UK spirits

Diageo, the company behind big British brands Smirnoff, Johnnie Walker, Baileys and Guinness, has reportedly withdrawn its annual sales and profit forecast. Credit: Patcharaporn Puttipon / Shutterstock.

The indefinite closure of bars and pubs in the UK has not only impacted operators, but has come at a heavy cost to spirits manufacturers as well. Diageo, the company behind big British brands Smirnoff, Johnnie Walker, Baileys and Guinness, has reportedly withdrawn its annual sales and profit forecast, as developments around Covid-19 continue to create instability in the market. Similar announcements have been seen across other industries, indicating the volatile state of the global economy, and seriously damaging both investor and consumer confidence.

In the UK, 28% of consumers stated that they have either stopped or are buying less spirits since the Covid-19 outbreak. The pandemic has changed priorities for many consumers, with early lockdown seeing an increased focus on what was considered essential products. Spirits in the UK are also associated with sociable outings or house parties – unlike wine for instance, which can be enjoyed with a meal – and, with on-trade outlets suspended, this severely limits typical occasions for spirit consumption. This does not bode well for spirits manufacturers such as Diageo, which may find it difficult to divert losses from the on-trade channel to that of off-trade retailers.

It is also likely that this will lead to price hikes for spirits in the UK. However, that poses its own dangers; nearly a third of UK consumers have either stopped buying or are buying cheaper alcoholic beverages owing to a limited budget. The economy has been hit hard by the pandemic, and this, combined with uncertainty on how the year will play out, is driving value consciousness among consumers. Although the immediate impact lifting lockdown restrictions may see an outburst of celebratory spending as bars and pubs reopen, this will not last long, with expectations for consumer behaviour to follow similar patterns to that of the 2008 economic crash.

What’s more, the spirits industry was already under strain from growing teetotalism among younger generations. Unlike beer, which was relatively susceptible to low or no ABV innovations, spirit manufacturers had two options; march ahead with the trend and hope to appeal to these younger consumers looking for sophisticated low-alcohol beverages, or maintain the high ABV, instead targeting niche, premium and specialised categories that allowed the product to be positioned at a higher price point. Both of these innovations were coming into their own at the start of 2020, with more and more manufacturers adopting one of the two approaches. However, Covid-19 has disrupted sales, creating a challenging landscape for new launches and innovations in the spirits category.

These challenges are set to shape the UK’s alcohol beverages market, particularly in terms of spirits, and manufacturers should look to the long-term implications in order to better weather the storm ahead.

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