From August 1, the alcohol duty regime is scheduled to change to a simplified system, with products from different categories taxed at the same rate if the alcohol content is the same, rather than the current system of different rates for different categories.
A 3.5% abv cut-off between two duty rates will be significant for beer, with products having an incentive to move below that level to take advantage of a large drop in duty. A product moving from just 3.5% to 3.4% abv would see a duty decrease of over 50%, providing producers with the dilemma of whether a product change is worth the cost saving.
A change in abv always carries risk, especially among a brand’s most loyal consumers but, as cost of living pressures deepen, the focus on such calculations will increase. Will such a big drop in duty be too good an opportunity for manufacturers to pass up?
A significant proportion of beer volume sold in the off -trade is 4% abv, so moving to 3.4% abv is a big jump, but we can expect to see existing brands slowly move closer to this threshold. With change comes opportunity, so we could also see new products enter this space.
If we look back to 2012, when duty rates decreased for products below 2.9%, several radlers and flavoured beers were launched in the 2-2.8% abv range. These products made a significant mark, taking 1% share of the market for around a year before slowly dropping out. This level of share represents a £50 million opportunity based on today’s market value, making lower-abv innovation worth investing in.
Despite several attempts by brewers, the idea of “light beer” has never really landed in the UK. Consumers are often unsure about the proposition: is it low-calorie, low-abv, light in colour or something else? But if mainstream brands reduce beer strengths, the 3.4% abv space may well become more accepted.
In our latest NIQ State of the Nation survey, one in five people said that they plan to drink less in the home than they have in the past 12 months.
There are, of course, several ways to moderate alcohol intake: drink less frequently or not at all, consume lower-alcohol products, or substitute alcohol with soft drinks and no-alcohol brands. The impact of the pandemic and the cost of living crisis means that consumers are re-evaluating their choices like never before and a lower-abv launch, if done well, could open up a new segment of the market.