1. Premium Alcohol Drinks: Cider Focus April 2011

2. Contents

3. Market Environment

4. The entry of AB Inbev could be just what the cider market needs Source: Mintel “The main thing which AB Inbev will bring to the table is a substantial distribution network combined with marketing savvy. This combination has helped Stella Artois to become the number one selling lager brand in the UK off-trade and number three in the on-trade.” Grown its volume sales from 574 million litres in 2005 to 840 million litres in 2010, a rise of 46%. Recent legislation which requires that ciders should contain a minimum of 35% juice content is a major win for the cider category in terms of encouraging premiumisation There are signs that the cider bandwagon is beginning to roll to a halt with sales growth slowing in the past few years. Magners, whose “over ice” innovation stimulated the category’s growth in 2005, has struggled to maintain its momentum and has needed to invest significantly in marketing in order to get sales back on track. Cider has benefitted from an increasing consumer interest in lighter and fresher drinks, something which has helped the rise of rosé and Prosecco sparkling wine among others

5. Market Insights Magner’s apparently ‘reinvented cider’ as contemporary again, by introducing cider in premium bottles with the ‘on ice’ serve, the category has continued to innovate to good effect The market has been given further impetus by the popularity of pear cider, which has become worth £100m in a short space of time. Cider is the only major alcohol category to have grown its user base over the past five years Recently, other fruit cider has meant even more innovation around flavour, meaning that variants such as Jacques Fruits des Bois cider and Kopparberg Elderflower and lime are now available in the mainstream UK market The cider industry has benefitted hugely from the coalition government’s decision to scrap Labour’s proposed 13% rise in cider duty in 2010, as well as its decision to suspend any further duty increase on alcohol for the rest of 2010 Less welcome will be the 2011 rise of VAT from 17.5% to 20%, as well as the Coalition government’s decision to retain Alistair Darling’s controversial ‘tax escalator’, which applies duty at 2% points above inflation each year until 2014 The challenge for the market going forward is where will the next innovation come from? A danger of continually innovating around flavour is that the product is increasingly entering into alcopops territory, where its colourful look and sweeter taste combined with the high ABV of many ciders would not look out of place. The alcopops market has suffered from negative media coverage and flavoured/fruit cider market needs to beware this association Mintel “ “ Source: Mintel

6. Market Size and Forecast Mintel forecasts that the total cider/perry market will continue to see growth over the next 5 years albeit not at the exponential rate of the previous five years Mintel’s estimate is that the market will be at the higher range of performance in 2011 and 2012, helped by the growth of pear and fruit ciders, combined with the rising popularity of niche, fashionable premium-packaged brands The rise in cider retail prices means that volume sales (+23%) will rise more slowly than value sales (+45%) between 2010 and 2015 Source: HM Customs/Mintel Forecast of the value sales for the total UK cider/perry market, 2010-2015

7. Market size/forecast - segmentation The rise of in-home drinking has been particularly pronounced over the past decade, with the price differential of alcohol in the on- and off-trade channels widening as supermarkets have maintained low costs of alcohol products, mainly due to discounting; something which the on-trade cannot afford to do A government ban on below-cost pricing means that this price differential is unlikely to get much wider over the next few years. Source: HM Customs/Mintel Trends for cider on-trade value sales compared to off-trade, 2005-2015 Mintel forecasts that by 2015, off-trade cider value sales will have overtaken on-trade sales, as consumers continue to drink more at home to save money “ “ Being a British product also has commercial advantages, with major supermarkets such as Tesco’s increasingly looking to stock British brands to show that they are supporting local businesses

8. Cider is steadily shedding its summer-only image While cider does see an uplift in the warmer months, it has continued to grow its user base regardless of the season The de-seasonalisation of cider has been one of the key reasons why the category has been able to grow so exponentially in recent years, ensuring that cider is not overly reliant on UK summers Cider nevertheless is seen as particularly refreshing, meaning it becomes more ‘top of mind’ during summer months, when pub attendances increase. – The category is therefore now doing more to innovate around winter, with warm-serve winter ciders now available from Aspall’s and Rekorderlig Trends for rolling annual total of proportion of UK cider drinkers, 2006 Q4 – 2010 Q1 Taken from the TGI survey of around 25,000 adults Source: GB TGI, Kantar Media UK Ltd 2006-10 /Mintel Q3 is the hottest time of the year, encompassing July – September Base: adults aged 18+

9. Advertising Market & Traffic Trends

10. Drink Advertisers Spend by Media Type For the most part, ‘Drink’ advertisers tend to spend the most on advertising in the Press and on TV followed traditionally by Outdoor On average the industry currently spends around 1% on Internet advertising (not including search). Source: NNR adDynanix : 2009 v 2010

11. The top spending beer/cider brands on advertising Guinness benefits from being the top spending brand – as well as having iconic advertising Strongbow is a big spender and scores well on many brand cues but like Carling is positioned as mass- market rather than premium Peroni, Kronenbourg 1664 and Grolsch perform particularly on being rated premium despite a minimal outlay relative to the market Source: Nielsen Media Research Top 20 spending beer/cider brands on above-the –line advertising between 2008-2010

12. Display Advertisement Publisher Location: Ad Impressions v Unique Users (Retail – Food/Drink) Microsoft sites have continued to delivered the highest number of unique visitors for Food Retailers. Source: ComScore adMetrix : February 2011

13. Display Advertisement Publisher Location: Share of Impressions v Frequency (Retail – Food/Drink) Microsoft sites also have the highest share of Food Retailers ad impressions, and the average frequency continues to be less than eBay, Yahoo!, Glam Media and AOL. Source: ComScore adMetrix : February 2011

14. Alcoholic Drinks Search Traffic KPIs Traffic Searches for alcoholic drink generics increased by +43% between 2009 and 2010 Searches for food & grocery generics increased by +3% Jan & Feb 2011 v Jan & Feb 2010. 1.Microsoft Advertising Intelligence Tool Top Insights: Guinness represented 18% of the total search volume of the top 15 alcoholic brands in 2010. In the Cider battle, Magners slightly out paced Bulmers with 4% vs. 3% respectively.

15. Alcoholic Drinks Demographics and Daily Trends Monday has been the largest traffic driving day (16%) over the last 2 months only slightly beating Tuesday, Wednesday and Thursday’s however. Saturday seems to be the least popular day for food searches. Could potentially be attributed to purchasing food online and delivering during the week before weekends The 35-49 age brackets are the main age groups for traffic with 32%. 25-34 year olds are higher than the 18-24 year age bracket with 27% of Search traffic coming from this age group Gender breakdown is evenly split between both Males and females with 49%, however 2% of searches the gender is unknown. 1.Microsoft Advertising Intelligence Tool – December 2010 to Feb 2011 data

16. Industry Insights

17. Consumer Usage for Cider Cider has increased its proportion of drinkers rapidly over the past five years, and in the past year was drunk by just over a quarter of the population according to TGI figures Trends for cider consumed in the past 12 months, among 18+ adults in Britain, 2006-10 Taken from the TGI survey of around 25,000 adults Source: GB TGI, Kantar Media UK Ltd Q3 2006-10 (Jul-June)/Mintel Mintel’s analysis shows that its advantage is in being able to target men and women, meaning unlike beer it is not restricted by gender stereotyping It is also strongly favoured by 18-24 year-old drinkers for whom cider’s sweeter taste, and constant innovation are hugely appealing, and who, unlike older generations, are unfamiliar with cider’s past baggage as an unfashionable choice

18. Consumer Usage for Cider - by type Almost half of cider drinkers consume both traditional apple and pear/other fruit cider There are also 2.3million cider drinkers – primarily 18-24 year-old women – who are being attracted to the newer pear/other fruit ciders while eschewing drinking traditional variants Cider drinkers, by cider type, August 2010 Base: 396 18+ drinkers of any cider in the past year Source: Mintel/Toluna

19. Consumer Attitudes to cider – Non-cider drinkers While cider attracts quite a high proportion of women, there are still a substantial amount of females put off by the volume of the bottle/draught serve Reasons why people have not drunk cider in the past year, indexed (100 = average), by gender, August 2010 Base: 450 internet users aged 18+ who have drunk alcohol but not cider Source: Mintel/Toluna

20. Targeting the Cider Potentials Cider has the potential to convert three in five UK drinkers of alcohol who have not drunk it in the past year The two in five who are not open to drinking cider are put off most by the taste but also perceive cider to be lacking in quality and refreshment compared to competitors Mintel’s research shows that there is plenty of interest among older discerning male drinkers, who are especially likely to drink red/white wine and whisky The research shows that there is slightly more potential for cider to convert wine drinkers compared to beer drinkers The proportion of Cider Potentials and Cider Rejecters among non-cider drinkers, August 2010 Base: 450 Internet users aged 18+ who have drunk alcohol but not cider in the past year Source: Mintel/Toluna 59 % The 25-34 age group will see a double-digit growth over the next five years. It is key that cider retains these younger drinkers rather than lose them to competing categories

21. Premium means different things for different drink categories Source: Mintel

22. What premiumisation means in the cider market Top 3 ranked cider brands (ie ABV of 4%) scored on premium quality cues Similar premium footprint to lager but quality ingredients is a more important cue People trust Strongbow the most for delivering quality – although only marginally Magners’ greatest strength in creating its premium perception is its attractive packaging Both Bulmers and Magners are seen as more of a treat than Strongbow. While this could be perceived as a positive, it could also mean that cider drinkers view them as something for special occasions but Strongbow – which is enjoying excellent sales – as their standard default when ordering cider Base: 93 cider drinkers who have experience of Strongbow and rate it as premium/175 for Magners/111 for Bulmers Source: GMI/Mintel *low sample size(80-100)

23. Frequency of Drinking Alcohol By gender, age and social grade “Which of these best describes how often you do each of the following activities? Drink alcohol” Source: nVision Research, 2010 Base: 1,000 online respondents aged 16+, GB

24. Perceived alcohol content of various drinks Mean response for each of the following drinks, by gender, age and social grade. “Do you know how many units of alcohol each of the following drinks contain? Please give us your estimate, even if you are not 100% certain” Source: Charity Awareness Monitor (nfpSynergy)/nVision, 2010 Base: 1,000 online respondents aged 16+, GB

25. Consumer perceptions of the 10 most premium alcoholic brands Spirits brands dominate the list There are no lager or cider brands, mainly due to product perceptions, rather than weak branding Rank of highest perceived premium alcohol brands Mean score Average score for alcohol brands perceived as premium = 6.1 Base: 1.1,357 beer/cider drinkers who rate at least one beer/cider brand as premium; 2.1,293 spirits drinkers who rate at least one spirits brand as premium; 3.1,223 wine drinkers who rate at least one wine brand as premium Source: GMI/Mintel 10 = Very premium / high quality 0 = Not premium /low quality

26. Consumer perceptions of the 10 most premium beer/cider brands 10 = Very premium / high quality 0 = Not premium /low quality Mean score Guinness is the only brand to make the overall alcohol top ten list Evidence that the Stella Artois brand has re-found its mojo Lower alcohol lagers (e.g. Stella Artois 4% and Beck’s Vier) still being held back by perception of premium as meaning stronger ABV (4.3%+), despite their premium positioning Magners is the only cider brand included in the top five No ale brands made the list, due to fragmentation of the market and a small sample size for brand leader John Smith’s Rank of highest perceived premium alcohol brands Average score for beer/cider brands perceived as premium = 5.7 Base: 1,357 beer/cider drinkers who rate at least one beer/cider brand as premium Source: GMI/Mintel