The slow road to recovery for alcoholic beverages

5 min read

Food & Drink

This is the latest update from Santander’s Food & Drink team on how the coronavirus pandemic is affecting our clients and the sector as a whole.

Food & drink

While some parts of the food and drink sector have proved resilient during the coronavirus pandemic, sales of alcoholic beverages have inevitably been impacted by the closure of pubs, restaurants and other hospitality venues, as well as travel restrictions. Speed of recovery will depend on how quickly such venues are able to reopen in the coming months.

Last year, worldwide alcoholic beverage sales rose slightly, reversing declines seen in 2018. Consumption was up 0.1% and 3.6% in volume and value terms respectively, with beers and ready-to-drink products leading the way. This year, however, the lockdown losses under coronavirus have only been partially offset by sales online and from retail stores. The sector expects double-digit declines for the year as a whole and doesn’t expect to return to 2019 levels before 2024. Sales from global travel retail outlets, hit by worldwide travel restrictions, are likely to decline severely this year.

In beer, sales grew strongly last year, helped by increasing sales of non-alcoholic beers. Despite suffering during coronavirus, the sector expects sales to bounce back more quickly than in wine and spirits.

In the latter sub-category, non-alcoholic spirits were the fastest growing segment last year, though still account for a small share of the market. Gin was the fastest growing traditional spirit in 2019, though growth is slowing, with some consumers showing signs of ‘gin fatigue’, particularly in European markets.

The ready-to-drink category topped the sales growth tables for the third successive year in 2019. While these drinks still account for only a small share of the total alcoholic beverages market, they contributed more than twice as much growth in value as wine last year. Selling points include convenience and affordability, and producers continue to innovate.

In the longer term, the recovery of the sector is set to be slow. And while the resilience of previous downturns is set to be repeated, periods such as the financial crisis did lead to changing consumer behaviours and a reshaping of the industry. That experience is likely to be repeated.

Still, change this time around will be different. While the pandemic’s consequences are a repeat of the impacts of the financial crisis in some regards, with increased home consumption, price stagnation and falling beer sales, there are also marked differences. We’ve never before seen the enforced closure of the on-trade or such restrictions on international travel. This time around, the BRIC economies (Brazil, Russia, India and China) are much less likely to prop up demand. 

China, in particular, is key. Without the BRIC nations, global alcohol consumption would have fallen 2% in 2009 rather than rising 3.7%. China’s recent easing of lockdown is therefore potentially crucial in helping demand recover in 2020.

In travel retail, meanwhile, the experience of 2009 is also instructive. Wine and spirits volumes fell 8% in 2009 but recovered 12% in 2010 as the financial crisis receded. That offers hope, though the uncertainties around the resumption of international travel are significant.

Another area of the industry hit hard by coronavirus is craft brewers and distillers. These businesses are especially reliant on ‘cellar door’ and on-premises sales and will struggle to recover until the hospitality industry reopens. The financial crisis also saw retailers trim smaller brands from their lines, so there’s potential for difficulties here too.

However, it’s not all doom and gloom. We’re already seeing the alcoholic beverages sector embrace innovation, both with new products and through new routes to market such as e-commerce. There is also optimism around premium brands.

 

How Santander can help

Santander is determined to support the sector as it recovers from the coronavirus pandemic. 

  • Support in the UAE and Japan – in both these markets, distributors are reportedly looking for new suppliers as the hospitality and retail sector begins to reopen. In Japan, the focus is on whisky and gin. We’ve direct links with distributors in both markets and are delighted to share company and product portfolios with these contacts.
  • Support in China – we’re about to launch an exciting partnership with a UK consolidator focused on China. We’ll be able to share profiles with distributors who serve multiple channels to market.
  • Spirits hamper – via our partnership with the Department for International Trade we can send product hampers to buyers globally. Distillers will need miniature sizes available for these projects.

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