The market for flavoured alcoholic beverages (FABs) has been created in a relatively short space of time through the marketing efforts of a handful of brands, but a new report suggests that while the bubble is not yet about to burst, there will at least be some slowdown in sales growth in the future.
New data from Canadean, the drinks industry analysts, suggests that the global FAB market (including premixed spirits and wine coolers) has reached nearly 338 million 9 litres cases, growing by 27 per cent in 2002 alone.
What is so unusual about the phenomenal success of FABs is that it has come from just a handful of markets. The top three global markets for FABs - the US, Japan and the UK - registered growth of 50 per cent, 13 per cent and 26 per cent respectively last year alone, showing that the market is far from reaching saturation point.
But Canadean predicts that these current high rates of growth will slow 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," said Canadean. "The cost of entry for new products is correspondingly prohibitive. Diageo set the benchmark in 2001 with its $50m spend on Smirnoff Ice. 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."
This is not always a recipe for success, of course, as Diageo itself learned last year with the disastrous launch of Captain Morgan Gold, a rum-based premix. Despite the strength of the Captain Morgan brand, acquired by Diageo from Seagram in late 2000, the FAB version failed to appeal to drinkers, forcing Diageo - one of the true pioneers of the FAB market - to begin a humiliating (not to say costly) withdrawal.
That said, companies show no sign of slowing the rate of new product launches in the US, with many of the country's leading players (Brown-Forman, Anheuser-Busch, Miller Brewing, Skyy Vodka) already present in the market likely to be joined by many more, despite predictions of slowing growth.
Saturation of the market is also a risk in Japan, according to Canadean, 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, fierce price competition and heavy discounting by retailers will lead to reduced profitability for producers."
In the UK, flavoured alcoholic beverages have long since cast aside the underage drinking stigma of alcopops stigma (although it could be argued that without alcopops, the FAB sector in the UK would have taken a lot longer to get off the ground) and FABs are now the most profitable of all spirits categories there, according to the report. The market is now served by brands that are properly marketed and developed and, more importantly according to Canadean, have longevity.
The Canadean report looks at FAB sales in 15 markets worldwide, and comments on how the success of such products in the US, Japan and the UK has not always been matched in other countries, mainly due to a variety of local factors. In Finland, for example, they have failed to make a major impact due to the established pre-eminence of native alcoholic cider.
Meanwhile, 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 while in the US producers have targeted the highest per capita consumers of alcohol - drinkers aged 25-35 - the same age group in Germany has the most fickle tastes and least brand loyalty. It could also be due to the fact that many of the FAB brands in Germany are beer-based (such as the now ubiquitous beer and cola mixes like Dimix from Diebels) rather than spirit-based, and that the beer segment as a whole is in decline among younger drinkers.