Mark O’Loughlin, Market Advisor (UK), Bord Bia – The Irish Food Board
The ongoing Covid-19 pandemic now has approximately 2 million confirmed cases worldwide with over 200,000 confirmed deaths according to the ECDC. The virus is having a widespread impact on many industries across the world economy. Lockdowns imposed both domestically and in key export markets have devastated the foodservice industry which in turn has severely cut revenue for drinks companies worldwide. This impact will vary between alcohol producers depending on their exposure to foodservice. Those companies with a strong retail presence might have seen sales soar in recent weeks although this is unlikely to last. Global Travel Retail is the exception in this case which has also seen huge sales decreases for obvious reasons. Spirit brands are particularly exposed to this channel.
If we look at the US market for example. Nielsen reported sales of spirits see a +55% spike in off-trade sales during the week ending March 21. This increase has decelerated in recent weeks although off-trade sales remain strong. According to the Republic National Distributing Company (RNDC) in the US, their sales initially spiked +50% but have since decelerated to +20% growth. They have seen economy and premium spirits outsell luxury and super-premium spirits by approx. two to one, a trend consistent with recession times. According to Nielsen, Tequila seen the biggest spike for spirits growing 75%, followed closely by gin for the week ending 21 March. Wine grew 66% whilst beer grew 42%. Ready to drink products seen the biggest spike overall with canned cocktails growing 93% and canned wines growing 95%. Online sales were up 243% in the same week. A quarter of Canadians aged between 25 and 44 have increased their alcohol intake while at home during the pandemic according to a survey carried out by Nanos Research.
This trend of increased off-trade sales is consistent in Europe with UK off-licenses seeing a 31.4% sales increase in volume terms since the lockdown according to the Office for National Statistics (ONS).
For the large multinationals with huge exposure to foodservice the negative impact of the pandemic will be substantial. First quarter sales for LVMH were down 15%. However, it is difficult to quantify the impact for the rest of the year as there is still a lot of uncertainty surrounding lockdown durations and the economic impact. After initially forecasting potential losses of up to £200m, Diageo have since retracted their financial forecasts due to the inability to accurately assess the future of the industry. What is certain however is that despite initial off-trade sales increases, the bigger picture for a lot of companies is that the loss of foodservice revenue will pose a real threat to liquidity and even survival in the case of smaller companies.
As supermarket sales decelerate, the online rate of sales growth remains high. In the US online alcohol sales grew 441% the week ending 4th April and 387% in the week ending 11th April compared to the same weeks in 2019 according to Nielsen. Alcohol companies should be putting resources into the e-commerce channel as a priority.
At this stage it is still too early to say how badly the ongoing pandemic will affect the alcohol industry in the short to medium term as lockdowns continue to be extended and no vaccine in sight.
Bord Bia is on hand to support the wider Irish Food & Drink industry. As Irish business tackles the immediate challenges of the global pandemic and looks to compete in a new and different post-COVID-19 world, it's never been more timely to measure risk on a wider scale. Bord Bia’s Readiness Radar is a risk diagnostic tool that will help your business monitor their preparedness for key risks, that will or may affect your business. The key objectives of this tool are:
- To help you understand the key inter-related risks facing your company, including COVID-19, Brexit and other issues, such as sustainability and talent.
- To help you monitor your company's current preparedness for those key risks and understand the actions that need to be taken.
- To ensure that the services and programmes offered by Bord Bia are designed to meet your immediate priorities and needs.
For more information please see the Future Proofing webpage on our new COVID-19 Hub or contact info@bordbia.ie.
Sources:
www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases
www.thespiritsbusiness.com/2020/04/canadians-up-alcohol-intake-during-coronavirus-lockdown/
www.thespiritsbusiness.com/2020/04/diageo-ditches-fiscal-2020-guidance-amid-covid-19-crisis/