alcohol spending

Pernod Ricard's travel retail branch was one of the hardest hit by Covid-19. Credit: monticello / Shutterstock.

In 2020, the alcohol industry will largely be marked by an unfavourable economic outlook, combined with restricted consumer movements, which will discourage and limit spending on perceived ‘luxury’ or ‘leisure’ products, such as wines, spirits and beers. Diageo and Pernod Ricard, two of the world’s largest spirits manufacturers, have both suffered substantial losses this year owing to the ongoing pandemic, with Pernod Ricard recently announcing 14.5% decline in its Q3 sales.

Globally, many people are feeling economic pressure from the Covid-19 crisis and this is likely to shape the next few years; as a result, a growing sense of value consciousness is emerging. In fact, according to week 5 of GlobalData’s Covid-19 tracker consumer survey, 63% of global respondents have stopped buying, or only buying mid-lower priced alcoholic beverages.

As a result, luxury spirits and beverage makers will find a challenging landscape over the second half of 2020. Whilst consumer behaviour is expected to stabilise to some extent once lockdown measures are lifted, value consciousness will likely persist, permeating into aspects of everyday lifestyles and shopping habits. This is particularly relevant as beverage manufacturers have been forced to channel the majority of their sales through retail, which tends to have a budgeting position and highly competitive shelf space. Consumers are able to easily compare brands in supermarkets, with quality, reputation, and price all playing major roles in purchasing decisions that are less prevalent in typical, ‘impulse-buy’ bar and restaurant settings.

For major companies such as Diageo and Pernod Ricard, which have extensive and popular product portfolios, this will be less of an issue. The current anxiety economy that is gripping most markets has led many consumers to gravitate towards local or familiar brands, with 52% of global respondents admitting that they have tried to only buy from their favourite brands since the lockdown began**. Despite this, brick and mortar and e-commerce retail is not enough to offset the losses from the HORECA sector, as evident by the declines both manufacturers have exhibited in their quarterly reports.

Limited consumer movement is another major barrier of the global spirits and alcoholic beverages market. As stated by Pernod Ricard, the company’s travel retail branch was one of the hardest hit by Covid-19, with the company expecting this to continue to be the case over the next few months. Notably, whilst 59% of global consumers have cancelled their upcoming international travel plans for business or leisure, domestic travel has taken an even bigger hit at 63%***. This offers manufacturers greater opportunities in digital and online formats, however, they are likely to see much of the same barriers to sales as in retail, with supply being bottle necked by limited distribution infrastructure.

Specialised subscriptions and direct-to-consumer services will likely become more apparent as a key business model for alcoholic beverage manufacturers to continue to reach consumers, and somewhat mitigate their losses.

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