Earlier this morning I appeared on CNBC to give my views on the latest SAB Miller and Diageo results – and some of the common challenges (and opportunities) both multinational alcohol powerhouses are facing. Watch the interview here: Drinks firms should realign to tastes. Below I discuss – in more detail – two of the principal themes brought about by changing consumer dynamics. Craft rising Craft beer continues to rise rapidly. In America, it now constitutes around a fifth of the value of the total beer market, and it is growing prolifically in Europe, but also further afield in Asia Pacific and Latin America. This is a real challenge for SAB Miller given its global profitability is highly dependent on large-scale brands which are the antithesis of the small, artisanal, quirkier and distinctive brands favoured by modern drinkers. MillerCoors’, the US JV owned by SAB Miller and Molson Coors, has had a particularly hard time of it in the US, where this trend is much more developed. Indeed, MillerCoors’ best results recently have come from its craft and import subsidiary, Tenth and Blake, which manages beers like Blue Moon and Leinenkugel. This has achieved consistent single-digit growth in the US as American beer drinkers opt for craft options over light beers. 48% of American beer drinkers think that “craft-style” beer from large, national brewers taste just as good as beer from small, specialty craft brewers’ Fortunately for SAB Miller, Mintel’s Beer US 2015 report shows that 48% of American beer drinkers think that “craft-style” beer from large, national brewers taste just as good as beer from small, specialty craft brewers’. Further to this, many of those who disagree with this statement will not know whether brands they think of as “craft” are owned by multinationals. Take Australia for example, where few craft beer drinkers know that 90% of the market is sewn up by the main brewers – primarily SAB Miller. As I mention in my interview, SAB Miller has also sensibly moved into soft drinks in a big way to help offset an over-reliance on alcohol revenue. And craft is not just restricted to beer. The craft spirits movement has been building for a few years now, as can be seen by the explosion of micro-distilleries in both the on- and off-trade. This trend is especially strong in the US and UK, but like craft beer is building globally. Whether it is London’s own Sipsmith gin or Brooklyn artisanal whiskey brand Widow Jane, boutique producers are now delivering Millennials the kind of experimentation, commitment to quality and hipster credibility that this younger cohort so desperately crave. Death of the “middle ground” All of which leads nicely onto my next point. OK, death of the middle ground may be somewhat hyperbolic. After all, the major alcohol brands are still the engine room of the global alcohol sector, but Diageo in particular, has a real issue with its vital but under-performing mainstream-positioned spirits brands. Take Smirnoff, a brand that contributes around a quarter of the company’s profits – mostly in America. Yet Smirnoff has experienced a very difficult couple of years, losing sales and share and being forced to cut prices to compete. Why? Because it is too expensive to compete on every day, “value” occasions and priced too low to compete with ultra-premium spirits brands for more special occasions. The “middle ground” is therefore slowly but surely being eroded as the recessionary and post-recessionary consumer deviates much more between these two extremes. The result is that Diageo is pushing its reserve portfolio much harder. Within this portfolio, Diageo has high hopes that the likes of Bulleit bourbon and Don Julio tequila will help assuage Smirnoff’s declining profitability. These are two of its smaller brands which it hopes to turn into the next Cîroc, a previously niche brand catapulted into the sales stratosphere after Diageo teamed up with P Diddy. More recently, Diageo and P Diddy have jointly acquired DeLeón another small brand – positioned by Diddy as “the world’s first sipping tequila” – and which will set you back a cool $120 minimum per bottle. Jonny Forsyth is Mintel’s Global Drinks Analyst. He writes regularly on the latest trends in the alcohol market, works with global drinks clients, and is a regular contributor to international media outlets. You might also be interested in: No related posts.