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Minimum Pricing on Beer

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The government, which is soon to publish its alcohol strategy, has agreed to set a minimum price on alcohol, indicated at around 40p per unit, in all supermarkets. We have reviewed the lines that are currently sold to understand how pricing in Beer, Lager and Cider may be affected by this change.

Do branded products have much to worry about?

As of 12th April, 8% of products in the category currently have a base price (non-promoted) below 40p per unit, over one-third of them own label. The chart below highlights the average price (in pence) per unit in Tesco, Asda, Sainsbury’s and Waitrose for all products within a number of key brands.

Although Tennents, Stella 4% and Strongbow’s products are, on average, above the minimum price per unit, they are most at risk of having to change their pricing as a result of the new laws. All three brands currently have products below 40p per unit, with Strongbow having half of its product range sitting below the threshold.

Although the brands in the next band (with a price per unit between 50-60p) do not have any products below the required limit, it may affect their promotional strategy. For example, Budweiser, despite having an average cost per unit at over 55p, has a third of its product range sitting under 50p per unit. Over the last 90 days, the average depth of cut of promotions in the category has been 20.7%, which means if Budweiser were to run a promotion at this saving, one-third of its products would fall below 40p per unit.

Although Stella 4% and Strongbow’s products are, on average, above the minimum price per unit, they are most at risk of having to change their pricing as a result of the new laws. All three brands currently have products below 40p per unit, with Strongbow having half of its product range sitting below the threshold.

Although the brands in the next band (with a price per unit between 50-60p) do not have any products below the required limit, it may affect their promotional strategy. For example, Budweiser, despite having an average cost per unit at over 55p, has a third of its product range sitting under 50p per unit. Over the last 90 days, the average depth of cut of promotions in the category has been 20.7%, which means if Budweiser were to run a promotion at this saving, one-third of its products would fall below 40p per unit.

Will these brands increase their base price to entice customers with deeper (and possibly longer) promotions, or will the price remain consistent with shallower promotions? A staggering 12% of Multibuy promotions run in the last 90 days across the entire category would no longer be permitted under the new regulations, although the legislation may rule out all Multibuy deals.

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Which types of products will be most affected?

Some lager SKUs (almost exclusively own label) will need to adjust their pricing, but some products operating in the cider category will be hit hardest. Magners, Bulmers and Gaymers have a relatively high price per unit (all above 63.8p), with Kopparberg at 96.2p; however Strongbow, own label and other brands may have to significantly raise their prices. The chart below shows the current average base prices in blue with the change in price needed to meet the new laws for a range of 2 litre cider products. Some products will need a radical change in price or a reduction in alcohol content. It is unlikely that these brands will be able to compete with established premium brands at the higher price demanded by the new legislation.

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Factors Driving Price Increases

The minimum pricing legislation is the latest in a line of factors that have driven up the cost of alcohol. Following the VAT increase and the change in promotional laws in Scotland last year, the average price per unit for beer, lager and cider has risen sharply from less than 67p in January this year to nearly 71p on 17th April. Increasing raw material, energy and fuel costs were cited for price increases at the start of the year, with the changes in duty rates forcing the price per unit to rise. The minimum pricing legislation is set to increase the average price per unit over 71p and beyond.

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