The factors influencing the UK alcoholic drinks market

October 25, 2023

It’s been a rollercoaster couple of years for the UK alcoholic drinks market.

First Covid-19 restrictions saw sales drop drastically and rising prices have dampened demand since, but rising inflation means value sales are still up.

The market’s value was estimated at just under £52bn in 2022, having seen modest volume sales growth of 2.4% between 2017-2022, but value sales growth of 12.4% in the same period, according to Mintel*.

But while sales are up, cautious optimism is advised. Mintel forecasts that value sales will rise by 13% between 2022-2027, to £58.7bn, but that volume sales will fall in the same period, to 6.6bn litres*.

By understanding market trends and drivers drinks brands can continue to navigate these challenges – and create new opportunities.

Market drivers – slowed spending & rising rates

Even three years on, the UK alcoholic drinks market is yet to recover to pre-pandemic levels. While on-trade sales have been steadily recovering, they remain down on 2019 levels, hindered by the more recent cost-of-living crisis. And societal shifts since the lockdowns, such as the rise in hybrid and home working, have changed drinking trends, reducing midweek drinking occasions.

Drinking occasions have also been curbed by changing trends socially, with more and more young people opting to abstain from, or moderate, alcohol intake. And the decline in the population of 20-34-year-olds is a key consideration for the UK alcoholic drinks market in the coming years too, expected to further impede volume sales.

In the short term, volume sales are expected to continue falling as people prioritise saving. ‘Saving money’ is now cited as often as ‘improving health’ as a reason for cutting back on alcohol. However, where the alcohol moderation movement had been gaining momentum in recent years, suiting wellness trends, this now appears to be slowing as people appreciate the emotional boost of alcoholic drinks as an affordable little luxury instead.

Recent changes to alcohol duty rates are now likely to have an impact on buying habits. Following the rates freeze between 2020-22, the changes have pushed up prices of higher ABV drinks like spirits and wines. While this could work well for value sales, it is likely to dampen volume sales. However, the Draught Relief Scheme could counterbalance this. This change is intended to level the playing field between the pub sector and retail outlets by decreasing the price differential between the two.

Pubs are particularly at risk in the UK alcoholic drinks market, facing competing cost pressures around energy, labour, and business rates alike.

For the businesses still surviving, consumer’s limited spending power has created pressure for price promotions, as shoppers seek to be ‘savvy’ with their purchases. This adds extra pressure for drinks brands, already contending with higher ingredient and production costs.

Opportunities – own-label, at-home, craft & new products

Nevertheless, there are still plenty of opportunities for the UK alcoholic drinks market.

As drinkers seek to economise, lower-priced own-label brands are at an advantage. Around one-third (34%) of alcohol buyers switched from brands to own-label in the first three months of 2023*. This is reflective of how brand loyalty to alcoholic drinks is low, so differentiation in the drinks market is an important factor for standing out.

Premium products offer their own advantages too, as shoppers opt for at-home drinking as a more affordable alternative to going out.  Sales of craft/premium alcoholic drinks are actually up since the pandemic, with 27% of all buyers buying more of these since 2020, and 41% of younger drinkers (18-34yos)*.

Promoting the value of off-trade, shop-bought alcoholic drinks for at-home occasions and developing new offerings in smaller or RTD formats, typically with more attractive price points, can build on these trends.

Additionally, the development of low and no-ABV products will suit the alcohol moderation trend while also avoiding the impact of higher alcohol duty rates.

Motivators – relaxation & celebrations

To best navigate these drivers in the UK alcoholic drinks market, getting clear on consumers’ motivators for choosing products is key.

Alcoholic drinks are emotion- and occasion-led discretionary goods. They are sought out for both relaxation and celebrations.

drinking occasions

Three-in-five adults drink to relax and 53% drink to treat themselves, according to research from Mintel and Kantar*. In the current climate, both economically and socially, positioning drinks as an ideal accompaniment to relaxing evenings at home or as an affordable treat will speak to these types of drinkers. As well as being perfect for big occasions, drinks could be positioned as ideal for the little wins in life too.

For the rising numbers of at-home drinkers, alcoholic drinks like spirits and liqueurs suit the well-established DIY cocktail-making trend, as drinkers seek to economically recreate the experience of on-trade made drinks.

To encourage at-home drinking, drinks brands could explore opportunities for cross promotions, with drinks suited to certain snacks, or even elevating the enjoyment of new or popular TV series. Winemaker Wolf Blass did this with a Cabernet Shiraz linked to the TV series The House of the Dragon, while Sadler’s Ales has both a gin and a whiskey named after the popular Peaky Blinders series.

Trends & Opportunities in the UK alcoholic drinks market – NoLo, wow factor & full flavours

These market factors are already influencing drinks trends too.

alcohol free beer

Suiting the new duty rates and the alcohol moderation trend, new NoLo drinks are being launched. Lower ABV or 0% beers, wines and spirits are increasingly aimed at younger drinkers, who typically tend towards alcohol moderation trends.

snow globe

Drink brands are also increasingly recognising the added value of giving their products the ‘wow factor’.  Offerings with aesthetic appeal – like glitter-filled spirits, light-up bottles, or gift sets – are particularly well suited to seasonal launches, helping shoppers find attractive yet affordable gifts to give.

Aligning with wider drinks trends around sustainability is also a way to retain interest and loyalty from drinkers. From spirits in cardboard bottles to wines in salvaged plastics, sustainable packaging is being used to appeal to eco-conscious shoppers and demonstrate brands’ wider values. Drink brands are also introducing refillable receptacles, drinks made using surplus ingredients, or production methods powered by renewable technologies.

Of course, flavour is key to any drink, established or new; whether as an instantly recognisable flavour, or a more unusual creation. Sweet and savoury flavours alike are helping drink brands to differentiate in the face of market challenges, as well as reach different consumer types. Fruit-flavoured beers and pastry-inspired ales are helping these segments reach younger drinkers, while savoury flavours for spirits are working to retain the interest of older drinkers.

familiar flavoured alcoholic drinks

Familiar flavours are important to more than two-thirds of drinkers (69%)*, emphasising the importance of both good flavours and clear communication about them to buyers. Seizing on this and offering flavour pointers as people buy alcoholic drinks, online or in-store, can highlight flavours and differentiate products.

Engaging with consumers to offer opportunities to receive recommended products based on their favourite flavours is another way to attract buyers. Online surveys could engage directly with consumers while links or partnerships with existing retailer loyalty schemes would allow drinks brands to offer tailored recommendations of products suited to produce already being bought, or similar to previous purchases.

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*Mintel, Alcoholic Drinks Review UK, 2023

** Image source: Trendhub The Food People 2023

 

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