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Home is the New Bar

11/4/2020
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Hong Kong consumers enjoy a good glass of malt. However, a multitude of external factors have heavily impacted both the consumption and production of whisky. Sales of whisky have suffered, with social unrest in Hong Kong and the Coronavirus (COVID-19) outbreak in 2020. In this article, we discover how external factors are affecting the performance of the whisky market.

In no mood to drink

Sales of whiskies have taken a nosedive in 2019 and into 2020, due to several external factors in Hong Kong. According to Euromonitor research, volume sales of whisky dropped some 30% in 2019, and are expected to decline a further 26% in 2020.

Political unrest greatly undermined demand for alcohol in 2019. According to local retailers, the consumption of whiskies is heavily dependent on the prevailing economic condition of the city, as well as travel flow. With the recurring protests, Hong Kong is deemed unsafe as a travelling destination.  Since Hong Kong’s economy is heavily reliant on tourism, political instability, as well as travel bans caused by COVID-19, have shrunk the economy significantly.

Performance of the alcoholic drinks industry is also built on consumer sentiment; there are fewer reasons to spend on luxury products amidst a pessimistic economic outlook triggered by the COVID outbreak and lingering political risk, dampening the performance of whiskies. Furthermore, in order to control the spread of COVID-19, social distancing and lockdown measures have seen opening hours of bars and restaurants drastically reduced, with many outlets closed or going out of business, meaning on-trade sales have plummeted.

Supply squeeze

Following the outbreak of COVID-19, most distilleries have implemented social distancing measures to keep their employees safe. According to a statement from the Scotch Whisky Association, on 14 May, "87% of production sites are either operating at reduced capacity or have closed entirely, while one‐third of employees continue to work at company premises”. Distilleries like Beam Suntory, Amber Glen and numerous others have allocated production capacity to produce hand sanitisers and ethanol to combat the virus.

While it is unlikely that there will be a shortage of supplies, like the Japanese whisky shortage between 2017 and 2019, the production line of Scotch Whisky is still at risk in the short term, given this uncertainty. In addition, with the production shock caused by the COVID-19 outbreak, distilleries are expected to lean more on gin to maintain stable revenues in the short term, as the production time needed for gin is a fraction of that of whiskies.

Have a wee dram delivered to your door

While having a glass of whisky at one’s favourite bar is currently impossible, consumers have increasingly looked to online shopping for an alternative. From the consumer's point of view, shopping for whiskies online is convenient. It is worth noting that typically, for online sales, a minimum spend of HKD$800 - HKD$1,000 enables free shipping; an average litre of whisky costs around just HKD$1,000.

What does the future hold?

At present, the big picture scenario may vary drastically, with considerable uncertainty likely. The lack of a cure for the virus, the possibility of a fourth wave outbreak and lingering political unrest may have a negative impact on consumer sentiment.

However, one thing for certain is that online sales are expected to grow. Online sales of spirits in Hong Kong jumped by 63% in 2019. It is expected that after COVID-19, a significant and expanded number of consumers will be inclined to order online. As consumers engage in the online shopping ecosystem, considerations such as loyalty programs, ease of use and convenient delivery systems will provide clear advantages over bricks and mortar retail.

Spirits retailers must enhance their online user experiences in order to stay competitive. Users are likely to research their drink of choice online more often; a good recommendation system is essential when it comes to a differentiation between whisky shopping experiences. So, while there are definitely a lot of uncertainties for the foreseeable future, the chances of your next bottle being shipped right to your doorstep is very likely.

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