As the unstoppable force of the need to socialise following years of pandemic disruption meets the immovable object of a severe macroeconomic slowdown, the alcoholic drinks industry finds itself at the precipice. Historically proven to be recession resistant, agile and adaptable, even if not fully recession proof, alcoholic drinks is gearing up to face the next in a series of crises. What are the first signs showing and what can we expect?
This report comes in PPT.
Following the pandemic-induced disruption and the decimation of the on-trade on the back of social distancing and lockdowns, the alcohol industry managed to stage a strong bounce back, capitalising on underlying demand for socialising and “revenge conviviality”. However, even while the recovery narrative is still taking hold, the next crisis is already looming. While the industry has historically seen high levels of macroeconomic resilience, it will not be entirely impervious to the inevitable upcoming shocks.
The global economy is entering a recessionary period, and the spectre of stagflation is haunting performance prospects for all key categories. However, the magnitude of the inflationary hit varies by market, and the resulting cost of living crisis is dependent on the underlying health of each economy, the presence of government support schemes (or enforced austerity measures and cuts) and shifts in the geopolitical arena.
In alcoholic drinks, sharp rises in energy costs for brewing and distillation, as well as in labour costs, prices of ingredients, materials, storage and logistics are squeezing profit margins. The majority of key players have raised prices in the mid-to-high single digits instead of resorting to the potentially devaluing effect of heavy discounting, but questions remain regarding the sustainability of such a strategy if the stagflationary environment lasts beyond 2023.
Previous macroeconomic crises provide the template for what to expect as the latest one unfolds. Alcoholic drinks will once again show some resilience, with growth rates moderating rather than sales collapsing. However, channel shifts – from the on-trade to the off-trade – and the return of trading down, polarised purchasing behaviour and, to a lesser extent, trading across and out, will be key in the short to medium term.
Alcoholic drinks is the aggregation of beer, wine, spirits, cider/perry and RTDs.
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