Tuesday, 26 February 2013

Lies, Damned Lies etc

Statistics NZ yesterday released statistics showing that the volume of beer available for consumption had fallen dramatically in 2012. This has stirred the interest of Radio New Zealand in particular.

I had a closer look at some of the information given out by my one time employer. The most obvious detail was that the story was different when the market was segmented a little. In other words Stats give out numbers for four sub-categories based on alcohol strength. So there was a 22% fall for beer under 2.5%, falls of around 8% for the two bands between 2.5 and 5%. Then for beer over 5% ABV the volume of beer available rose 62%. That’s right 62%.

Now this has quickly been interpreted at (a) evidence that the popularity of beer is falling and (b) that the rise in stronger beer reflects greater popularity for the category of beer sometimes referred to as “craft”. And the spokesperson for the big breweries has been quick to blame the weather in 2012 for that apparent fall in popularity, even though it’s consistent with a long term trend.

Before any further discussion, it’s important to point out a few details about the process and the results.
  • The statistics are based on declarations made to NZ Customs. So they only reflect supply, not consumption and they exclude any alcohol that isn’t declared to Customs, such as homebrew. These discrepancies are probably insignificant if we assume that supply reflects demand and that home brewing is still a specialist activity.
  • That category of beer with alcohol greater than 5% apparently went from 8.956 million litres in 2011 to 14.468 million litres in 2012 – a 62% increase. But between 2005 and 2009 it fell from 24.510 million litres to 6.967 million litres. I was actually outside New Zealand during these years, but can't take credit for this scale of fall. So something is very fishy with this series. If anyone can explain this please post a comment. (There is a comment in the 2006 results saying “As the Beer Production Survey, which provided data on the volume of beer produced in New Zealand, was discontinued after the September 2006 quarter, information on volumes of beer by packaging type (bottled, canned, bulk) is no longer available.” But in theory this comment is irrelevant to this question of volume of beer over 5%.)
  • Another aspect of the survey is the calculation of what proportion of alcohol consumption comes from different beverage types. To do this they calculate how much actual alcohol has been present in the beer, wine and spirit volumes already tallied. In the case of beer, they multiply the volume of beer in each category by an alcohol percentage. For beer between 4.35% and 5% they multiply the volume by 0.04675, which makes reasonable sense. For beer greater than 5% they multiply the volume by 0.051. Huh? They treat all beer between 5% and 50% alcohol as being 5.1%. It’s only a small anomaly, since the volume of beer greater than 5% ABV is small (but probably growing), but it means that beer’s calculated share of alcohol consumption is under-stated, exaggerating the impression that beer is steadily losing popularity. The pity of this is that the method used is probably unnecessary. These statistics are based on Customs Certificates, which include the volume of beer and the volume of alcohol. (At least the ones Hashigo Zake submits do.)

Anyway, having looked for a few holes in these statistics I’d like to join everyone else in making a sweeping generalisation about the results:

DB and Lion’s sales are in free fall. (Punches air.)

Now we know that New Zealand’s major urban centres are becoming strongholds of brewpubs (Auckland), craft beer bars (Wellington) and breweries (Christchurch and increasingly Wellington). Meanwhile bars that are contractually tied to the big breweries are (anecdotally) counting the days until their contracts run out.
We know that Lion made Emerson’s owners an offer they couldn’t refuse and if the rumours are true DB, Lion and (In)dependent Breweries are racking up air miles looking for more small breweries to buy. And the big breweries are desperately building “faux craft” brands.

But this survey suggests that there will be fresh crisis meetings going on in boardrooms in Auckland. And the measures of the last six months will just be the tip of the iceberg. We can reasonably expect more of the usual:
  • more pressure on bars to stick to the letter of their exclusive supply contracts.
  • bigger incentives for bars to sign new exclusive supply contracts.
  • more use of volume targets with incentives and penalties in exclusive supply contracts.
  • more purchases of leading independent breweries.
  • more faux craft brands.

But what else will they resort to? More alcopop-like beers? More desperate marketing? Dirty tricks? Ultimately I wonder as well if DB’s and Lion’s owners will question the value of their investments and look to off-load them.

I can see one piece of good news for the big breweries. The new licensing laws are expected to impose big costs on bars and (in theory) a greater risk of being denied a liquor licence. I can see fear of the consequences of the new legislation driving more defensive hospitality operators back into the arms of the big breweries.

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