An Environmental Analysis of the UK Market: Alcohol Brands - Case Study Example

3. Overview of the alcopops sector Ready-mixed alcoholic beverages have seen sales sliding and Sunderland’s Alcohol Brands is entering the flavoured alcoholic beverages (FAB) market or introducing the alcopops. Alcohol Brands produces raspberry and blueberry alcopops “Pink” and “Blue” and is now joining hands with Glasgow Company VodkaPom to capture the market share of alcopops in the UK (Knox, 2009). They expect to introduce Vodka with pomegranate juice and expect it to be a hit with the club goers nationally. However, sales of the FABs have dropped in the past five years as the enthusiasm for alcopops has waned (Watson, 2009). The FAB market had peaked in the mid to late 1990s but during 2004-2008 it had been the worst performing sector in the UK food and drinks industry. Well known brands such as WKD, Smirnoff ice, Bacardi Breezer, Red Square and VK have all suffered in the past few years. The sales have declined by over 9% in 2008 over the previous year and since 2004 the market vale has decreased by over 46 percent. 3.1 Environmental analysis A firm must be able to exploit the information horizontally and vertically. The strategic priorities need to be identified and the strengths and constraints evaluated. It also helps to differentiate between threats and opportunities. The resources of the company have to be assessed in comparison to the others in the industry and this information would help change the marketing strategy. A SWOT analysis would reveal the reputation of alcopops in the market place along with the weaknesses, the opportunities and threats that face the sector. 3.1.1 Strengths While beer sales have dropped worldwide, the sale of alcopop has risen dramatically. The sweetness of the alcopops appeals to the younger drinkers rather than the taste of beer and wine (Global Oneness, 2009). The sale of alcohol has gone up beyond the sales of cider and lager. The number of drinkers may not have increased but the amount consumed in one evening has increased. Females form a large section of the population that consumes alcopops. These drinks appeal to a large section of the youth as the packaging makes them attractive and they are easier to take it down. New types of bars and venues are being opened to attract the youth and the women (Alcohol Issues, 2009). The youth culture has a wider choice of alcohol pops and alcoholic energy drink. Different types of promotions and sponsorships in music, film and sports have given an impetus to the alcopop sales. Price discounting is not favoured in this industry as it supports larger consumption (May, 2008). By promoting sensible drinking, responsible pricing structure is adhered to as price promotions in this sector is not encouraged. Alcopops have met with success because they carry the techno symbols and comic-like figures featured on the labels (Metzner & Kraus, 2007). The government is unable to raise the taxes on alcopops because they would have to increase the duties on spirits including whisky (Adams & Warwick-Ching, 2006). 3.1.2 Weakness Alcopops had entered the market targeting the underage drinkers but soon a code of practice was developed to monitor misuse (BBC News, 1998). The alcohol content in the alcopops is about 5 percent which is the equivalent of a bottle of strong lager disguised by a sweet taste. The 11-15 year olds consume a huge amount of alcopops. The alcopops industry is constantly reviewed by the industry watchdog The Portman Group for attracting young drinkers (Knox, 2009). Alcohol Brands uses prominent music venues to advertise their products as these venues are popular with the youngsters. Consolidation is coming into the industry due to over capacity. The market is unable to sustain the high rate of growth according to a Mintel Report (Consumer Trends, 2003). Wine-based new products are entering the market and besides increased tax burden on alcopops will slow down the rate of growth in the alcopop industry. 3.1.3 Oppurtunities Seventy-seven percent of the teenage girls opt for alcopops (Hall, 2002). The market demands sweet drinks and this is what the manufacturers are catering to. Digital marketing provides newer avenues to reach the target audience more easily. Consumers are constantly looking for trendier products and Alcohol Brands has to be innovative in terms of flavours, colours and ingredients to sustain in the market. The product needs to have the right appeal specially with women because one in three drinkers in the UK are women (Consumer Trends, 2003). Usage of herbal ingredients such as ginseng and low-calorie versions should be introduced to overcome the blocks and barriers. 3.1.4 Threats While the manufacturers claim to target the 18-30 market, the Department of Health’s figures show that along with string cider, they are consumed by over 56% of the 11-12 year old drinkers (Hall, 2002). The Institute for Alcohol Studies calls it an epidemic of binge drinking. The industry watchdog, The Portman Group is against the industry’s use of the attractive packaging to lure the teenagers and the use of photos of under-25s in the advertisements (Hall, 2002). Alcohol related illness is costing the NHS £2.9bn and that cirrhosis is striking women 20 years earlier than usual. Alcopops are considered to be responsible for this. Ban on advertising, restricted hours of serving the alcopops, increased prices and increased funding for educating the public on the issue has been proposed. Children under 18 have been found to have their hearts affected. Britain has the highest number of teenagers that drink alcohol in the whole of Europe. Alcohol advertising is governed by a combination of legislation and self-regulation (Alcohol Issues, 2009). The marketing of drinks has become sensitive to cultural trends in the UK in recent years. Responsible marketing has been challenged by the authorities. Companies have been advised to stay within the codes laid down (Just-Drinks, 2009). Tweeting should be done only to followers that are over the age of 18 and this has to be confirmed in advance. Codes have been laid down for naming, packaging, brand websites, sponsorships and sampling. Seventy new FABs were launched in 2003 alone which has saturated the UK market (Consumer Trends, 2003). 3.1.5 Environment analysis A study of the alcopop sector in the UK shows that there has been a steady waning of interest in the drink for the past five years. This could be due to regular tightening of codes by the government, increasing of taxes and restrictions on advertising. However, the scope is tremendous because even though the manufacturers target the 18-30 segments, most of the drinkers belong to the 11-15 year olds. These drinks do not have the pungent taste like the raw drinks which makes it easier for the teenagers to gulp it down. Despite efforts, the government has not been able to increase the taxes on alcopops which helps to keep the pricing reasonable. Price discounts do not work in the sector which gives a fair profit margin to the manufacturers. However, consolidation has been taking place in the industry due to over saturation. Wine-based new products are also entering the market which is expected to affect the growth of the alcopop market. Under the circumstances, Alcohol Brands should look out for opportunities in other countries within Europe to market its products along with the UK. Besides, they have to be constantly innovating in terms of product flavour, mode of advertising, taste, colour and packaging to sustain the interest of the target segment. 4. International marketing International marketing requires taking into consideration the micro and the macro factors in the other nations. These factors include the cultural factors, the consumer needs, the government regulations or trade barriers. Sale of alcohol is subject to restrictions in most EU countries through licences and the places where alcohol can be sold are restricted (Alcoholineu, 2006). There are restrictions on the hours of sale and even the days of sale. 4.1 Marketing in Germany 4.1.1 Demographics Germany, with a population of 82,329,758 has a reputation of being industrious, thrifty and orderly (Country Reports, 2009). It is located in the center of Europe and is the largest market in the EU. Most Germans are well educated and there are no sub-cultures within Germany. 4.1.2 Economy Germany has a powerful economy, as it is the fifth largest in the world. The currency code is EURO which reduces the risks in the exchange rate for trading within Europe. 4.1.3 German culture connected to drinks The European children in general have exposure to alcohol much earlier than American children and it is with the approval of parents (Addiction Search, 2008). In Germany the legal drinking age is sixteen. However, the new legislation in Germany will make it illegal to sell alcopops to under-18s (UCL, 2005). Seventy percent of Germans drink alcohol on a regular basis (Business Wire, 2006). 4.1.4 Government regulations Germany has imposed an extra €0.83 per 275ml bottle of alcopop effective 1st August 2004 (Alcoholineu, 2006). Based on a survey the German government found that the consumption of spirit based alcopops had dropped between 2004 and 2005 and there was no simultaneous increase of any other drink as a substitute. There was a decline of 75% in the consumption of alcopops after the tax was imposed. Various studies including the AC Nielson Report and the World Drinks Report confirm the drop in sales due to tax imposition. 4.1.5 Market prospects – alcopops Despite declining sales, Germany is among the European countries that still dominate the FAB market (Mosher & Johnsson, 2005). More and more consumers in Germany are drinking the FABs and FABs appear to be staying because the youth looks for different taste experiences (Beverage Daily, 2003). Thus FAB in Germany is an integral part of the drinks market. In terms of value FAB represented only 1.94 percent but the industry is poised for growth in Germany. Breweries are trying to diversify their product range as interest in beer has waned in Germany. The FABs are being marketed as based on beer. Premixed spirits have entered the $456 million FAB market and beers mixed with cola or fruits are gaining popularity. In Germany the alcopops brand Hooch has a fruit wine base (Mosher & Johnsson, 2005). Hence the drink in every country has to be tailored according to consumer preferences. 4.1.6 Marketing strategy – recommended According to Dunning’s eclectic paradigm – the OLI – ownership, location and internalization – guides the investor in the entry mode (Habib & Zurawicki, 2002). As far as ownership is concerned, Alcohol Brands should enter Germany through joint venture with local retailer or dealer in alcoholic beverages. This would assist in the local knowledge and language which influences the other marketing decisions. Culture differences in joint ventures can influence the outcome of the joint venture (Pothukuchi, Damanpour, Choi, Chen & Park, 2002). It also ensures the compliance with government regulations. Most important is the ownership as the O and I are based on the firm-specific resources. Competition would be stiff but the right marketing strategy can see the company through. Government legislation has hiked the taxes which has made the product expensive for the teenagers. At the same time, the age limit for such products has also been increased to 18. Thus, the strategy can be devised accordingly. Alcohol Brands should have the adaptation strategy which implies that they should adapt to the changing customer preferences in Germany. Germans are fond of good eating and when they think of sausages, they think of beer to go with it. Hence, when Alcohol Brands markets its alcopops in Germany, they could introduce it at the stores and pubs where sausages and other food items are sold. Advertising and packaging play a vital role in attracting the customers. Blue is the most preferred colour among the Germans and yellow the least preferred (Dittmar, 2001). Hence the colour of the alcopop should be blue at least at the entry stage and then it could be changed once the brand is established. Packaging should be an attractive mix of blue and red, which is their second choice of colour. Germans are very fond of music and hence sponsorships of musical events should be undertaken to create the brand awareness. To attract the youth, they would also have to go in for extensive promotional ventures. They can promote it as an alcoholic energy drink and hence it could be served after a workout in the evening at clubs and bars. Special discounts and promotional offers should be given for private parties. On holidays special pricing could be determined. Pricing should not be too low because it dilutes the brand image. At the same time it has to be competitive and at par with the prevailing market rates. However, differential pricing should be considered. The internet and the digital marketing should be exploited to introduce and create awareness of the product in Germany. The product should have a beer base because Germans are fond of beer and flavoured with fruit juice would give it a quick start. There is a culture of drinking in Germany which had only temporarily reduced when the taxes were increased. This is usually an emotional decision which does not last long. Hence, Alcohol Brands has very strong market potential in Germany. 5. Conclusion Alcohol Brands has been seeing declining sales in the UK due to various reasons. The local government has been trying to create awareness of the harmful effects on the youth. Besides, there are too many manufacturers that have led to over saturation of the market. Under the circumstances, the company can think of Germany as a prospective market where the culture of drinking is very strong. Germans are fond of good food and good music and if these can be accompanies by alocopops, Alcohol Brands can expect to stimulate the demand and ensure profits. The product, pricing, the promotion and the distribution should be as per the local country requirements and culture. Despite the increase in taxes by the Government in Germany, it is possible to create a new segment and market the alcopop brand successfully. References Adams, C., & Warwick-Ching, L. (2006). Chancellor rebuffs alcopop tax request LIQUOR DUTIES. Financial Times. London (UK): Oct 27, 2006. pg. 2 Addiction Search. (2008). Binge Drinking. Retrieved online 3o October 2009 from http://www.addictionsearch.com/treatment_articles/article/binge-drinking_44.html Alcohol Issues. (2009). Alcohol and Links With Marketing. Retrieved online 29 October 2009 from http://www.alcoholissues.co.uk/alcohol-marketing-strategies.html Alcoholineu. (2006). Policy in countries. Chapter 9 – Alcohol policy in the countries of Europe. Retrieved online 31 October 2009 from http://ec.europa.eu/health-eu/doc/alcoholineu_chap9_en.pdf BBC News. (1998). UK Alcopops firms rapped by watchdog. Retrieved online 30 October 2009 from http://news.bbc.co.uk/2/hi/uk_news/196395.stm Beverage Daily. (2003). FAB-ulous growth for European alcopops. Retrieved online 29 October 2009 from http://www.beveragedaily.com/Industry-Markets/FAB-ulous-growth-for-European-alcopops Business Wire. (2006). In the UK Expenditure on Alcoholic Drinks Totals GBP 38 Billion, with Beer Accounting for 70%...Retrieved online 30 October 2009 from http://www.allbusiness.com/marketing-advertising/marketing-advertising-measures/5449353-1.html Consumer Trends. (2003). Hooch is axed, but alcopops live on. Retrieved online 31 October 2009 from http://www.foodanddrinkeurope.com/Consumer-Trends/Hooch-is-axed-but-alcopops-live-on Country Reports. (2009). Germany — Population Demographics. Retrieved online 30 October 2009 from http://www.countryreports.org/People/overview.aspx?countryid=91 Dittmar, M. (2001). Changing Colour Preferences with Ageing: A Comparative Study on Younger and Older Native Germans Aged 19-90 Years. Retrieved online 31 October 2009 http://content.karger.com/ProdukteDB/produkte.asp?Doi=52802 Global Oneness. (2009). Alcopop: Encyclopedia - Alcopop. Retrieved online 30 October 2009 from http://www.experiencefestival.com/a/Alcopop/id/1907147 Habib, M., & Zurawicki, L. (2002). Corruption and foreign direct investment. Journal of International Business Studies. Washington: Second Quarter 2002. Vol. 33, Iss. 2; pg. 291, 17 pgs Hall, S. (2002). New wave of sophisticated alcopops fuels teenage binge drinking. Retrieved online 31 October 2009 http://www.guardian.co.uk/society/2002/dec/14/drugsandalcohol.drugs1 Just-Drinks. (2009).UK: Portman Group publishes digital marketing guidance. Just-Drinks. Retrieved online 29 October 2009 from http://www.just-drinks.com/article.aspx?id=98858 Knox, C. (2009). New mix to put alcopops brand in dance venues. Retrieved online 31 October 2009 from http://www.nebusiness.co.uk/business-news/latest-business-news/2009/04/16/new-mix-to-put-alcopops-brand-in-dance-venues-51140-23396039/2/ May, M. (2008). Will binge drinkers now pay the price? Promotions & Incentives. London: Apr 2008. pg. 14, 2 pgs Metzner, C., & Kraus, L. (2007). THE IMPACT OF ALCOPOPS ON ADOLESCENT DRINKING: A LITERATURE REVIEW. Alcohol & Alcoholism. Retrieved online 31 October 2009 from http://alcalc.oxfordjournals.org/cgi/reprint/agm148v1 Mosher, J. F., & Johnsson, D. (2005). Flavored Alcoholic Beverages: An International Marketing Campaign That Targets Youth. Journal of Public Health Policy, 26 (3), 326-342 Pothukuchi, V., Damanpour, F., Choi, J., Chen, C. C., & Park, S. H. (2002). National and organizational culture differences and international joint venture performance. Journal of International Business Studies. Washington: Second Quarter 2002. Vol. 33, Iss. 2; pg. 243, 23 pgs UCL. (2005). German Legal News - Constitutional Law. Institute of Global Law. Retrieved online 30 October 2009 from http://www.ucl.ac.uk/laws/global_law/legal-news/german/index.shtml?constitution Watson, E. (2009). Alcopops and wine sales bomb, research indicates. Retrieved online 30 October 2009 from http://www.foodmanufacture.co.uk/news/fullstory.php/aid/9670/Alcopops_and_wine_sales_bomb,_research_indicates.html Read More