Opportunities in Premium Alcoholic Drinks: Trading Up Trends

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).

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
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Overview 1
Catalyst 1
Summary 1
Table of figures 3
Table of tables 4
THE FUTURE DECODED 5
INTRODUCTION: A number of factors are influencing premiumization in alcoholic drinks 5
TREND: Economic conditions and the growing 'mass class' have a major impact on trading up and luxury purchases in alcoholic drinks 7
Favorable economic conditions have led to up-trading in alcoholic drinks among mass market consumers 7
Consumers' trading up has not fully offset weakening volume of alcohol consumption 8
The number of high net worth individuals (HNWI) is growing steadily worldwide and is a driving force behind high-end alcohol purchases 10
There are more mass affluent individuals but the rate of growth is slower than among HNWI 12
Higher income shoppers are less likely to shop on a budget 15
It is important to not be complacent even if you are targeting core luxury shoppers 15
Higher income consumers account for a higher proportion of alcohol drinks spend on a regional and category basis 16
Key takeouts and implications: a growing economy has facilitated premiumization in alcoholic beverage choices, but the current downturn threatens to limit growth 18
TREND: The search for value is widespread especially since luxury/premium products have become more accessible 19
Luxury/premium is becoming more relevant to mass-market consumers leading to higher expectations 19
Additional access to better quality products has created a sense of entitlement among many consumers 21
Price-led value is a hugely important factor in purchase decisions and store selection 21
Price and, to a lesser extent, promotions, are important determinants of alcoholic drinks' choices 22
Consumers are generally highly conscious of the amount of money spent on alcohol 25
'Bargain hunting' gives consumers a sense of satisfaction and increasingly has status value in a recessionary environment 26
Consumers are feeling the effects of the downturn on their personal finances 28
Rapidly declining consumer confidence will further re-enforce the allure of 'good value' but does not necessarily equate to wholesale changes in FMCG consumption 29
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 34
TREND: Connoisseurship and health considerations are key drivers of premiumization in alcoholic drinks 35
Consumers want to 'drink better' and this drives preferences shown towards upscale drinks 35
Health is also an important driver of premiumization - even in alcoholic drinks 36
Key takeouts and implications: consumer discernment and concern for health is boosting premiumization in alcoholic drinks markets 39
TREND: Premiumization in alcoholic drinks should sustain as consumers look to maintain consumption of affordable indulgences 40
Anecdotal evidence currently indicates that premium alcohol consumption is holding relatively strong 40
In the current downturn premiumization is more apparent in off-trade consumption 43
Industry players must reconsider how to leverage premium brands as the on-trade environment stagnates 46
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 48
INSIGHT: Premiumization is influenced by the consumers' emotional involvement with the product and a number of important product characteristics 50
Premium is still a high price related to extraordinary factors perceived and experienced by consumers 50
Consumers are skeptical of the product quality benefits offered by premium/luxury brands 51
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 52
INSIGHT: Packaging is the most pertinent extrinsic quality cue and can significantly impact consumers' quality judgments of alcoholic beverages 52
Packaging creates and enhances product positioning and creates preconceptions of quality standards 53
Product appearance judgments can also be influenced by the retail outlet from which it is purchased 55
Brand name can be an important quality cue driving premium alcoholic beverage perceptions but it is secondary to other considerations 56
Consumers' perception of 'premiumness' can also be influenced by the provision of product information including word of mouth 58
Consumers will anchor (positively or negatively depending on the context) their pricing perceptions against broader information 59
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 60
INSIGHT: Consumers' willingness to pay a price premium for alcoholic beverages will be significantly influenced by the overall sensory experience 60
Sensory benefits heavily influence consumers' alcoholic beverage preferences 60
Aligning alcoholic beverage products with food can help to enhance the premium status of products 63
Offering superior refreshment is likely to remain a key battleground for establishing premium credentials 64
Convenience is not major a route to premiumization in alcoholic drinks 65
Consumer trends indicate that more emotional rather than material forms of consumption may be emerging as consumers become more pre-occupied by experiences 67
Key takeouts and implications: experience based quality will become even more important in creating a luxury/premium positioning 70
INSIGHT: Credence quality influences product trust, acceptance, involvement and willingness to pay for premium alcoholic beverages 71
Details surrounding ingredients and production methods are particularly important in helping to establish a premium alcoholic beverage offering 71
For many luxury/premium products, there is often a cachet associated with being produced in a particular region 72
Growing interest in authenticity and provenance means new possibilities and threats exist for brand development 73
Ethical considerations are not as important to alcoholic drinks as they can be to other product markets 74
Key takeouts and implications: 'credence quality' reflects myriad consumer trends impacting consumer markets in general, not just in the alcoholic beverage industry 77
INSIGHT: Uniqueness and specificity is equated with quality and brand cachet as well as the emerging needs of 'Generation C' 77
Premium alcoholic beverage consumers want products that are unique and evoke expressive individuality 78
A commonplace way to ensure uniqueness in any product market is to raise prices 79
'Premium fatigue' is a threat as consumer expectations continually increase in line with market dynamics 79
Individuals are looking for more customization possibilities and opportunities for self-expression 79
Key takeouts and implications: uniqueness is the essence of luxury so enhancing the perceived exclusivity is vital in establishing a premium positioning 82
INSIGHT: Many consumers will pay more for alcoholic beverages satisfying status needs 83
Two similar but distinct patterns of consumption characterize image conscious consumers: 'status consumption' and 'conspicuous consumption' 83
Ethical/sustainability led consumption behavior increasingly has status value 87
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 88
INSIGHT: Hedonism is a major driver of trading up which means brands must leverage hedonic benefits of alcoholic beverage consumption 89
Pleasure is highly linked with emotions and emotions are linked to loyalty and WTP price premiums 89
Satisfying alcoholic beverage consumers' desire for enjoyment and pleasure is best served through multi-sensory marketing tactics 89
Research indicates that consumers associate higher priced products with additional pleasure 90
Pleasure is also linked with regret which is something luxury/premium marketers can leverage 90
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 90
Key takeouts and implications: linking alcoholic beverage products with escapism and indulgence adds another dimension to products especially in a recessionary environment 92
INSIGHT: Consumers are more likely to pay a premium for brands re-enforcing their self identify 93
A consumers' self concept is multidimensional and will be heavily influenced by cultural differences 93
Consumers use consumption as a means to express their values and beliefs 95
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 96
INSIGHT: Premiumization in alcoholic drinks is a trend with a broad demographic reach 96
Older consumers have considerable personal wealth which makes them a potentially important target group for premium products 96
Evidence exists to support the idea that consumers across all age cohorts are also trading up in alcoholic drinks' consumption 98
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 100
ACTION POINTS 101
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 101
Use Datamonitor's Premium Price Index (PPI) to help frame your market and consumer assessment 102
Embrace new strategies in recognition that some alcoholic beverage consumers are going to trade down 103
ACTION: Adopt a 'no-compromises' approach to product quality through formulation and positioning of a premium alcoholic beverage brand 105
Use ingredient quality and processes as a key point of differentiation 106
Leverage heritage and tradition credentials wherever possible 108
...but also pursue opportunities to embrace new technologies 109
Use packaging to show the difference between premium brands and imitators and to enhance the sensory credentials of brands 110
Expand core product and emphasize discernment with broader marketing efforts 112
Continually update and inflate the premium crednetials of your flagship premium alcoholic beverage brands 113
Educate consumers to help them recognize and switch to better quality products 114
ACTION: Continually explore avenues for emphasizing the uniqueness of a premium proposition 115
Ensure that a luxury/premium brand has an identity that is consistent with a target consumers' self concept 116
Give consumers and professionals opportunities to express themselves through participative products and services 117
Restrict distribution and maintain high pricing to ensure that premium products do not attract undesirable consumers 118
Use ingredients that provide a unque and compelling taste profile as well as an interesting marketing story 119
Seek out aquisition opportunities for niche, premium brands 119
ACTION: Emphasize the experience associated with a brand's premium credentials 119
Encourage consumers to consider a premium alcoholic beverage product occasion as a special time 119
Give consumers the opportunity to interact more deeply with alcoholic beverages 122
Create short or long-term brand rituals to re-emphasize there is something different 123
ACTION: Use the downturn as an opportunity to leverage premiumization in the off-trade 124
Target the fact that consumers may entertain at home more, either with formal or informal gatherings 125
ACTION: Maintain marketing spend, especially in the current recessionary environment, to justify premium prices 126
Maintain advertising efforts to help maintain differentiation of premium branded alcoholic beverage products 127
The nuance of the premium beverage advertising message might have to change during this period of economic uncertainty 127
Be wary of over-reliance on price reductions 128
Maintain a strong focus on innovation and R&D during times of economic uncertainty 128
Use Datamonitor's strategic reports outlining the key innovation opportunities that arise from consumer mega-trends 129
ACTION: Look for opportunities to extend pre-existing products or launch new premium products into emerging markets 129
Use acquisitions and alliances as a means of improving local market understanding 130
Do not assume emerging market consumers to be a large homogenous group and expect some growth setbacks 130
Use local personalities as brand spokespeople when expanding into the emerging markets 131
Release products in smaller sizes with correspondingly smaller price tags to target the lower incomes apparent in the emerging markets 132
APPENDIX 133
Definitions 133
Methodology 133
Further reading and references 134
Ask the analyst 139
Datamonitor consulting 139
Disclaimer 139
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Table 1: Per capita GDP, constant, ($), 1995 prices by country, Asia Pacific, Europe and US, 2002-2012 8
Table 2: Alcoholic drinks spending as percentage of Gross Domestic Product (GDP), by country, Asia Pacific, Europe and US, 2002-2012 9
Table 3: Alcoholic drinks spending as percentage of Private Final Consumption Expenditure (PFCE), by country, Asia Pacific, Europe and US, 2002-2012 10
Table 4: High net worth individuals (000s) (HNWI)* by country, Asia Pacific, Europe and the US, 2002-2012 11
Table 5: High net worth individuals (HNWI)* as a proportion of overall population by country, Asia Pacific, Europe and the US, 2002-2012 12
Table 6: Mass affluent individuals (000s) (MAI)* by country, Asia Pacific, Europe and the US, 2002-2012 13
Table 7: Mass affluent individuals (MAI)* as a proportion of overall population by country, Asia Pacific, Europe and the US, 2002-2012 14
Table 8: Total market value of all alcoholic beverages consumption accounted for by Income Quintile (US$ millions), by region, 2007 16
Table 9: Total market value of all beer consumption accounted for by Income Quintile (US$ millions), by region, 2007 17
Table 10: Total market value of all wine consumption accounted for by Income Quintile (US$ millions), by region, 2007 17
Table 11: Total market value of all spirits consumption accounted for by Income Quintile (US$ millions), by region, 2007 17
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 23
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 24
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 24
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 25
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 26
Table 17: The percentage of consumers who seek discounts and express satisfaction from value, by country 27
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 28
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 37
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 38
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 38
Table 22: Consumer survey: : propensity to choose more higher quality alcoholic drinks in pubs, bars or restaurants over the past six months, 2008 44
Table 23: Consumer survey: propensity to choose more higher quality alcoholic drinks for at-home consumption over the past six months, 2008 45
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 57
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 58
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 62
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 63
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 64
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 66
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 72
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 73
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 76
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 76
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 78
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 81
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 86
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 91
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 91
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 95
Table 40: Whiskey market value (US$m) and market share (%), US & Europe*, 2003-06 97
Table 41: Wine market value (US$m) and market share (%), US & Europe, 2003-06 98
Figure 1: Premium drinks brands face challenges from economic, consumer and channel dynamics trends 6
Figure 2: Relative income/wealth influences the consumer response 19
Figure 3: The 'democratization of luxury' is both an opportunity and a threat for luxury/premium alcoholic beverage brands 20
Figure 4: Good value for money has become the most important influence over grocery store choice globally 22
Figure 5: Consumers are feeling the effects of the downturn on their personal finances 29
Figure 6: European and American citizens have made fewer visits to out-of-home establishments in 2008 43
Figure 7: There appears to have been some trading down in purchases made in the on-trade in 2008 45
Figure 8: In the current economic uncertainty, consumers are increasingly choosing higher quality alcoholic drinks for at-home consumption 46
Figure 9: UK pub closures are most visible in urban areas 47
Figure 10: Fewer on-trade visits potentially hamper the market premium alcoholic drinks brands 48
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) 51
Figure 12: Packaging design plays a big part in shaping quality expectations 55
Figure 13: Sensory attributes influence consumers' emotional response, which is an important part of determining product choice 61
Figure 14: Refreshment is expected to become a more important competitive platform across alcoholic drinks' categories 65
Figure 15: Magners' time-related positioning has been instrumental in its success 67
Figure 16: Individuals across the globe are placing more importance on experiences than material wealth 68
Figure 17: Experiential consumption is becoming more popular 70
Figure 18: Consumers will pay a premium for authenticity as they seek to 're-connect with the real' 74
Figure 19: Four key personal benefits as well as the additional ease of customizing have driven the trend toward more personalized consumer packaged goods 81
Figure 20: Customization is a limited but potentially appealing option in alcoholic drinks 82
Figure 21: The importance global consumers place on ""being seen with the right brand"" diminishes with age 85
Figure 22: Status and conspicuousness offer two radically different types of consumption 85
Figure 23: Environmentalism is not just hip, it also has genuine luxury value 88
Figure 24: Enjoying small indulgences to escape everyday pressures has remained a theme in global consumer behavior in 2008 92
Figure 25: A consumers' self concept is multidimensional and will be heavily influenced by cultural differences 94
Figure 26: Identity based consumption is driven by the importance that shoppers place on 'brand attitude' 95
Figure 27: Younger consumers report trading up with greater regularity in both the off-trade and on-trade 100
Figure 28: Social media offers a potentially cost effective platform to measuring brand perception 102
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 103
Figure 30: Forsaken pleasure is also linked with regret and premium alcoholic beverage players can leverage this marketing communications 105
Figure 31: Quality ingredients make for a quality premium drink 106
Figure 32: Intricate processes are key to the recent appeal of premium vodkas 108
Figure 33: Heritage is a prime differentiator in the whisky category 108
Figure 34: Innovative closure technologies should gain popularity in the wine category 110
Figure 35: Unique packaging with custom design and content is a premium differentiator 111
Figure 36: True luxury is a goal worth chasing for premium brands 112
Figure 37: Gourmet tasting experiences are an appealing product combination for premium occasions 113
Figure 38: A no-compromises approach to quality must be supported by marketing tactics that help consumers make more informed decisions 115
Figure 39: Becks's Vier taps into the notion of extended self to position its innovative product 117
Figure 40: Ladybank Distillery whisky offers an augmented product few can match 118
Figure 41: Corona and Belvedere have used different approaches to link consumption with a broader experience 120
Figure 42: Confectionery-based indulgence already exists in the spirits category 121
Figure 43: Quality time is an important marketing message for premium drinks 122
Figure 44: Deeper brand interaction can enhance willingness to pay price premiums 123
Figure 45: Heineken is encouraging premiumization in the off-trade by supporting ""the ultimate home draught beer experience"" 125
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