Cream crackers

17 September, 2010

Drinks retailers should make the most of the summer. It’s one of the few times of the year when people will pay £17 or £18 for a litre of premium cream liqueur.

In just a couple of months, the billboards, press ads and shelf barkers will be telling a different story. Consumer websites will be buzzing with rumours of £10 deals.

These will be followed by eyewitness accounts of £9 offers and then, finally, as Christmas approaches, an eager spotter will espy the first £8-a-litre promotion.

How can we be so sure about this? It’s entirely possible that the multiple grocers will change their tactics – but then it’s also true that they might get their checkout staff to speak only in Dutch, or to offer magic beans instead of cashback.

In the world of cream liqueurs, past behaviour is generally a fairly accurate guide to future performance.

Seasonal offersLet’s consider some recent history. In 2007, Baileys entered the Christmas sales frenzy at £9.99 a litre, a sharp price by most standards. By December the multiple grocers were knocking it out for £8 – Sainsbury’s clearly didn’t think this offer was quite enticing enough and threw in a shaker (nominal value £3.99) for good measure.

At Christmas 2008, the Baileys retail price once again slid to £8 a litre. The following year – last Christmas – Diageo could only look on as the price crumbled from £14 to £9 and, inevitably, to £8.

“We don’t believe heavy discounting ultimately delivers value for brands,” says Connie Reyes, senior brand manager for Baileys at Diageo GB. “However, we do not set retail prices, our customers do.”?She must sometimes wish this wasn’t the case. Baileys remains the market leader in the liqueurs and specialities sub-category of the spirits market, but the brand’s volume growth is well ahead of its sales in monetary terms.

In the off-trade, Baileys Original was worth £92 million in the year to June 12, according to Nielsen – a 6% improvement on the previous year. The number of cases it shifted in the period rose 9%, a fairly clear indication that either Diageo or its retail partners – perhaps both – were settling for lower margins than they’d like. The situation was similar with the three Baileys flavours.

Independents have grown somewhat world-weary about the annual Baileys discounting spiral. It’s hard to see how they can compete without either

oss-leading, or – as is known to be happening among certain sections of the wholesaling community – bypassing inconveniences like VAT and duty.

Derek Smith is joint owner of the Strand Wine Company, which has branches in the Kent towns of Deal and Sandwich. “We can’t compete with the offers in the supermarkets so we don’t even try,” he says.

“We don’t sell the litres [of Baileys] – we only do the standard bottle and at the moment that’s £12.49. At Christmas we’ll probably do it for £11.99 and sell a couple of dozen, but during the rest of the year it’s pretty quiet.” There was a time when there was still a debate to be had about the wisdom of discounting seasonal drinks lines during their annual sales peak, but market forces have rendered such discussions virtually redundant.

Smith says he has “just got used to” supermarket deep discounting on cream liqueurs. “You just grin and bear it,” he admits.

But many of his customers are being more decisive. “A lot of people are going over to Declan’s Irish Country Cream and things like that,” Smith reports.

“They’re selling more now. People are coming in and asking for them. In our shop last night [late August] we only had three bottles left and they sold out. Later, two more people came in and asked for them.”?The dominance of Baileys means it’s hard for rivals to make inroads into its market share, although there are several contenders which give retailers options for secondary and tertiary brands.

Halewood’s Irish Meadow is the off-trade’s number-two cream liqueur, and can be found for less than £4 for a 70cl bottle in some supermarkets. Its value sales grew 8% in the year to June 12, according to Nielsen, but volumes were down 9%.

Asda exclusive Irish Knights, number three in the cream liqueur charts, is equally keen on price, but its performance in the same period was the worst of any brand in the liqueurs and specialities top 30. Value fell by 31% and volumes by 37%, though sales were still worth £4 million.

Contrast that with the explosive growth being experienced by the number-four brand, Golden Pastures. Produced in Ireland by Terra – the company behind Molly’s and Maloney’s Irish cream liqueur brands – Golden Pastures is, like several Baileys challengers, a wine-based drink with an abv of just 14.5%. This helps it to qualify for lower duty than spirits-based rivals, which would partially explain the trebling of its sales in the space of a year to £3 million.

Healthy growthThen there’s Carolans. In April, C&C sold its spirits concern to William Grant & Sons for £300 million, in a deal which has resulted in Carolans and a small range of other Irish spirits finding their way into the First Drinks portfolio.

First Drinks is uncharacteristically shy about discussing its hopes and plans for Carolans, which saw off-trade sales increase 10% to £3 million in the year to June 12, and volumes rise by a healthy 8%.

The brand claims to be the number-two cream liqueur in its native Ireland, and its new owner will surely have ambitions to continue the momentum in the UK, perhaps by copying the Baileys strategy of introducing alternative flavours. For now, it’s still taking stock of its new arrival.

Currently, Nielsen measures the Baileys flavours separately from the parent brand. The coffee variant has been an unmitigated success in the past year, with off-trade sales jumping from £1 million to £7 million.

At such an early stage of the brand’s development, Diageo won’t be too worried that volume growth has been outpacing sales increases.

The Mint Chocolate flavour turned in a respectable 30% sales increase, to £5 million, on volumes which rose 50%. The Crème Caramel style was down 5% in sales terms to £4 million, though there was 3% volume growth.

Worryingly for the competition, there is more to come from Diageo GB. This year sees the launch of a Hazelnut variant of Baileys, which the company says has tested even better than the other flavours in consumer trials.

Reyes promises “exciting marketing plans for Christmas”, which is something Diageo always delivers for its key brands in the UK. But the truth is, whatever money the supplier pumps into classy marketing, come November Baileys will inevitably be used and abused by major retailers in the now-traditional pricing fisticuffs.

Many independents will be hoping that Baileys doesn’t sink to £8 yet again this year. The more hard-bitten will simply be keeping fingers crossed that it doesn’t plummet any lower.

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