Alcoholic Drinks: Half-Year Update H1 2022

November 2022

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?

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Key findings

Perma-crisis: Alcoholic drinks on the precipice

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.

Global macro clouds darkening but local performance not uniform

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.

Deconstructing the inflationary cocktail

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.

Trading down, polarisation and bouncing back

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.

 

About this briefing
Scope
Key findings
Big squeeze, but small downgrade (for now )
The most toxic of cocktails; exploring the stagflationary scenario
Soft drivers in a hard operating environment: Is the recovery being derailed?
A tale of two industries? Biggest upgrades and downgrades
The many drivers of inflation within alcoholic drinks: a state of perma-crisis?
A fiery pricing cocktail and a big squeeze on margins
Polarisation in action: Trading down gaining traction while demand for champagne soars
Discounters: The canary in the coalmine?
Onwards and upwards? Pricing progression snapshot
Deciphering key drivers for alcoholic drinks
Global growth outlook continues to worsen amid rising recession risks
Persistent and broadening inflation significantly reduces consumer spending power
Real GDP annual growth forecasts and revisions from last quarter
Alcoholic drinks data and reporting timeline

Alcoholic Drinks

Alcoholic drinks is the aggregation of beer, wine, spirits, cider/perry and RTDs.

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