Are Your Premium Products 'Pandemic-Proof'?

The 2008 financial crash caused many consumers to reject different pricing tiers used to segment everyday grocery categories. McKinsey reported that of the people who had switched to cheaper products, nearly half said they performed better than expected, and most of these consumers said the performance of such products was much better than expected. As a result, many shoppers had concluded that the more expensive variant 'was not worth the money.'

What followed was a strong uptake in value sectors as people vacated the mainstream middle. But something else happened. Premium sectors expanded and people traded up - in vast numbers.

By 2018, KANTAR was reporting that premiumization was a key driver of incrementality -with 72% of premium launches adding value to the category - not just the manufacturer’s portfolio - compared to just 42% of non-premium launches.

Brand owners' efforts to protect margins had paid off. Premium innovation has been a recent success story...

But with tough economics ahead, it’s time to check if premium lines are robust enough to withstand a new wave of consumer interrogation.

In theory, premium beer is well placed to weather the impending storm, because it sits in a category delivering decent levels of emotional reward and the product is relatively complex - making it easier to sustain different pricing tiers vs. simpler categories like bottled water. It has also benefited from a wave of younger drinkers’ intent on drinking less but better.

But there are danger signs, and these will necessitate a shoring up of the premium offer.

That's because Mainstream Premium brands like Stella, Budweiser and Heineken are likely to encounter a more astute post-pandemic consumer, who - just like in 2008 - is going to question if such fare is sufficiently better than cheaper alternatives. I also believe the situation will be compounded by a further wave of people deciding to drink less but better, opting for even more discerning products as health becomes a much more important factor.

So, against these economic and societal impacts, premium beer brands must look to renovate across all touch points, increasing their distance from cheaper alternatives: