Euromonitor finds alcoholic drinks not as price sensitive as trade believes

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Euromonitor says the alcoholic drinks industry as a whole is far less price sensitive than the trade has come to believe. 

A report, released yesterday, also found that for specific drink categories, emerging markets tend to be far more inelastic than developed countries.

Price elasticity is a measurement of the effect a specific price change will have on consumption. The measurement is often a negative number, because  a 1% price increase will then have a negative effect on volume consumed. A product or category is considered relatively inelastic if the price elasticity is less than -1.

If the price for a category is raised by 1%, it would be a rational assumption to say volume of consumption should decline by the same amount. If the decline is smaller than that, it indicates that people are less likely to stop buying the product in favour of a substitute, so the product is described as inelastic. A product is described as elastic when consumption falls by a greater amount than the price increase, indicating consumers have switched to other products. 

According to Euromonitor, the alcoholic “industry is largely inelastic in terms of price changes”. The average price elasticity for the alcoholic drink category as a whole, when compared to other weighted average product categories is -0.4.

Blended Scotch whisky is by far the most inelastic of the alcoholic drinks categories, with a price elasticity of -0.07. By contrast high strength premixes and dark beer are incredibly elastic, with a price elasticity of -1.80 and -1.48 respectively.

Surprisingly wine is relatively inelastic as a category, at -0.17, and more price inelastic than Champagne, which is -0.39.

Euromonitor also reports that emerging countries are less price elastic than established markets specific to the type of alcoholic drink. For example, in developing countries sparkling wine has an average price elasticity of -0.77 compared to -0.31 in developed countries. It does not mean that emerging countries are far less willing to switch, it could be an indication of the availability of alternatives within the country. This also could indicate the potential for opportunities for certain categories within emerging markets are currently larger for those first to market as there are fewer competitors.

Still wine in emerging markets is more price elastic at -0.20 compared to -0.13 in developed markets indicating people will substitute other alcoholic beverages for wine should prices increase.

The report does not look not look at price elasticity within a category or at brands, which is important to note particularly within the UK wine market. Neither does it cover the propensity for people to switch volume consumption based on the price increases of a particular brand or style of wine.

 

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