The alcohol industry and its weaknesses

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The alcohol industry and its weaknesses

• - A (European) discussion -
• Anders Ulstein, ACTIS
• Dublin, 15-16th May 2008

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• Partnership strategy increasingly challenging
• Fragmenting business environment

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Board room list of problems

• Health consciousness
• Consumption stagnating, falling
• Overcapacity
• Loss of value less power of pricing
• Growing policy agenda
• More and different actors distributors,
  retailers, advertisers, NGOs.
• Advertising to LDA-24 increasingly difficult
• Demographic developments
• Partnership strategy increasingly problematic for
  them
• Limits of Corporate Social Responsibility
• Globalisation tragedy of the commons
• Where does CSR lead when the political agenda is
  broadening?
• Share holder power growth vital for value of
  shares and of company
• Big Tobacco haunting, while business
  environment very competitive

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Overcapacity

• Crises distillation of wine 5,6 mill hectolitre
  wine from Italy and France in 2006. (quality and
  table)
• Brewery closures in Europe
• Scottish Newcastle closed one brewery with 362
  jobs in February. Only 3 left in UK.
• 48 major brewery to close in UK since 1990 (the
  Beer and Pub Association)
• German beer market oversaturated by at least 30
  (Radeberger Group spokesman)

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Public approval rating

• global public opinion of different industry puts
  alcohol producers at 18below the chemical and
  oil industry, with only tobacco beneath it.
• Mr Rijn urges individual companies to invest
  in credibility through visible proactive action
  based communication (my italics). (Alcohol in
  Moderation 11.3.2005.)
• Mark van Rijn, Public Affairs Manager of Heineken
  
• Fear of sharing tobacco industry fate

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Private labels

• The growth of private label spirits in Europe has
  been particularly substantial, rising from
  10.2bn in 2001 to 16.5bn in 2006.
• Industry executives believe the second highest
  growth will come from premium private label
  brands (53.6 rated it as such). (BI 2007)
• 40 of UK market in 2011, 26 in Europe,
• Spirits and wine leading. Beer reversing trend.

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Marketing response

• Spirits brand producers will have to innovate.
• Branded products squeezed, must respond by
  focusing on brand uniqueness.
• Private label producers now positioning
  themselves to grow in premium segment. To
  challenge brands for premium position.

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Growing Alcohol Policy Agenda

• Global advertising opportunities will become more
  limited
• Taxation has made it increasingly difficult for
  alcoholic drinks manufacturers to promote such
  drinks to a younger audience. (Business Insights
  2006)
• LDA- 24 age group will continue to be the most
  important target group for alcoholic drinks
  manufacturers to 2010 restrictions constitute a
  real threat. Increasingly risky to target them.
• Growing gap between policy agenda and CSR.

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Industry hegemony adrift

• Overcapacity
• Pricing power
• Ownership (share holder power)
• Production (Private labels)
• Political environment
• Collective action more difficult

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Growth is vital

• the value of the company depends on the
  attractiveness of their shares.
• Profit not enough for a public company growth is
  vital to keep value of shares up and thus
  increase value of company.
• Politics may hit stock value before company
  sales, or even without having an direct effect on
  sales at all

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The industry partnership strategy

• Geneva Partnership on Alcohol, Towards a Global
  Charter, May 2000.
• The objective was to formulate general
  principles mutually acceptable to all parties
• ICAP has adopted the view that partners can and
  should have different biases, different
  approaches and even some different goals. This
  diversity of perspective is part of what makes
  partnerships stronger than any single entity
  acting on its own. (ICAP 2005.)

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European failure after 2001?

• Stakeholder dialogue
• European Forum for Responsible Drinking
• When not the process manager, partnership becomes
  a quagmire the more they engage with the agenda
  the deeper they sink.

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This is Partnership success

• Millions of us enjoy drinking alcohol with few,
  if any, ill effects. Indeed moderate drinking can
  bring some health benefits. But, increasingly,
  alcohol misuse by a small minority is causing
  (Tony Blair's foreword, Alcohol Harm Reduction
  Strategy for England, 2004
• Portman Group mentioned 16 times
• Alcohol Concern not at all

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Producer self regulation failing?

• Alcohol industry failed after 2001 to get EU
  endorsement of self regulation UK style.
• UK and EU moving towards co-regulation
• ART Hard law and SR should interact
  transparency, integrity independence,
  accountability, cooperation with statutory
  bodies, responsive regulation
• Advertisers taking over from producers
• EU Commission is process manager

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Partnership with public companies?

• Can a multinational publicly listed company
  possibly be a reliable partner?
• A publicly listed company who is in charge, the
  board (share holders) or the management? Who is
  the short term thinker, the CEO or the share
  holders?
• Share holder cannot appreciate CSR that slow
  growth (global warming etc). Limits of CSR.

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Reflections Beyond CSR?

• If the aim of CSR is damage control and PR. Where
  is CSR taking us if damage is not controlled and
  governments/public is not impressed?
• Is someone in the industry thinking beyond CSR?
• Will the idea of a settlement appear?

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Reflections II

• Industry hegemony lost (prise, production,
  products, politics)
• Collective action increasingly difficult
• Political partnership difficult because of
  competition for controversial target group and
  share holder demands

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Reflections III

• Partnership and dialogue is increasingly
  difficult and dangerous for the producers
• Thats why we may welcome it, given the right
  context, since it will expose industry and CSR
  weakness.