional bottled spirits and enjoying growth exceeding 10% a year in some instances thanks to their perceived affordability, convenience, and aggressive marketing - particularly in bars and clubs.

While the value of spirit retail sales increased 3.2% last year, with ready-to-drink products increasing by 10%, those containing bourbon proved the most popular, staking a 46% share in the ready-to-drink category. Scotch was the most popular bottled spirit, followed by bourbon, with vodka enjoying a surge in popularity.

As a nation, IBISWorld says we're not big spirits drinkers, compared with other developed countries, with our per capita consumption varying between 1 litre and 1.5 litres over the past 20 years. In Romania, Russia and Poland consumption is over 3.5 litres of pure alcohol per head.

IBISWorld believes the spirit manufacturing industry's revenues will swell by almost 20 per cent over the next five years, largely on the back of the success of pre-mixed spirits as a substitute for beer. High-end vodkas will also drive industry growth.

And while alcohol consumption has been declining over the past couple of decades due to changing attitudes and tastes, as well as tougher drink driving laws, Mr Baker forecasts levels will slowly begin to rise again, reaching around 10 litres per capita (pure alcohol for the over-15s) as soon as next year as a result of deregulation of liquor licensing laws to allow more restaurants and venues to supply alcohol without patrons having to buy food.

Progressive deregulation in the industry since the early 1980s has meant more and more bottle shops are competing with licensed grocers, supermarkets, and hotels and pubs selling packaged liquor - with competition becoming more intense.

Mr Baker explains that the past few years have seen Coles Ltd and Woolworths Ltd heavily involved in acquiring independent liquor stores and chains, as well as expanding their own branded in-store outlets. Earlier this year, Victoria legislated to allow supermarkets to own and operate retail liquor stores with no limit on either the number, or their total market share. And just last month WA finally caught up with the rest of the country by relaxing its regulations to bring the state into line with changes that have been taking place across the industry since the mid-1980s.

Queensland's liquor laws, however, remain unique, with hotels and pubs in that state the only ones able to operate retail liquor stores within a defined local area. This is driving the boom in pub sale prices in Queensland, and explains why Coles and Woolworths have been aggressively acquiring pubs in that state.

IBISWorld research shows that despite progressive de-regulation over the past 20 years, to make alcohol more readily available, there has been no significant increase in our overall alcohol consumption. "The regulations relate more to protecting vested industry interests than to addressing community desires about the availability of alcohol," explains Mr Baker.

"It has been a relatively tough year for the liquor industry, with slower economic growth, high fuel prices, rising interest rates, and significant price-based competition all having an impact. To top it off, the industry is starting to feel the full effects of the broader liquor industry deregulation, and aggressive acquisition strategies pose a significant threat to smaller operators.

"As the number of independent stores rapidly declines, we expect price-based competition will be ramped up, particularly from the supermarket industry, which will soon be the dominant player in Australian liquor retailing. This will continue to put pressure on profit margins for manufacturers. And with Fosters having already failed in their attempt to run their own hotels, it is unlikely that vertical integration will be the solutions for spirit - and all other beverage - manufacturers. Rather, effective product promotion and development of new products will be the pivotal key success factors."

To combat the rising threat, IBISWorld suggests liquor store owners pay particular attention to display, layout and well-marked specials, as customers entering bottle shops are impulse buyers and can usually be influenced to purchase more than they intended. Mr Baker says selling 'cleanskin' wines is another area where stores can boost profit margins, compared to selling low-margin, high-volume branded products.

For more information and analysis on the liquor industry or any of Australia’s other 500 industries, go to www.ibisworld.com.au