Beer, wine, cider, gin, brandy, whiskey, rum, tequila, vodka, and tens if not hundreds of other drinks together compose a multitrillion-dollar market that was expected to grow even further if it wasn’t for a man-made crisis. Forced quarantines and closures of bars, restaurants and cafes have clearly affected the alcoholic-beverage industry, but does this mean there is no future in it?
First, it is important to mention that every market is different and so is every business. Thus if, for example, wine consumption in the US declines, it does not mean that Spain and the rest of Europe follow a similar pattern.
Even looking at the European beverage companies, we can see that some companies such as Abi Inbev suffered a dramatic fall during the Covid-19 crisis, whereas others, like Remy Cointreau, not only returned to previous levels but exceeded them.
This can be explained by the fact that quarantines have led to a surge in at-home consumption, something that has forced shops to adapt, addressing customers’ needs today and forging stronger ties with them for the post-Covid-19 era.
In this context, it shouldn’t be a surprise that beverage companies increased their investments in digital platforms and digital delivery. In April, McKinsey published a study suggesting that in the US alone, 60 retailers (representing $370 billion in annual sales and over 50,000 physical retail locations) had closed temporarily. The market capitalization of physical retail space has fallen by more than 35%.
Obviously, this doesn’t mean that we have seen the end of brick-and-mortar stores. It simply reminds us of the fact that as the world evolves along with customer needs, so must the branch format and service model. More and more customers will have grown comfortable with digital, remote, and low-touch options, even among rural and older populations.
Second, we should understand that quarantine can’t instantaneously change people’s habits. Before Covid-19 we were used to going to bars, pubs, restaurants, and cafes and ordering a glass of beer or wine. With the lockdown, social life came to a standstill, but it doesn’t mean that alcohol consumption also decreased.
In Belgium, for instance, sales of alcohol in supermarkets have increased by 10-15%. Reasons for that vary, ranging from loneliness to boredom. This isn’t a surprise considering that “social distancing” measures have clearly affected the mental health of many. Those who didn’t have PSP or Xbox, or didn’t like games, began stocking up on spirits, wine, and beer in preparation for being stuck at home.
In Britain, on the other hand, alcohol sales surged by 22%. According to The Guardian, the value of beer, wine, and spirits sold through grocers was up 41% in July, even as pubs in England started to reopen on July 4, as consumers continue to eat and drink at home.
To meet customers’ demands, companies had to develop delivery services. Unfortunately, organized-crime gangs also noticed that, and as a result, illegal alcohol delivery services also skyrocketed. English pubs that were open in the week beginning July 6 posted a 39% decline in sales.
In Australia, people began drinking alcohol more frequently during the Covid-19 pandemic than before. Curiously, drinking was “slightly higher for males” and “substantially higher for females.”
According to research conducted by APCO Insight, 35% of Americans are drinking about the same during stay-at-home orders and 28% are drinking less. This includes 11% who say they have stopped drinking entirely. As a result, it is expected that beverage alcohol could take five years to rebound from the pandemic.
Mark Meek, chief executive of IWSR Drinks Market Analysis, has said the effect of the 2008 financial crisis was “less severe than what we are seeing now” and 2019 was the “last ‘normal’ year” for the industry for a while. He expects it will take until at least 2024 to reach pre-pandemic sales levels.
Here we have to remember the late American economist Paul Samuelson’s joke, “The stock market has predicted nine of the past five recessions.” Many of us thought that it would take years for the stock market to recover, but the reality was quite different. On a year-to-date basis, the S&P 500 is up almost 4%, while Nasdaq grew by more than 22%.
In conclusion, there is no doubt the Covid-19 pandemic changed the alcoholic-beverage industry forever. Its impact can already be felt by all businesses across the world. The industry is also suffering from the cancellation of sporting events and the closure of restaurants and cinemas.
In order to survive, companies should think creatively, invest in digital transformation, and consider adopting aggressive cost-containment measures.