“2011 a difficult year ahead for the on trade - but there are positives too…”

By Mark Newton, Client Relations, CGA Strategy Limited

There are many reasons for the on trade to fear the coming 12 months – VAT increases, a continuing tough economic climate, changing consumer behaviour (pre/post loading) and increased – and ill- founded – regulatory pressures. However, as we have seen over the course of the last year, there is an in-built resilience by many of the successful retailers and producers who have recognised the importance of quality, value for money offerings, along with a continued emphasis on premiumisation (often in the form of treat expenditure).

The total impact of the forthcoming Coalition Government’s spending cuts – public sector pay freezes, job cuts and rationalisation – remains difficult to quantify, but there can be no doubt that disposable incomes will be further squeezed. To further exacerbate the situation for the on trade the January VAT increase will likely see the big off trade retailers and supermarkets readily expecting their suppliers to absorb as much of the increase as possible, whilst the smaller, independent off trade outlets and many pubs, bars and clubs are likely to see an even greater price differential as they are hit hardest by the increases in price to the customer.

During 2010 all drinks categories suffered alongside the falls in overall outlet numbers. However, recent trends suggest that both spirits and wine can be seen to be improving as the changes in the dynamic of the marketplace make themselves felt.

Within spirits, premium brands are maintaining a consistent trend for the category in tandem with the revival in the wine/café bar segment. Equally, wine trends look solid as outlets such as food led venues and cafe bars drive the on trade.

From a retail perspective flexibility is the key - it is essential in challenging times to foster an ability to capitalise on demand whenever it occurs. Along with a tailored drinks menu across all categories, providing premium brands at sensible prices and avoiding deep discounting activity.

Premiumisation trends can be capitalised on to generate improved revenue and customer perception, as consumers look for better quality experiences across the board. This will manifest itself through a greater selection of specialist spirits such as sambuca, rum, flavoured vodkas and bourbons. Premium fruit ciders will continue to dominate shelf space in the fridge. On the bar, cask ale hand pumps and keg ‘craft’ beers will continue to squeeze lager font space with local provenance and regional or micro brews taking pride of place. 

The on trade will undoubtedly survive the coming year - with premium drinks and experiences driving category growth but, equally, customers will always be on the look out for genuine value for money. This is the dichotomy facing the industry for the future – but, with continuing focus, it appears more than capable of moving forward.