Nielsen Year In Review: A 2016 Comparison of the On Premise and Off Premise Marketplace

January 7, 2017
According to latest Nielsen and Nielsen CGA data, Spirits continues to lead growth across both channels, with Beer trailing and Wine in the middle.   Off Premise leads generally, while to varying degrees, premiumization impacts both channels. 
For many in the industry, it's intuitive to think that off and on premise trends should reflect major differences.  They exist in very different environments, with often very different factors impacting growth opportunities.  These factors include some that are economic, some that are technological, and some differences that are linked to the consumer in each environment. With high quality measurement of both channels available, now alongside comprehensive consumer insights, we can start to finally verify and understand the interplay between on and off premise performance to shed some light on category and brand dynamics.
Nielsen and Nielsen CGA, for the first time, has issued a snapshot of annual performance examining and comparing the On Premise and Off Premise marketplace.  This report uniquely highlights the commonalities and differences between both channels during 2016. 
Some high level similarities across both channels
.         Within both On and Off Premise, Spirits are performing the best, followed by Wine, with Beer trailing
.         Premiumization (value trend >volume trend)  was a growth factor in both channels, too. 
Some differences across both channels
.         In 2016, the Off Premise marketplace growth generally outpaced On Premise Eating and Drinking outlets
.         While Premiumization exists in both channels to some extent, that trend was less pronounced within the On Premise, a channel that is obviously higher priced to start with for the consumer.
According to Scott Elliott, SVP, Nielsen CGA, "the last 12 months for the US On Premise has been an on-going story of increased competition. It really is brand-on-brand combat out there, driven by continued growth in outlet supply set against reasonably flat demand for total beverage alcohol, a population of ever-more discerning consumers with an expanding drinks repertoire and an increasing expectation that On Premise operators must deliver experiences that are truly worth leaving the house for.  Even with this backdrop, the channel still represents a huge opportunity for those able to navigate these challenges. The On Premise remains the preeminent place to control brand interaction and engagement, via, for example signature serves or tap takeovers.  Smart suppliers to the on premise are able to target demographics, venues and occasions to create experiences which directly grow brand equity in a way which no other channel allows. It is, and will remain, a key vehicle for drinks brands to target Millennials, to recruit drinkers to their brands or categories and to align their products with some of the coolest places and experiences available to drinkers of alcohol."
Danny Brager, SVP of Nielsen's Beverage Alcohol practice commented,  "drinking at home' growth is outpacing 'drinking out of home.'   While both channels are critical, the Off Premise continues to be not only significantly larger volumetrically than On Premise, but also the environment currently offering the larger growth opportunities.  And a number of retailers continue to lean even more so into efforts to lure shoppers into their stores - for instance, more grocery stores offering the convenience of in-store eating and drinking options and more offering take home prepared meal options to bring back home.   At the same time, smaller independent retailers must battle large retail entities who continue to expand their footprint, often times through mergers and acquisitions.   While this allows suppliers and distributors efficiencies in terms of more concentrated points of distribution, it also raises concurrent risk challenges associated with more business in fewer hands."      
.         The Craft and Domestic Premium beer segments are now almost equal in dollar contribution to On Premise
.         Imports share overall is larger On Premise vs Off Premise, but Mexican imports are less developed, suggesting an area of opportunity since the Mexican beer segment is the growth leader in both channels
.         Domestic Premiums have suffered significant losses On premise, much more so than Off premise
.         Ciders are growing On premise; not so Off Premise
.         While overall Wine category trends are weaker On Premise compared to Off Premise, Sparkling Wine is growing well in both channels
.         Varieties that are better developed On Premise compared to Off Premise include: Pinot Noir, Malbec, Sauvignon Blanc and Rieslings
.         Imports overall are better developed in On Premise, led by Italy, Argentina and France. NZ remains the Import growth leader in both channels
.         While Off Premise growth rates are not too much different in the latest quarter compared to the full year, in the On Premise, Wine trends - led particularly by Reds - have improved generally.
.         Unlike Beer and Wine, Spirits is growing in BOTH channels
.         While Spirits growth rates in the Off Premise have eased just a bit in the latest quarter compared to the full year,  in the On Premise, category growth rates have strengthened in the last quarter
.         While flavors in each of Vodka and Whiskey is more important in the On Premise, their growth On Premise lags Off Premise.  
.         As well, Canadian Whiskys are not as performing as well On Premise in comparison to Off Premise
.         Cognac growth is enviable in both channels - but even more superlative in On Premise
.         Tequila is one of the Spirit segment leaders of growth - in both channels              
For On Premise, competition will only continue to increase in 2017, innovation will keep pushing the boundaries of experience and expectation and consumers will continue to see the On Premise as an experiential channel rather than a habitual one.  In short, this will remain a tough market for many and successes will be hard earned.  Serious rewards do exist of course but channel-specific strategies are required to unlock them.
So what is essential to win in On Premise 2017?  Firstly, a clear channel strategy which is delivered via effective partnerships with distributors and national accounts.  Secondly, suppliers must be able to use retailer-focused, On Premise insights to gain and protect space and visibility in bars and restaurants - For example, insights around optimal assortment, benefits of menu listings, effective pricing ladders, impact of specific outlet activation investment etc.  Finally, the need to objectively benchmark performance against competitors has never been so important in order to stay on the pulse of who is winning and losing. And, crucially, how.
Within the Off Premise marketplace in 2017, competition for the consumer dollar will be even more intense with each adult beverage category seeking to be the drink of choice on each drinking occasion - whether those end up as in home or out of home occasions.   Additionally, all three tiers - suppliers, distributors, and retailers will continue to be challenged by assortment.   In 2017, how will Off Premise players be matching and managing the  continuously growing range of beer, wine, and spirit products with the diverse preferences and needs of a growing consumer base?   Those who are recognizing the importance of getting the 'right' products  in the 'right' stores to meet the needs of shoppers in that store, will be the winners.   Moreover, e-commerce in beverage alcohol, while still relatively small in comparison to many other categories, will continue to expand, and Off Premise retailers will need to deal with a growing segment of consumers who may wish to "buy", but who may not need or see the need to visit the store to do so.