Low alcohol, high profits

This week drinks industry veteran Ian Buxton casts a sceptical eye over alcohol-free ‘spirits’ and asks whether the abstemious youth of today are being taken for a ride.

I’m troubled by the ‘yuff’, I really am. Now, before you write in or reach for the comment button, I do acknowledge that this is a function of my state of advanced gammon.  But really, consider the evidence: the Students Union bar at the University of Abertay is to close due to lack of demand. Apparently coffee is preferred to pints. This is in Dundee for goodness’ sake. Not the student life that I recall (or like to imagine that I can recall).  Another report suggests that undergraduate drinking is declining everywhere

Elsewhere, youthful nightclubbers in Kent are inhaling (oxymoron alert) ‘premium’ vodka mist from a balloon. This is foolish and must stop. Everyone knows that ‘premium’ vodka is merely packaging and, more importantly, vodka is best reserved for lighting barbeques and, in extremis, cleaning open wounds. It is not to be considered as a drink for adults.

But, to be serious for one moment, in fact everywhere we look an entire generation is turning its back on alcohol. According to recently released data from the International Alliance for Responsible Drinking (one imagines its annual conference must be one long party) in 63 nations studied over the past decade rates of underage drinking have plummeted. Among the ‘best performing’ nations we find the UK where almost one-third of 16-24 year olds are total abstainers, compared to one fifth a decade previously. Binge drinking is down by a half. Time for some soul searching I feel.

It’s certainly getting some serious attention in drinks company boardrooms. The trend away from alcohol seems to be driven by the cult of ‘wellness’ and the pernicious impact of social media. Apparently pictures of drunken antics appearing on Facebook where they are preserved for all eternity do not enhance career prospects, though clearly journalism has never been considered an option.

But – when not inhaling vodka from a balloon – people still like to go out and socialise.  So what do they drink? Well, the industry has plans. And you don’t need to sell your Diageo or Pernod Ricard shares just yet because it turns out that alcohol-free drinking is not profit-free drinking. Once the abstainer faced the choice of boring water, various sweet and calorie-laden fizzy drinks or an alcohol-free beer which let’s face it, until recently, were generally deeply unpleasant. It’s hard to appear the life and soul of the party if every mouthful involves some grimacing. But sensing a market disappearing in front of its eyes the drinks industry got busy. Good old soda and lime has been displaced by products such as Seedlip, Ceder, Celtic Soul and Heineken 0.0. They taste good (well, mostly they taste OK) and, importantly for the target market, they pass muster on Instagram. 

However, qualifying as cool comes with a price tag – Seedlip, for example, will set you back at least £20 a bottle and frequently more. That’s around half as much again as a bottle of standard Gordon’s Gin, but with no alcohol tax to pay.  Six cans of Heineken 0.0 are around £4; that’s only a pound cheaper than the real thing. Celtic Soul, a “non-alcoholic blend of carefully distilled dark spirits” is £25; Atopia, from the Hendricks people is also £25 (though contains 0.5% alcohol so hold me back); Seedlip’s sister Aecorn, an alcohol free aperitif, asks £19.99 and mock gins such as Ginish and Portobello Road Temperance (4.2% abv) hover in the £20-25 range. These are pretty steep prices.

I get that there are development and marketing costs but, given the rate at which these products are suddenly being released, they’re evidently not unduly demanding for a reasonably competent distiller to turn out and they don’t spend years maturing in expensive casks either.  Yes, marketing isn’t free but actually a lot of the promotion for the trendier alcohol-free options is fairly low-cost as enthusiastic drinkers plug their favourite brands on social media. Thanks very much say the spinmeisters.

If they do happen to cannibalise volume from established brands, it won’t be long before we hear the distillers complaining – but these are crocodile tears.  Given the retail prices being achieved and noting the absence of alcohol duty, the unit profitability on the typical new-wave alcohol-free brands comfortably exceeds the money made on traditional, full-strength products drunk by grumpy old gits like me.

So, while this new generation of earnest and abstemious little puritans may seem bafflingly dull to my degenerate cohort, I do worry that they’re being taken for a ride.  Premium prices make for premium profits. Still, all to the good for my pension plan.