Alcohol industry rebound not expected until 2024
IWSR Drinks Market Analysis forecasts total global alcohol consumption will experience double-digit declines in 2020 due to the Covid-19 pandemic and will take until at least 2024 to reach pre-crisis levels.
Total global alcohol consumption rose by 0.1% in volume and 3.6% in value in 2019, but has been severely hit by the shutdown of on-trade venues worldwide in 2020. IWSR said this has not been offset by upticks in alcohol retailers and e-commerce channels.
The UK and US are expected to take even longer to recover from the crisis, with pre-Covid-19 levels not expected to return until after 2024.
The recovery time is far longer than what the industry experienced following the 2008 financial crash.
“One key thing is this downturn is going to be more severe than we saw in 2008,” said Mark Meek, IWSR CEO. “Yes, there was a dip in 2008, mainly in travel retail, but it quickly climbed back into growth on the back end of 2009, then through 2010 and 2011.
“You see steep declines in 2020. Our view is beverage alcohol consumption will take at least five years to get back to what it was in 2019.”
He also said “in many ways, 2019 was perhaps the last ‘normal’ year for the drinks industry”.
‘Steep’ volume losses
In 2019, spirits volumes declined 2.5% due to “steep volume losses” in baijiu, which is consumed almost entirely in China. Baijiu volumes dropped 10% last year. Take baijiu out of the equation, however, and spirits volumes grew 1% in 2019.
No-ABV ‘spirits’ were the fastest-growing spirits segment by volume in 2019 (up 25.5%), but the category remains small in terms of market share.
Among traditional spirits categories, gin grew the fastest last year (6.1%), but the growth has slowed as consumers are starting to show signs of ‘gin fatigue’, according to IWSR.
Meek predicts gin will be “markedly affected” by Covid-19 this year, “and that’s because, particularly in the UK, it’s very much on-premise, bar, restaurant occasion and aperitif in certain cases, and by definition it’s been affected this year”.
Across the whisky category, Irish whiskey grew by 10.6% in volume terms, Japanese whisky rose 10.3% and American whiskey was up 5.8%. IWSR believes gin and whisky will “likely rebound fastest” to pre-Covid-19 levels. Vodka volumes, on the other hand, are not expected to recover to 2019 levels until after 2024.
“The categories we feel will be most affected [by Covid-19] will be brandy, rum, whisky and gin,” Meek said. “This is because strong drivers of consumption are either, or both, on-premise and travel retail. Therefore we expect quite marked declines in those categories in 2020.
“Rum will have a much slower burn to get back to where it was. Rum was showing, in 2017 and 2019, quite good growth. Unfortunately, the crisis will drive steep declines with less growth projected through to 2024.
“The key reason is rum, again, is very much an outdoor, on-premise and travel-related, or holiday-related, consumption type occasion. Therefore, those are most affected by the current crisis and will affect rum’s volumes over the short to medium term.”
Travel retail volumes could plummet 60% in 2020
Meek said travel retail and the on-trade were the two sectors related to the alcohol industry that will be “greatly affected” by the pandemic.
“If you look at the impact on total beverage alcohol consumption, with the 2008 crisis, it was actually pretty minimal,” he said.
“We’re forecasting declines as severe as 60% for the current year in terms of travel retail and it will take some time for travel to return to any level of normality. It’s so steep and will take quite some time for the travel retail sector to get back to where it was in 2019.
“Again, it’s quite interesting then when you put these together; in 2008, you had nearly 12% decline in travel retail, but then quite rapid growth as it came out of it in 2009.
“Travel retail has steep declines in 2020 and will take a much longer time to get back to 2019 levels.”