What Covid-19 means for the alcohol industry

02 July 2021, 15:51 PM
  • After Mintel predicted a 10-year record high in at-home alcohol sales for 2020, the off-trade sector was thriving – but has it made up for steep declines in on-trade sales?
What Covid-19 means for the alcohol industry

For the alcoholic beverage industry, 2020 was a year of two halves. While the forced closure of the hospitality sector and new social distancing rules for much of the year caused on-trade sales to crash, off-trade drink sales in supermarkets and fine food retail establishments have soared.

Mintel‘s flagship British Lifestyles report showed that sales of alcoholic beverages in 2020 jumped 16.3% to £3.6bn as eating and drinking occasions moved into the home. The Financial Times recently reported that global sales of tequila, vodka and liqueurs outperformed the broader alcohol market in 2020 as consumers took to crafting their own cocktails at home and trading up to higher end spirits.

During the lockdown alone, research by Nielsen Scantrack and CGA found that value sales through retailers rose £1.9bn. But despite that, the total volume of alcohol sold during lockdown dropped to 1.3bn litres from 2bn litres the previous year. Gemma Cooper, Nielsen’s senior client business partner, said the shift to off-trade sales wasn’t enough to make up for the shortfall.

In fact, the IWSR, which provides data and analysis for the alcohol market, said it will likely be five years before the global industry rebounds from the coronavirus outbreak. “While we’re still assessing the full impact of the current Covid-19 situation, it’s very clear that the pandemic is set to cause a deeper and more long-lasting after-effect to the global drinks industry than anything we’ve experienced before. Even the downturn following the 2008 financial crisis was less severe than what we are seeing now,” says Mark Meek, CEO of IWSR. In 2020, alcohol consumption fell by 8%, IWSR said.

In light of the difficulties the sector has come up against, The Drinks Trust created The Drinks Community, a first-of-its-kind space for drinks professionals to connect, pool their experience and upskill with one another.

Opportunities in off-trade

While the on-trade side of the alcohol industry faces continued challenges as the Covid-19 pandemic rolls on, opportunities are emerging in the off-trade sector for premiumisation, local provenance and alcohol e-commerce sales.

IWSR’s Global Trends 2020 report said premium-and-above spirits are forecast to increase their global market share to 13% by 2024 as consumers continue to favour quality over quantity, including cocktails and high-end sipping spirits.

Paul Hayes, co-founder of the premium tequila brand VIVIR Tequila, said that the increase in alcohol consumption at home has produced a “huge growth” in the brand’s retail channels, which has boosted his online business.

“Our presence in the real-world (off-trade) has meant our brand recognition has also grown massively in the digital retail world as well, and has meant we have been at the number one spot in the popularity charts on the likes of Master of Malt for over six months. Even our own online store has been inundated with returning and new customers,” Paul said.

Meanwhile, tequila sales at the world’s largest distiller, Diageo, were up 80% in 2020, thanks to growth in its high-end alcohol brands.

According to research by Dragonfly AI, the online alcohol market is showing great potential, with alcohol e-commerce sales up 200% in April and May 2020, compared to 2019.

“Consumers have definitely shifted their at home drinking habits, and they’re not just looking for simple serves anymore,” Paul said. “They miss their more sophisticated cocktails and because they’ve been stuck at home they’ve had the time to explore how to make drinks that they miss. They’ve also been able to experiment with spirits they may not have bought previously, such as premium tequila, which is fantastic to see.”

And Paul believes these new trends could impact the sector in the long term. “Even when restrictions eased, we didn’t see a drop off in sales, which suggests that these newfound habits may be here for some time or even to stay,” he said. Good news for alcohol e-commerce.

At home alcohol consumption “thriving”

Chris Caruso, co-founder of craft cocktail brand VACAY, agreed that while traditional routes to market had been hampered by supply constraints and closures in on-trade, products that are well-suited to at-home consumption are “thriving”.

“There is an excellent ecosystem of independent retailers, bottle shops and home-delivery services that are thriving as consumers have shifted their alcohol purchasing habits. Sales through these types of retailers have really been driving our business forward,” Chris said. “Similarly, we’ve had great results in direct-to-consumer sales, as well as catering to office social gatherings hosted on Zoom (so 2020!)”

Sales for direct-to-consumer alcohol delivery have certainly proved to be a profitable avenue for Naked Wines. The online wine retailer’s revenues rose by 80% in the six months to September 28, reaching £157.1m. “Ultimately, the most significant impact of Covid-19 on Naked Wines is not found in these interim results, but in the way it has accelerated the growth of the online wine category and increased consumer willingness to trial a new and better way to buy wine,” said chief executive Nick Devlin.

Targeting the “grey pound”

Over the next few years, Mintel’s research showed that the alcoholic beverage sector should look to target one particular market: the over-55s, or the so-called grey pound.

“The growth in the size of the older population over the next five years, and the fact that they are most likely to be insulated from the financial impact of the pandemic, makes targeting the grey pound particularly timely for all brands including alcoholic drinks,” said Jack Duckett, associate director of consumer lifestyles research at Mintel.

What are these shoppers looking for? “A long heritage (40%), being aged for longer (40%), not being mass-produced (34%), and extra care in production (27%) are all factors that feed into over-55s’ perception of what makes an alcoholic drink premium.”

Speciality food shops and local independent brands are perfectly suited to cater to the emerging trends for premiumisation and heritage. By targeting opportunities in off-trade, such as the grey pound, they can ensure that they make the most of the boom in at-home drinking and Covid-19-safe socialising while hospitality venues remain restricted and on-trade alcohol sales low.

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