The international market for flavoured alcoholic beverages has witnessed strong growth in recent years and despite a predicted dip the pace is set to continue in coming years, cites a new study from UK market analysts Canadean.
According to the report the international flavoured alcoholic beverages (FABs) market grew 27 per cent in 2002, expanding the sector by over 71 million 9 litres cases to nearly 338 million 9 litres cases. Sales in the world's three leading markets for FABs, the US, Japan and the UK notched up growth of an impressive 50 per cent, 13 and 26 per cent respectively.
But Canadean believes that these current high rates of growth will slow down over the medium term. By 2004, growth rates in the US and Japan are expected to slump to less than 1 per cent each, while that of the UK will stand at 12 per cent.
The stakes are high in the world's largest market, the US, which has volume sales more than twice those of its nearest rival, Japan, continues the report. The cost of entry for new products is correspondingly prohibitive. Diageo set the benchmark in 2001 with its $50 million spend on Smirnoff Ice.
The Canadean report maintains that this exercise showed that to quickly create a successful new product with significant volume requires not only a major brand, but also a strong distribution network and a significant marketing budget.
So important has the market for FABs now become, continues Canadean, that despite the prospect of slowing growth, a raft of new launches is expected within the next few months.
Saturation of the market is also a risk in Japan as one product is launched after another. The decline of beer sales has created an opportunity to entice more consumers to purchase drinks that have a modern image and are low in both alcohol and cost. However, warns the report, fierce price competition and heavy discounting by retailers will lead to reduced profitability for producers.
In the UK flavoured alcoholic beverages have become the most profitable of all spirits categories. The market is now served by brands that are properly marketed and developed and, in the opinion of the report's authors, have longevity.
Moving onto other countries, the report writes that despite their outstanding success in several national markets, local factors have hampered their development elsewhere. In Finland, for example, they have failed to make a major impact due to the established pre-eminence of native alcoholic cider.
In Germany volumes remained static in 2002 and are predicted to decline as domestic FABs continue to struggle. Part of the reason is said to be that whereas in the US producers have targeted the highest per capita consumers of alcohol - drinkers aged 25-35 - consumers of the same age group in Germany have more fickle tastes and the least brand loyalty.