In-store Marketing: Deep price cuts split opinion in beer retail

With obesity and binge drinking high on New Labour's list of social evils, should alcohol retailers move to curb competitive pricing?

The aftermath of Euro 2004 saw some of the major brewers publicly criticising each other for devaluing their brands in the supermarket aisles, after research found that some beer brands were selling for less than a bottle of fizzy pop.

But what's potentially more damaging than these brand spats is the fact that the price comparison comes as binge drinking jostles with obesity for lead billing on the government's domestic agenda. The upshot - in simple terms - is a threat from the government to ban deep price cuts.

Some are taking the threat seriously enough to take pre-emptive action.

For example, broadcaster Eurosport was reported last month to have banned all alcohol advertising ahead of a clampdown on drinks promotions. Taking the pre-emptive route is endorsed by David Polley, director of compliance and good practice at drinks industry representative The Portman Group.

"It is up to the trade to put its own house in order before the government does it," he says. "It needs to be recognised by the whole industry that alcohol can't promote on price alone. We have no problem with ongoing competitive pricing, but deep temporary cuts do invite problems."

That's great in theory, but competition in UK grocery is now so fierce that it's difficult to envisage major retailers calmly sitting down and agreeing to up their prices.

What customers want

David Southwell, director of communications at the British Retail Consortium (BRC), agrees. For his money, there is no evidence linking off-trade sales with binge drinking and none of the BRC's retail members thinks legislation will be carried through anyway.

"The idea that retailers shouldn't promote on price is ridiculous," he states. "They are simply giving customers what they want. This legislation would amount to price fixing. If brewers and retailers were to act ahead of it coming in, then you'd have a cartel, which certainly wouldn't be a healthy situation."

With UK consumer spending still underpinning a slow-moving economy, retailers are clearly in a strong position. There's no doubt they'd toe the line if restrictions were brought in, but, like Southwell, they seem unconvinced that this will actually happen.

"We feel it is in our interests to promote responsible drinking whenever we can, but we also look to offer the best value for money on our core products," says Steve Boles, buying manager for beers, spirits and tobacco at Sainsbury's. "Really, if people want to drink to excess at home, there is nothing we can do about it."

As for the brewers, even the big names are concerned about where slash-and-burn alcohol promotions will leave them. Scottish Courage claims it deliberately avoided putting its Foster's brand into deep price-cut deals during Euro 2004 and described as "disappointing" the fact that the likes of Interbrew didn't do the same with its Stella Artois brand.

'Unsustainable' promotions

Certainly it appears Interbrew doesn't seem to know which way to jump on price promotions. Its annual UK market report warns that aggressive promotions are "devaluing the beer category, and that is unsustainable".

Elsewhere, however, it reports that "Euro 2004 represents the biggest opportunity for further growth, when a focus on big brands and the right packs for the occasion will be critical".

But Heineken grocery marketing manager Jamie Mills has no doubts. "The price war in the beer category completely devalues the brands," he argues.

"It is not something Heineken wants to be part of, but it is beyond our control. We are in favour of working together to restrict massive price reductions, but inevitably one of the key suppliers will break ranks.

"A ban on deep price cuts would create a level playing field for beer brands, and we can create some genuine customer interest with promotions," he asserts.

There is some good news for brewers. According to retail analyst Euromonitor, price promotions have at least levelled off.

"There is nowhere else for price promotions to go," argues Anne Nugent, Euromonitor research manager for alcoholic drinks. "And the industry seems to be moving away from price cutting in some areas, such as champagnes and spirits.

"Over the past year, some of the lesser and own-brand players in these areas suffered as the big names pushed on price, so the bigger players are not having to be so extreme at the moment."

But although Nugent sees the current situation as an opportunity for more inventive promotions, she struggles to think of any inspired examples.

"Campaigns in which glasses are given away with drinks don't add value to the drink or build the brand," she says.

"On a basic level you have to look at ideas such as the ready-made Pimm's drink, which provided something new and added convenience to the product."

Halfway house

With the threat of legislation in the air, it would seem to be a good time for retailers to meet suppliers halfway and encourage non-price promotion campaigns.

But both Nugent and Heineken's Mills agree this is not happening at supermarket level. For them, only the likes of Waitrose, Marks & Spencer and Majestic Wine from the major chains have maintained price points and used customer service and regular events such as tastings to push alcohol sales.

For the time being, then, it seems beer will remain piled high and sold cheap. The BRC's Southwell sums up the stark retailer message to brands: "Is the retailer's job to help big brewers? No. Retailers give brands access to the customers. The major brewers have a lot of power and huge marketing budgets. If they are not getting their messages across, they need to be more creative in terms of promotion."

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