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UK tax cut for low-alcohol beer will have no major impact on industry, Euromonitor

The UK tax duty reduction on reduced alcoholic beer will not have a strong impact on the beer industry, at least not in the short-term, according to Euromonitor.

In March, the UK government made a decision to introduce a 50 per cent reduction of duty on beers at or below 2.8 per cent ABV from October 2011.

Potential new launches

Euromonitor alcoholic drinks company analyst, Zsuzsa Szilagyi told BeverageDaily.com that there might be some new products in the category to take advantage of the tax relief, with rumours that Heineken is considering the launch of a low alcohol lager.

Guinness also plans to launch a lower alcoholic beer of 2.8 per cent in the UK, the analyst told this publication.

However, as 4-5 per cent ABV lagers made up most of beer consumption, the tax cut is unlikely to have a big impact on the overall market, said Szilagyi.

The analyst said the tax reduction could help companies to increase margins if the products were sold at a significantly lower price.

Szilagyi said the main problem was that the UK beer market was a mature market where consumption was declining, with a shift from on-trade to off-trade consumption.

“Major companies are trying to change their focus from volume to value generation and focus on their core brands,” said Szilagyi.

“The tax increase obviously hit the markets hard, especially pubs, and other on-trade channels, and the market is still adjusting to the new regulations, but a significant shift to low ABV beer is not likely in the short term,” said the analyst.

Opportunity

However, the Beer and Pub Association (BBPA) said the changes could offer a boost for the lower alcohol sector if it was supplied with sufficient investment.

“We think this will be a useful tool in developing what is currently a very small part of the UK beer market,” Andy Tighe director of brewing at the BBPA told this publication.

“It will create more choice for consumers. It may encourage some drinkers to shift from higher strength beers on certain occasions,” he said.

To really stimulate investment and growth this category the BBPA said it is seeking an increase in the 2.8 per cent ABV threshold for reduced duty rate to 3.5 per cent ABV.

"Whilst this has the support of UK Government it requires a change in EU law," said Tighe.

The Campaign for Real Ale also welcomed the decision saying that the introduction of low strength beers in pubs could be a huge boost to the licensed trade.

CAMRA claims its new research shows that half of regular pub goers would like to see more pubs selling a low strength beer option.

This is due to factors such as the ability to help regulate drinking levels, their more refreshing taste, lower calorie content, and lower cost, said the CAMRA.

UK brewer Fullers said it was looking into the possibility of producing a 2.8 per cent beer, but only if the product's taste was not affected.

However, this is no easy feat, Fuller's Head Brewer John Keeling told BeverageDaily.com.

This is because the alcohol content comes from the malt. Therefore the more you use, the more alcohol content you have, he said.

The malt also gives the beer flavour, he explained. But the problem is, if you want to brew a lower alcohol content beer, you can't use lots of malt, he added.

Keeling said the firm's move towards a lower ABV beer was mainly down to customer feedback, people wanting different strength drinks at different times of the day.

10 Aug. 2011

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