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Opportunities in Premium Alcoholic Drinks: Trading Up Trends

Datamonitor
October 23, 2008
145 Pages - SKU: DFMN1933609

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Introduction

The current economic downturnespecially the historically low consumer confidence that has emerged in 2008presents a potentially challenging environment in which to drive premiumization going forward. The alcoholic beverage products that will be best insulated from down trading will be those with a compelling proposition benchmarked against Datamonitor's 'Premium Price Index' (PPI).

Scope

The second in a series of three sector specific reports designed to help FMCG companies capitalize on consumers' desire to trade up
Asia Pacific, Western European and US consumer wealth group data and primary survey data highlighting trading up behavior in 2008 by country
A comprehensive analysis of how consumers form their perceptions of what constitutes a luxury/ premium alcoholic beverage proposition
NPD analysis and detailed recommendations offering practical strategies based on the trends and insights uncovered throughout the report

Highlights

The rise of the so-called global middle class has been a major factor in facilitating trading up (or premiumization) across the globe. From 2002 to 2007, Hong Kong, China, and India witnessed the highest growth in the number of Mass Affluent Individuals

Perceptions of what is considered to be a luxury/ premium brand are dependant upon five key factors which make up what Datamonitor refers to as the 'Premium Price Index' (PPI). By using this as a reference, alcoholic beverage manufacturers and retailers can show consumers that their goods represent value for money in more than just price

The economic downturn will not result in wholesale changes in premium alcoholic beverage preferences but it will influence where consumers enjoy their favorite brands. Between 10 and 35% of consumers (depending on country and location of purchase/consumption) are seeking less expensive alternatives

Reasons to Purchase

Mitigate the threats posed by an uncertain economic environment by understanding how consumers perceive and judge upscale alcoholic beverage brands
Access unique consumer wealth and consumer survey data spanning Asia Pacific, Western Europe and the US
Understand the most pertinent opportunities to drive brand and market growth in the alcoholic beverage sector

Overview: Catalyst; Summary; Table of figures; Table of tables
THE FUTURE DECODED: INTRODUCTION: A number of factors are influencing premiumization in alcoholic drinks; TREND: Economic conditions and the growing 'mass class' have a major impact on trading up and luxury purchases in alcoholic drinks; Favorable economic conditions have led to up-trading in alcoholic drinks among mass market consumers; Consumers' trading up has not fully offset weakening volume of alcohol consumption; The number of high net worth individuals (HNWI) is growing steadily worldwide and is a driving force behind high-end alcohol purchases; There are more mass affluent individuals but the rate of growth is slower than among HNWI; Higher income shoppers are less likely to shop on a budget; It is important to not be complacent even if you are targeting core luxury shoppers; Higher income consumers account for a higher proportion of alcohol drinks spend on a regional and category basis; Key takeouts and implications: a growing economy has facilitated premiumization in alcoholic beverage choices, but the current downturn threatens to limit growth; TREND: The search for value is widespread especially since luxury/premium products have become more accessible; Luxury/premium is becoming more relevant to mass-market consumers leading to higher expectations; Additional access to better quality products has created a sense of entitlement among many consumers; Price-led value is a hugely important factor in purchase decisions and store selection; Price and, to a lesser extent, promotions, are important determinants of alcoholic drinks' choices; Consumers are generally highly conscious of the amount of money spent on alcohol; 'Bargain hunting' gives consumers a sense of satisfaction and increasingly has status value in a recessionary environment; Consumers are feeling the effects of the downturn on their personal finances; Rapidly declining consumer confidence will further re-enforce the allure of 'good value' but does not necessarily equate to wholesale changes in FMCG consumption; Key takeouts and implications: alcoholic industry players will have to work harder to convince consumers that price premiums are worth it amid a strong desire for good value and declining consumer confidence; TREND: Connoisseurship and health considerations are key drivers of premiumization in alcoholic drinks; Consumers want to 'drink better' and this drives preferences shown towards upscale drinks; Health is also an important driver of premiumization - even in alcoholic drinks; Key takeouts and implications: consumer discernment and concern for health is boosting premiumization in alcoholic drinks markets; TREND: Premiumization in alcoholic drinks should sustain as consumers look to maintain consumption of affordable indulgences; Anecdotal evidence currently indicates that premium alcohol consumption is holding relatively strong; In the current downturn premiumization is more apparent in off-trade consumption; Industry players must reconsider how to leverage premium brands as the on-trade environment stagnates; Key takeouts and implications: the economic downturn will not result in wholesale changes in premium alcoholic beverage preferences but it will influence where consumers enjoy their favorite brands; INSIGHT: Premiumization is influenced by the consumers' emotional involvement with the product and a number of important product characteristics; Premium is still a high price related to extraordinary factors perceived and experienced by consumers; Consumers are skeptical of the product quality benefits offered by premium/luxury brands; Key takeouts and implications: establishing a luxury/premium alcoholic beverage positioning involves a strong understanding of how consumers perceive brands according to five key criteria; INSIGHT: Packaging is the most pertinent extrinsic quality cue and can significantly impact consumers' quality judgments of alcoholic beverages; Packaging creates and enhances product positioning and creates preconceptions of quality standards; Product appearance judgments can also be influenced by the retail outlet from which it is purchased; Brand name can be an important quality cue driving premium alcoholic beverage perceptions but it is secondary to other considerations; Consumers' perception of 'premiumness' can also be influenced by the provision of product information including word of mouth; Consumers will anchor (positively or negatively depending on the context) their pricing perceptions against broader information; Key takeouts and implications: industry players must establish whether the intrinsic and extrinsic quality attributes of brands/products are perceived favorably, especially in comparison to competition; INSIGHT: Consumers' willingness to pay a price premium for alcoholic beverages will be significantly influenced by the overall sensory experience; Sensory benefits heavily influence consumers' alcoholic beverage preferences; Aligning alcoholic beverage products with food can help to enhance the premium status of products; Offering superior refreshment is likely to remain a key battleground for establishing premium credentials; Convenience is not major a route to premiumization in alcoholic drinks; Consumer trends indicate that more emotional rather than material forms of consumption may be emerging as consumers become more pre-occupied by experiences; Key takeouts and implications: experience based quality will become even more important in creating a luxury/premium positioning; INSIGHT: Credence quality influences product trust, acceptance, involvement and willingness to pay for premium alcoholic beverages; Details surrounding ingredients and production methods are particularly important in helping to establish a premium alcoholic beverage offering; For many luxury/premium products, there is often a cachet associated with being produced in a particular region; Growing interest in authenticity and provenance means new possibilities and threats exist for brand development; Ethical considerations are not as important to alcoholic drinks as they can be to other product markets; Key takeouts and implications: 'credence quality' reflects myriad consumer trends impacting consumer markets in general, not just in the alcoholic beverage industry; INSIGHT: Uniqueness and specificity is equated with quality and brand cachet as well as the emerging needs of 'Generation C'; Premium alcoholic beverage consumers want products that are unique and evoke expressive individuality; A commonplace way to ensure uniqueness in any product market is to raise prices; 'Premium fatigue' is a threat as consumer expectations continually increase in line with market dynamics; Individuals are looking for more customization possibilities and opportunities for self-expression; Key takeouts and implications: uniqueness is the essence of luxury so enhancing the perceived exclusivity is vital in establishing a premium positioning; INSIGHT: Many consumers will pay more for alcoholic beverages satisfying status needs; Two similar but distinct patterns of consumption characterize image conscious consumers: 'status consumption' and 'conspicuous consumption'; Ethical/sustainability led consumption behavior increasingly has status value; Key takeouts and implications: status conscious shoppers are more willing to pay premium prices so industry players need to understand what status means to a target customers; INSIGHT: Hedonism is a major driver of trading up which means brands must leverage hedonic benefits of alcoholic beverage consumption; Pleasure is highly linked with emotions and emotions are linked to loyalty and WTP price premiums; Satisfying alcoholic beverage consumers' desire for enjoyment and pleasure is best served through multi-sensory marketing tactics; Research indicates that consumers associate higher priced products with additional pleasure; Pleasure is also linked with regret which is something luxury/premium marketers can leverage; Surveys often suggest that people feel that they have less free time to relax and re-boost their energy levels but that a propensity to indulge remains in tact; Key takeouts and implications: linking alcoholic beverage products with escapism and indulgence adds another dimension to products especially in a recessionary environment; INSIGHT: Consumers are more likely to pay a premium for brands re-enforcing their self identify; A consumers' self concept is multidimensional and will be heavily influenced by cultural differences; Consumers use consumption as a means to express their values and beliefs; Key takeouts and implications: alcoholic drinks brands must seek to discover their consumers desires and self-concepts and tap into these themes with products and marketing; INSIGHT: Premiumization in alcoholic drinks is a trend with a broad demographic reach; Older consumers have considerable personal wealth which makes them a potentially important target group for premium products; Evidence exists to support the idea that consumers across all age cohorts are also trading up in alcoholic drinks' consumption; Key takeouts and implications: the desire to trade up to premium alcoholic drinks has broad demographic relevance which creates targeting challenges but broadens the market opportunity
ACTION POINTS: ACTION: Research to determine how much of a discretionary purchase your brand is and make preparations in recognition that some people are currently trading down; Use Datamonitor's Premium Price Index (PPI) to help frame your market and consumer assessment; Embrace new strategies in recognition that some alcoholic beverage consumers are going to trade down; ACTION: Adopt a 'no-compromises' approach to product quality through formulation and positioning of a premium alcoholic beverage brand; Use ingredient quality and processes as a key point of differentiation; Leverage heritage and tradition credentials wherever possible; ...but also pursue opportunities to embrace new technologies; Use packaging to show the difference between premium brands and imitators and to enhance the sensory credentials of brands; Expand core product and emphasize discernment with broader marketing efforts; Continually update and inflate the premium crednetials of your flagship premium alcoholic beverage brands; Educate consumers to help them recognize and switch to better quality products; ACTION: Continually explore avenues for emphasizing the uniqueness of a premium proposition; Ensure that a luxury/premium brand has an identity that is consistent with a target consumers' self concept; Give consumers and professionals opportunities to express themselves through participative products and services; Restrict distribution and maintain high pricing to ensure that premium products do not attract undesirable consumers; Use ingredients that provide a unque and compelling taste profile as well as an interesting marketing story; Seek out aquisition opportunities for niche, premium brands; ACTION: Emphasize the experience associated with a brand's premium credentials; Encourage consumers to consider a premium alcoholic beverage product occasion as a special time; Give consumers the opportunity to interact more deeply with alcoholic beverages; Create short or long-term brand rituals to re-emphasize there is something different; ACTION: Use the downturn as an opportunity to leverage premiumization in the off-trade; Target the fact that consumers may entertain at home more, either with formal or informal gatherings; ACTION: Maintain marketing spend, especially in the current recessionary environment, to justify premium prices; Maintain advertising efforts to help maintain differentiation of premium branded alcoholic beverage products; The nuance of the premium beverage advertising message might have to change during this period of economic uncertainty; Be wary of over-reliance on price reductions; Maintain a strong focus on innovation and R&D during times of economic uncertainty; Use Datamonitor's strategic reports outlining the key innovation opportunities that arise from consumer mega-trends; ACTION: Look for opportunities to extend pre-existing products or launch new premium products into emerging markets; Use acquisitions and alliances as a means of improving local market understanding; Do not assume emerging market consumers to be a large homogenous group and expect some growth setbacks; Use local personalities as brand spokespeople when expanding into the emerging markets; Release products in smaller sizes with correspondingly smaller price tags to target the lower incomes apparent in the emerging markets
APPENDIX: Definitions; Methodology; Further reading and references; Ask the analyst; Datamonitor consulting; Disclaimer
List of Tables: Table 1: Per capita GDP, constant, ($), 1995 prices by country, Asia Pacific, Europe and US, 2002-2012; Table 2: Alcoholic drinks spending as percentage of Gross Domestic Product (GDP), by country, Asia Pacific, Europe and US, 2002-2012; Table 3: Alcoholic drinks spending as percentage of Private Final Consumption Expenditure (PFCE), by country, Asia Pacific, Europe and US, 2002-2012; Table 4: High net worth individuals (000s) (HNWI)* by country, Asia Pacific, Europe and the US, 2002-2012; Table 5: High net worth individuals (HNWI)* as a proportion of overall population by country, Asia Pacific, Europe and the US, 2002-2012; Table 6: Mass affluent individuals (000s) (MAI)* by country, Asia Pacific, Europe and the US, 2002-2012; Table 7: Mass affluent individuals (MAI)* as a proportion of overall population by country, Asia Pacific, Europe and the US, 2002-2012; Table 8: Total market value of all alcoholic beverages consumption accounted for by Income Quintile (US$ millions), by region, 2007; Table 9: Total market value of all beer consumption accounted for by Income Quintile (US$ millions), by region, 2007; Table 10: Total market value of all wine consumption accounted for by Income Quintile (US$ millions), by region, 2007; Table 11: Total market value of all spirits consumption accounted for by Income Quintile (US$ millions), by region, 2007; Table 12: Consumer survey: the comparative influence of price on consumers' choice of alcoholic drink products, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 13: Consumer survey: the influence of price on consumers' choice of alcoholic drink products, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 14: Consumer survey: the comparative influence of promotional offers on consumers' choice of alcoholic drink products, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 15: Consumer survey: the influence of promotional offers on consumers' choice of alcoholic drink products, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 16: Consumer survey: attention given towards the amount of money spent on alcohol in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 17: The percentage of consumers who seek discounts and express satisfaction from value, by country; Table 18: Consumer survey: the extent that consumers are making an effort to save more money in light of the economic downturn in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 19: Consumer survey: the influence of health on consumers' choice of alcoholic drink products, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 20: Consumer survey: attention given towards not drinking too much alcohol in general, in 15 countries across Europe, Asia Pacific, South America and the US, 2008; Table 21: Consumer survey: propensity to opt for alcoholic drinks with health considerations in mind, in 15 countries across Europe, Asia Pacific, South America and the US, 2008; Table 22: Consumer survey: : propensity to choose more higher quality alcoholic drinks in pubs, bars or restaurants over the past six months, 2008; Table 23: Consumer survey: propensity to choose more higher quality alcoholic drinks for at-home consumption over the past six months, 2008; Table 24: Consumer survey: the importance attached to ""being seen with the right brand"" in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 25: Consumer survey: the relative influence of brand image and habit/price on consumers' choice of alcoholic drink products, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 26: Consumer survey: the relative influence of taste/flavor and scent/aroma on consumers' choice of alcoholic drink products, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 27: Consumer survey: the relative influence of food pairing on consumers' choice of alcoholic drink products, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 28: Consumer survey: the relative influence of refreshment on consumers' choice of alcoholic drink products, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 29: Consumer survey: the relative influence of convenience on consumers' choice of alcoholic drink products, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 30: Consumer survey: the relative influence of knowing the ingredients used in formulation on consumers' choice of alcoholic drink products, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 31: Consumer survey: the relative influence of whether products are locally produced on consumers' choice of alcoholic drink products, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 32: Consumer survey: the relative influence of ethics or sustainability benefits on consumers' choice of alcoholic drink products, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 33: Consumer survey: the relative influence of organic or natural ingredients on consumers' choice of alcoholic drink products, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 34: Consumer survey: the importance consumers attach to individuality and self-expression, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 35: Consumer survey: the importance consumers attach to using products and or services designed for their specific needs, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 36: Consumer survey: the importance consumers attach to accumulating material possessions or wealth and being seen with the right brand, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 37: Consumer survey: agreement with the statement, ""it is difficult to manage my daily obligations and find time to relax"", in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 38: Consumer survey: the extent to which individuals ""enjoyed small indulgences to escape the pressures of everyday life"" in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 39: Consumer survey: the importance consumers attach to brands which match their attitudes and outlook on life, in 15 countries across Europe, Asia Pacific, South America and the US, by country, 2008; Table 40: Whiskey market value (US$m) and market share (%), US & Europe*, 2003-06; Table 41: Wine market value (US$m) and market share (%), US & Europe, 2003-06
List of Figures: Figure 1: Premium drinks brands face challenges from economic, consumer and channel dynamics trends; Figure 2: Relative income/wealth influences the consumer response; Figure 3: The 'democratization of luxury' is both an opportunity and a threat for luxury/premium alcoholic beverage brands; Figure 4: Good value for money has become the most important influence over grocery store choice globally; Figure 5: Consumers are feeling the effects of the downturn on their personal finances; Figure 6: European and American citizens have made fewer visits to out-of-home establishments in 2008; Figure 7: There appears to have been some trading down in purchases made in the on-trade in 2008; Figure 8: In the current economic uncertainty, consumers are increasingly choosing higher quality alcoholic drinks for at-home consumption; Figure 9: UK pub closures are most visible in urban areas; Figure 10: Fewer on-trade visits potentially hamper the market premium alcoholic drinks brands; Figure 11: Manufacturers looking to capitalize of premiumization in alcoholic beverages must excel more than their competitors in the provision of factors associated with the Premium Price Index (PPI); Figure 12: Packaging design plays a big part in shaping quality expectations; Figure 13: Sensory attributes influence consumers' emotional response, which is an important part of determining product choice; Figure 14: Refreshment is expected to become a more important competitive platform across alcoholic drinks' categories; Figure 15: Magners' time-related positioning has been instrumental in its success; Figure 16: Individuals across the globe are placing more importance on experiences than material wealth; Figure 17: Experiential consumption is becoming more popular; Figure 18: Consumers will pay a premium for authenticity as they seek to 're-connect with the real'; Figure 19: Four key personal benefits as well as the additional ease of customizing have driven the trend toward more personalized consumer packaged goods; Figure 20: Customization is a limited but potentially appealing option in alcoholic drinks; Figure 21: The importance global consumers place on ""being seen with the right brand"" diminishes with age; Figure 22: Status and conspicuousness offer two radically different types of consumption; Figure 23: Environmentalism is not just hip, it also has genuine luxury value; Figure 24: Enjoying small indulgences to escape everyday pressures has remained a theme in global consumer behavior in 2008; Figure 25: A consumers' self concept is multidimensional and will be heavily influenced by cultural differences; Figure 26: Identity based consumption is driven by the importance that shoppers place on 'brand attitude'; Figure 27: Younger consumers report trading up with greater regularity in both the off-trade and on-trade; Figure 28: Social media offers a potentially cost effective platform to measuring brand perception; Figure 29: Manufacturers must excel more than their competitors in the provision of factors associated with the Premium Price Index (PPI) to develop winning luxury/premium brands; Figure 30: Forsaken pleasure is also linked with regret and premium alcoholic beverage players can leverage this marketing communications; Figure 31: Quality ingredients make for a quality premium drink; Figure 32: Intricate processes are key to the recent appeal of premium vodkas; Figure 33: Heritage is a prime differentiator in the whisky category; Figure 34: Innovative closure technologies should gain popularity in the wine category; Figure 35: Unique packaging with custom design and content is a premium differentiator; Figure 36: True luxury is a goal worth chasing for premium brands; Figure 37: Gourmet tasting experiences are an appealing product combination for premium occasions; Figure 38: A no-compromises approach to quality must be supported by marketing tactics that help consumers make more informed decisions; Figure 39: Becks's Vier taps into the notion of extended self to position its innovative product; Figure 40: Ladybank Distillery whisky offers an augmented product few can match; Figure 41: Corona and Belvedere have used different approaches to link consumption with a broader experience; Figure 42: Confectionery-based indulgence already exists in the spirits category; Figure 43: Quality time is an important marketing message for premium drinks; Figure 44: Deeper brand interaction can enhance willingness to pay price premiums; Figure 45: Heineken is encouraging premiumization in the off-trade by supporting ""the ultimate home draught beer experience""

Opportunities in Premium Alcoholic Drinks: Trading Up Trends

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