Gordon Brown has been warned that the 13p-a-bottle duty and VAT rise on spirits-based FABs announced in the Budget will rebound, with more producers turning to beer and wine-based versions.
The Chancellor's tax rise came after a 34% rise in sales of FABs in both the on and off trades in the 12 months to February 2002.
Quentin Rappoport, director of the Wine & Spirit Association, said after the Budget that FABs are in competition with beer, and putting the duty on a level with straightforward spirits was unfair and would backfire. He said: "As in several other countries, producers will switch to basing their products on beer or wine rather than spirits, so no revenue will be gained."
The tax rise puts companies such as Guinness UDV, which makes
Smirnoff Ice, in a dilemma. In the United States, Smirnoff Ice is already a malt-based brewed product, without any vodka in it, because of American alcohol laws. But if Guinness switches to a non-spirit version in the UK to save 13p a bottle, it would be in danger of losing all the brand equity built up by being able to say that Ice contained genuine Smirnoff.
However, the increase in duty on spirit-based FABs gives a boost to producers such as Holsten, which is launching its own assault on the FAB market next month with a range of beer-based fruit-flavoured drinks, Holsten Fusion. The
target market is the same as for brands such as Smirnoff Ice, 18 to 27-year-olds, and the drinks will be 5% alcohol by volume, the same as other FABs. However, with less duty to pay, Fusion will be able to undercut rival spirit-based FABs.
It also increases the likelihood that Coors, now the UK's second-biggest brewer, will bring Vibe, its American fruit-flavoured 5% abv malt drink, to the UK. The category, known in the United States as "malternatives", grew by 87% in 2001.
At least one City analyst, Stuart Price of WestLB Panmure, believes FAB drinkers are unlikely to be put off by a 13p rise in the price of the favourite brand, however. In a post-budget note to investors, he wrote: "We do not believe that the higher tax and higher prices will materially affect demand because we do not believe that demand is especially price sensitive. It is led more by brand preference and is geared more towards the youth end of the market.
"Research from NFO shows that if FAB customers cannot find what they want in one bar, 40% will switch to lower profit drinks or go to another bar, taking their friends with them."
The Chancellor's tax rise came after a 34% rise in sales of FABs in both the on and off trades in the 12 months to February 2002.
Quentin Rappoport, director of the Wine & Spirit Association, said after the Budget that FABs are in competition with beer, and putting the duty on a level with straightforward spirits was unfair and would backfire. He said: "As in several other countries, producers will switch to basing their products on beer or wine rather than spirits, so no revenue will be gained."
The tax rise puts companies such as Guinness UDV, which makes
Smirnoff Ice, in a dilemma. In the United States, Smirnoff Ice is already a malt-based brewed product, without any vodka in it, because of American alcohol laws. But if Guinness switches to a non-spirit version in the UK to save 13p a bottle, it would be in danger of losing all the brand equity built up by being able to say that Ice contained genuine Smirnoff.
However, the increase in duty on spirit-based FABs gives a boost to producers such as Holsten, which is launching its own assault on the FAB market next month with a range of beer-based fruit-flavoured drinks, Holsten Fusion. The
target market is the same as for brands such as Smirnoff Ice, 18 to 27-year-olds, and the drinks will be 5% alcohol by volume, the same as other FABs. However, with less duty to pay, Fusion will be able to undercut rival spirit-based FABs.
It also increases the likelihood that Coors, now the UK's second-biggest brewer, will bring Vibe, its American fruit-flavoured 5% abv malt drink, to the UK. The category, known in the United States as "malternatives", grew by 87% in 2001.
At least one City analyst, Stuart Price of WestLB Panmure, believes FAB drinkers are unlikely to be put off by a 13p rise in the price of the favourite brand, however. In a post-budget note to investors, he wrote: "We do not believe that the higher tax and higher prices will materially affect demand because we do not believe that demand is especially price sensitive. It is led more by brand preference and is geared more towards the youth end of the market.
"Research from NFO shows that if FAB customers cannot find what they want in one bar, 40% will switch to lower profit drinks or go to another bar, taking their friends with them."
