Cheap cider upsets the applecart: 'Drink of the Nineties' is shaken by the advance of economy brands. John Shepherd reports

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CIDER is having a rough time. The retail market for the 'drink of the Nineties' has been turned inside out in recent months by a phenomenal growth in sales of economy brands, which are 50p to 60p cheaper per litre than premium products.

This growth has rippled through the strategy of some of the bigger cider producers, such as Taunton and Merrydown, which have pushed on with churning out premium-priced brands.

But while economy ciders, which are cheaper than supermarket own labels, raised their share of the take- home market from 15 to 25 per cent in the six months to September, a big question mark hangs over their future. The reason for the rise of economy brands, such as those produced by Inch's of Devon, from relative obscurity to a forceful presence on supermarket shelves, appears to amount to little more than a 'me too' factor among retailers keen not to be outdone in terms of product ranges.

John Rudgard, chief executive of HP Bulmer, said: 'You have to remember that a lot of retailers, including cash and carry outlets, have introduced economy ciders for the first time, which has accelerated their growth disproportionately.

'It is a question of sales versus stocks. It is difficult to be precise, but it seems that half the growth is just stocks in the pipeline. It (growth) could level off very quickly.'

He added: 'My view is that it will gradually settle down. The lower the price the lower the profit margin, which is unattractive for retailers. I believe we will see consumers moving into more premium brands.'

That may well be true, but in the meantime companies such as Merrydown, the originator of premium cider, and Taunton will be squeezed financially by the need to engage in some heavy promotion of premium, as well as standard brands.

This has already had an impact. At the beginning of last month drinks analysts lowered profit forecasts for Taunton Cider by about 9 per cent to pounds 20m after the company warned that selling prices had been depressed by a 'substantial' marketing programme.

Peter Adams, chief executive of Taunton, remains optimistic about the future, and he is adamant that the growth of economy brands will not force him radically to rethink strategy. 'Clearly I think that we want to see how long- term these economy brands are going to be. They are going to stay, and our portfolio has to deal with this. We have been putting down our tactics, and we are confident of recovering volumes.'

He is critical of the way in which the investment community has responded to the situation, by severely undermining Taunton's share price performance. 'It has all been overdone.

'The threat from economy brands to the major players is a short-term dislocation. It is up to the major players to get that new sector of the market sorted out.'

That is more easily said than done. Consumers have readily displayed their willingness to trade down to lower-priced and lower- quality products and they have yet to show that they are prepared to become loyal to brands once more.

Producers will also have to convince the retailers that there is more to be gained by focusing on standard and premium brands.

What has worried investors is the sheer cost of brand promotion, and they have become increasingly concerned about the high number of premium cider products coming on to the market.

A variety of names and designs is used for packaging and labelling. There is Fatboys, a dark cider produced by Gaymers. Then there is K, which comes in a black bottle. There are ciders like Diamond White that are pitched at the young female drinker. And most have a high alcholic content, ranging from 5 to 8.5 per cent by volume.

But while cider remains a growth product - some 6 per cent on an annual basis - it is still only 7 per cent the size of the beer market, with less than 90 million gallons consumed annually.

The danger is that cider companies will not be able to sustain the high level of investment necessary for marketing and advertising.

The fight for market share is clearly concentrated in the home market. Sales of draught cider in pubs are increasing, but only slowly. Against this, the industry has to deal with the long-term problem of guessing how the market for cider is going to develop - something which in turn has a big impact on the planting of apple trees.

Bulmer and Taunton are of the opinion that cider consumption will continue to increase. Nick Pearch, finance director of Taunton, said: 'The demographics of the last six to seven years have worked against us but in three years' time it turns around again.

'The mainstream cider market continues to do well. Younger drinkers' propensity to drink cider over lager is still rising rapidly.'

Mr Rudgard at Bulmer added: 'Young people today are much more confident. If they want to drink cider in a pub they will do it . . . they won't feel ashamed about it.'

With confidence in the emergence of a rich seam of cider drinkers, Bulmer bought a 200-acre farm last year and over the next decade wants to buy another 1,000 to 1,500 acres. It already has 4,000 acres of orchards. That is a bold statement of intent, given that apple trees take five years to produce their first crop and only have a life of 35 years.

'It is therefore critical to understand the raw material requirements before planting orchards,' added Mr Rudgard, who expects cider consumption to grow by up to 3 per cent per year until the end of the century. A rosy future indeed.

(Photographs and graph omitted)