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Posted August 2008

Achtung, Apple Attack

Cider boom | A man walks into a pub and orders a glass of cider. No joke. Magners, the Irish pioneer of the over-ice cider category took the United Kingdom by storm and transformed the image of cider in less than two years. Now men can be seen drinking cider instead of beer. Alas, copycat products followed hard on its heels and often sold at lower retail prices. This and a rainy summer last year forced Magners to cope with a decline in its fortunes. The financial markets were not amused. Therefore, holding its nerve will be hard for the brand in the short-term especially in the current tough trading environment as consumer confidence is put to test by the credit crunch.

Apparently, in Ireland they were spared the sort of films that the English were brought up with in the 1960s and 1970s. Or they would have known that the cry “Achtung” by a German usually precedes a round of gunfire and is followed by years of digging tunnels.

Too bad. That’s why the Irish have some digging to do now. When the Irish drinks company C&C Group decided to conquer the German market a year ago with its Magners cider – in less martial marketing lingo it’s called test marketing -, they had to discover that they would have to build trenches if they wanted to make their product launch a lasting success.

Actually, the Germans did cry “Achtung” when they first saw the flotilla of Magners’ taxis drive around Munich. The taxis, the outdoor advertisements, the radio communications, all formed part of the Irish’ marketing blitz. But when the Germans cried “Achtung” they did so out of surprise. Utter surprise. Because German consumers don’t have a clue what cider is. 

Cider in English, cidre in French, sidra in Spanish and Äppelwoi in German: we are talking about fermented apple juice, which can come in at almost every alcoholic strength known to man. According to market researchers at Canadean, cider is a growth category. Over the past decade, cider sales in western Europe may have ebbed and flowed but the underlying trend is firmly upwards. It should not come as a surprise, then, that drinks companies and brewers alike have begun to look at cider as an attractive accoutrement to their beverage portfolios.

Although cider’s history in western Europe dates back centuries, the product itself only occupies a niche in today’s beverage markets. Ask any German under the age of 30 and chances are high that they will have never heard of Äppelwoi (German for apple wine and pronounced “apple woy” as in “soy”) or cider.

Now ask anyone over the age of 40 and they will probably remember the cringingly tacky yet incredibly successful entertainment show Zum Blauen Bock (The Blue Buck) which ran on national television from 1957 until 1987 and served as a grand product placement opportunity for Frankfurt’s drink of fame: Äppelwoi.

German Äppelwoi is predominantly produced and consumed in and around Frankfurt. In keeping with tradition, it is served in diamond-cut glasses and poured out of a grey-blue earthenware jug, the so-called Bembel. Also in keeping with tradition, Äppelwoi has little carbonation and tastes so sour that you could use it in a vinaigrette. Add to that the fact that Äppelwoi lacks national distribution and it comes as no surprise that Germans who have all had their thirst quenched with Apfelschorle – a mix of apple juice and mineral water that is hugely popular that even the Coca-Cola Company in Germany bottles a Lift Apfelschorle – never seem to make the transition from non-alcoholic Apfelschorle to alcoholic Äppelwoi. Even if they tried drinking Äppelwoi, they won’t be able to force it down, for which the TV show Zum Blauen Bock is partly to be blamed. In Germany’s cultural memory, Zum Blauen Bock – and consequently Äppelwoi – has come to represent everything despicable about tradition.

Sad but true, German Äppelwoi can teach the world a lesson. It reads: without a regular influx of rejuvenation, tradition can become over-bearing and stifle progress. Another reason why the consumption of Äppelwoi in Germany has now declined to a level of less than one litre per capita is that Germany’s 150 or so fruit wine producers have failed to invest in their brands far too long. With the exception of a few brands, the category’s packaging, branding, basically all the visual components have their roots in the 1950s and 1960s. That may have its retro charms. But the decline in Äppelwoi consumption also underlines the fact that if you do not kept up with the march of time – and furnish your brand with an added value of intelligence, originality and buzz – time will march on without you. 

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Between 2002 and 2006 says Canadean, consumption of cider in western Europe has grown almost 3 percent annually to 12 million hl. Compared with total European beer consumption that’s almost negligible – an assessment that holds true for most markets. However, the United Kingdom is the big exception here. British consumers downed 6.9 million hl of cider in 2006, which is more than half of Europe’s total cider consumption. When it comes to drinking cider, the Brits are Europe’s heavy users. Within limits, admittedly. The United Kingdom’s cider consumption outperforms everybody else’s. France is number two with 1.0 million hl, followed by Spain with 820,000 hl, Ireland with 810,000 hl and Germany with 780,000 hl estimates Canadean. And it is only thanks to the Brits’ strong predilection for cider that total volumes have gone up significantly since 2002. Of the 17 European countries surveyed by Canadean, four registered zilch growth (Italy, Netherlands, Norway, Portugal) over the period in question while seven had to put up with a decline (Austria, Belgium, Denmark, Finland, Germany, Sweden, Switzerland). 

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Cider’s recent history in the United Kingdom compares best with a boom and bust cycle. Tax increases have always affected the category adversely, while investments in marketing and advertising by cider brand owners helped reverse that trend. This is not to say that cider has been a beverage with wide appeal. Ahem, nothing could be further from the truth. It was only in 1975 that cider consumption in the United Kingdom burst through the 2 million hl glass ceiling. In the 1980s and 1990s, cider was the tipple of choice for down-and-outs, tramps or whatever people, who lived on a park bench were called in those politically incorrect times. Oh, and it was hugely popular with girls. Twenty years ago if you saw a group of young girls hanging around the village square giggling, you could place all your savings on the bet that they were getting high on cider.

After the launch of cider in kegs in the 1970s, consumption of cider in the on-trade sector went up so that in the 1980s, most British pubs kept a cider tab at the end of the bar. Alas, it was often accumulating dust. Up until the turn of the millennium, there were not many men who dared drink cider in public. One of them was my friend Robert. Twenty years ago, I guess Robert represented the typical cider consumer. Never having acquired the taste of beer he stuck to cider when coming to the pub with us. While most of his generation were into Punk and Goth styles, Robert chose to be a young fogey – tweed jackets, corduroy trousers, brogues, floppy hair … and on to wearing a cravat instead of a tie. You get the picture? Real men did not eat quiche and they certainly did not drink cider when Mrs Thatcher was in Downing Street and “ruled UK”.

Still missing from the list of “traditional” cider consumers - beggars, girls and fogeys – are the self-appointed connoisseurs. They could be seen boarding the trains in Birmingham just having returned from the West Country where they knew someone who knew someone … who made the best scrumpy the world.

That scrumpy, a farm-produced cider, which was non-carbonated and cloudy orange in appearance, would have been filled into large Newcastle Brown Ale plastic bottles. These bottles the connoisseurs carried with them in grimy plastic carrier bags. Boasting of their bounty to other passengers, they would eventually pass one of the bottles around. Those in-the-know or mildly curious would then get a taste of West Country scrumpy which was high in alcohol and extremely dry in taste that it would be very unforgiving on the tongue.             

Despite its hotchpotch consumer base, cider consumption still managed to increase to over 5 million hl by the early 1990s. Then disaster struck twice. First, a novel beverage appeared in the market – the so-called alcopops or Flavoured Alcoholic Beverages (FABs) – which pulled women away from cider in droves. Between 1995 and 1998, the cider category lost several hundred thousand of hectolitres to the Bacardi Breezers, the Two Dogs and the Hoopers’ Hoochs (Bass Brewers) of this world. As if this was not enough, the Chancellor then decided to raise the duty on cider. This got the two big cider players in the United Kingdom, HP Bulmer (Strongbow) and Matthew Clark (Gaymers) into a tizzy. Whereas brewers began to pour more money into marketing their “badge beers”, the cider companies made the mistake of cutting back on advertising and discounting their ciders. Both moves lowered the reputation of cider among consumers so that in the end Strongbow felt compelled to drop the word “cider” from its packaging and re-invented itself as a Long Alcoholic Drink (LAD). 

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The years 2000 to 2003 saw the consumption of cider decline yet again. Fortunately, that’s when Magners from Ireland came along and started to shake up the Scottish and English beverage markets. Magners cider, which was launched in Northern Ireland in 1999, is what the Irish have known as Bulmers. Several decades ago, explained Maurice Breen, Managing Director of Magners at the Canadean Beer Conference in Madrid in April this year, HP Bulmer of the United Kingdom sold the rights to the Bulmers brand for Ireland to the C&C Group in perpetuity. For years, that arrangement suited the Irish. While in the United Kingdom the cider category suffered from discounting and the ensuing down-marketing, the C&C Group managed to position Bulmers in Ireland as a premium alcoholic beverage, emphasising the brand's core values of naturalness, tradition and heritage. Competing with beers in the Irish on-trade, it helped that the C&C Group had previously reduced the alcohol content of Bulmers to beer levels and put a sizeable media investment behind the brand. This strategy paid off as during the 1990s the sales of cider in Ireland increased more than fivefold. In 2004, every tenth beer sold in Ireland was actually a pint of Bulmers.  

Although Bulmers in Ireland has a 94 percent share of the on-trade cider sales, the C&C Group could not grow the business elsewhere for the obvious trademark reasons. Hence they adopted the brand name Magners Original Irish Cider after a founder of the company and following some desk research decided to launch Magners east of the Irish Sea.

The rise of the Magners brand in Scotland and the United Kingdom is a case study in successful marketing. First, take a product of rather limited physical characteristics. Brewers will tell you that cider is only fermented apple juice after all even though Magners claims that 17 different apple cultivars provide the product with a fresh, clean and natural flavour. Then cultivate an expensive brand image of premium quality, tradition, and aspiration, and finally as a masterstroke of genius wrap it all up in a ritual, which masks the alcohol content of the product and reinforces the impact of the branding. That is the Magners recipe for success.

You have to give it to Magners, its advertising to date has very cleverly played on various stereotypes to create an aspirational image well away from tramps and park benches. In fact, shots of orchards during harvest time have tied the product subconsciously to the trend for natural and organic products. But more importantly, it was the serving of Magners in a glass full of ice cubes that did propel the Irish cider into the United Kingdom’s premium beer category. There is a story why Magners has to be served on ice, but even without everybody ascribing to this urban myth, the ritual in Britain has had two impacts: it created a novelty value and, more importantly, by making the drink very cold it disguised its alcohol content.

On top of that, Magners was distributed for on-trade sales in pint bottles, which meant that a bottle would not empty completely into a pint glass stuffed with ice. Psychologically, the drinker felt he got more volume for his money and as he tasted no alcohol, he probably thought it was ok if he ordered another one. Yet, what intrigued the marketers of Magners was a simple side effect: the bottle with its distinctive design and prominent branding ended up sitting on the table in front of the punter. Anybody entering a pub where the tables were littered with pint bottles of Magners would find it hard not to succumb to peer group pressure.

As a consequence of Magners’ meteoric rise in the United Kingdom between 2003 and 2006, the prejudice was done away with that real men do not drink cider. Well, British men took to cider in a big way, as did women in the important 18 to 35 year age group and many older consumers who now dared return to the category thanks to the sophisticated new positioning of cider. Canadean says that Magners was the catalyst for the great cider boom of 2006, which nudged up total cider consumption 11.6 percent to 6.5 million hl year-on-year. Obviously, Magners was the big winner with a doubling of its volume sold (almost 600,000 hl in 2006 compared with 295,000 in 2005) but Strongbow, the market leader at 37 percent, did do well too: up 9.3 percent over 2005. Volume-growth may be a fine thing, yet, more importantly for the industry, this growth was driven by the premium end of the market.   

Looking back it seems that Magners’ triumph in the United Kingdom was aided as much by clever marketing and a huge marketing budget in the order of reportedly GBP 22 million (EUR 28 million) for the year to February 2007 alone, as it was benefiting from its competitors’ tardiness in responding to the threat posed by Magners.

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The British cider market is heavily concentrated following a series of takeovers in the late 1990s, which landed the cider company Matthew Clark in the arms of Constellation Brands, the world’s number one wine company. Under the name of Gaymers, the erstwhile Matthew Clark now controls more than 21 percent of the market. However, market leader is Scottish & Newcastle (S&N) which acquired the ailing HP Bulmer for GBP 278 million (EUR 348 million) in 2003. Canadean estimates that S&N, prior to being broken up by Heineken and Carlsberg at the beginning of this year, had almost 54 percent of the British cider market. That means that in Britain two companies share more than three quarters of the market. The Irish C&C Group comes third with slightly under ten percent of market share.

You have to give it to Scottish & Newcastle, the owners of the Strongbow cider brand that they did take up the Magners challenge eventually. Before competing with Magners head on, S&N already invested heavily in the category. The brewer also took the risky decision to stop discounting its White Lightning cider brand in 2005, which prompted a slump in sales but ultimately bettered the category’s price image.

S&N did not consider Magners a big threat initially. But it changed its mind in 2005 when it unveiled Strongbow Sirrus, a bottled red cider similar to Magners which is to be consumed on ice. In May 2006, S&N announced the re-launch of Bulmers Original, also bottled and also to be drunk over ice. One month later, S&N introduced Jacques, a blend of Belgian cider and fruit of the forest flavours, likewise to be served over ice. In 2007 just before S&N was taken over by Heineken and Carlsberg, the biggest brewer in the United Kingdom spent a reported GBP 45 million (EUR 56 million) on marketing its cider brands.

No doubt, that Magners has received some flak from a resurgent Bulmers in the United Kingdom, which had been reformulated to taste and look like Magners and sell at a price point 20 percent to 30 percent below Magners in the off-trade sector. The Irish have responded to this challenge by increasing their marketing spend to over EUR 60 million and by launching a Magners Light and Bulmers Midstrength to target more females. Moreover, they have teamed up with Coors in the United Kingdom to distribute their Magners draught.

The going has gotten tougher for Magners. Nonetheless, it is premature to say that the good times are over for Magners, let alone for the cider category in general. If this were the case, then Heineken would have been daft to partner with Carlsberg to buy S&N for 800 pence per share this spring which valued the brewer at GBP 7.8 billion or 14.3 times S&N's EBITDA.

Justifying its expensive offer, Heineken said that its rationale was to acquire strong, complementary brands with international appeal and potential such as Newcastle Brown Ale, Foster’s and Strongbow cider. Heineken specifically mentioned that it hoped to gain access to the British cider market, whose top brand Strongbow increased sales 23 percent to GBP 165.2 million (EUR 207 million) in 2007 according to AC Nielsen.

While Heineken is still busy integrating the S&N brands it acquired earlier this year into its portfolio, a rumour is making the rounds that Heineken is planning to launch Strongbow in Europe under a new name later this year. It is not known what the brand name will be for the cider but it is understood that a major marketing communications programme will support the launch.

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That could be good news for Magners. Because then there would be two. To date, Magners has been the only cider brand that has carried the torch into continental Europe. For two summers now, Magners has been using Barcelona and Munich as its continental test markets. It has not been an easy task and the Magners people probably did not expect it to be such an uphill struggle. Looking at Canadean’s market figures they probably thought that, “hey these are cider market. So let’s have a go at them.” Indeed, Germany and Spain are cider markets. Nevertheless, the dowdy and dated domestic brands on sale there are a world apart from an Irish cider like Magners whose appeal is largely attributable to clever marketing. In the United Kingdom, all it required to buy market share was to spend big money cleverly, blitz the Tube with pictures of beautiful orchards and get listed by one of the large pub companies that run thousands of pubs. After all, cider was a beverage category everybody was familiar with.

In Munich, on the other hand, the advertising campaign proved costly yet ineffective. It was not enough to alert consumers to the fact that there was a new and exciting brand they should try out. Magners had to start from scratch and explain to every Tom, Dick and Harry in Lederhosen what cider is and why they should be paying good money for a fizzy drink that tastes very similar to kiddies’ Apfelschorle. The cider category in Germany, that is imported ciders, constitutes a volume of 10,000 hl to 50,000 hl. That is an educated guess by one of the major cider distributors. Could volumes be increased? Definitely. German Äppelwoi producers have decided to ignore the apple attack from Ireland for the time being. Since they do not sell their apple wines in Munich, they need not put up a fight yet. The only challenge Magners has to overcome is the one from within. If Magners does not deliver some sort of growth in the United Kingdom this summer, the financial markets will lose patience with Magners and demand some sort of sacrifice. That may just mean the end of their continental expansion plans. 

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