COVID-19 Effects on Big Alcohol Sales, Profits
The current COVID-19 pandemic has been affecting the alcohol industry globally and a downturn in sales and profits is predicted to last well into the future. But Big Alcohol is exploring more novel strategies to protect their profit as much as possible, including focusing on lower cost products and building more on minimum contact e-commerce with alcohol delivered directly to the consumer. Lower alcohol prices and bigger availability, however, will mean greater harm for people and communities.
The current COVID-19 pandemic has been affecting all industries the world over. Its effects on Big Alcohol show a downturn in sales and profits in the future. Despite the initial alcohol stockpiling behaviour reported in many countries as COVID-19 lockdown began it seems globally, people are consuming less alcohol.
As Movendi International previously reported, while alcohol off-trade sales saw a surge in the beginning of the COVID-19 lockdown period in many countries, this trend is now receding to the usual levels. So sales and profits of Big Alcohol are declining as people adjust.
New data from IWSR Drinks Market Analysis show that the alcohol industry is seing a decline from which they likely won’t recover till at least 2024. Global sales are expected to decline 12% this year.
The world’s largest beer producer, AB InBev, has reported that revenue dropped by 11% for its biggest three beer brands – Budweiser, Stella Artois and Corona. This is twice the decline in the 500 brand profile of the brewer. AB InBev is also struggling with a $96 billion debt.
According to insiders, the COVID-19 business downturn for Big Alcohol is even worse than faced during the 2008 recession.
On-premise sale such as alcohol sold in restaurants, pubs, bars and clubs is a major market for the industry. With COVID-19 physical distancing measures many of these establishments are closed. Alcohol is mostly available for retail sale or as takeaway and that too with restrictions. This has given people who use alcohol the opportunity to observe their consumption as the alcohol norms associated with socializing and the pressures to consume alcohol are taken out of the equation in some circumstances. People are also more sensitive to alcohol restrictions in the current crisis as most alcohol is bought as retail. Therefore, alcohol policy solutions such as sales hour restrictions and pricing policies are working even better to reduce alcohol use.
Travel alcohol sales such as through duty free shops have also halted during COVID-19, leading to more reductions in alcohol sales.
A positive trend noted is the possible growth of non-alcoholic beer. IWSR predicts non-alcohol beers will gain in popularity especially with the more health conscious millennials and the least alcohol consuming generation in history, Gen Z.
Big Alcohol strategies to save profits
As reported previously, Big Alcohol is doing everything they can to safeguard their profits, even if it is at the cost of lives during a pandemic. They are using a variety of strategies, including:
- Aggressive digital media marketing,
- Boosting online alcohol retail and alcohol delivery,
- Weakening alcohol control policies such as by obtaining “essential” status for alcohol or pushing for online sales and delivery in countries where it is banned such as India.
- Building brand image for the long-term through corporate social responsibility (CSR) type projects such as producing hand sanitizer, and
- Introducing new product innovations.
The alcohol industry is also exploring more novel avenues to protect their profit including focusing on lower cost products, and building more on minimum contact e-commerce with alcohol delivered directly to the consumer.
IWSR predicts that beer will bounce back faster than other the other sectors of the alcohol industry because of its affordability. In recent years the alcohol industry has been focusing on “premiumisation” of alcohol to maintain profit as consumption declines in the western world. The COVID-19 crisis has rendered this strategy useless as people look for more affordable options.
Big Alcohol companies plan to sell more of their “low cost” options. This means cheap alcohol. The CEO of Carlsberg, for instance, said “we will have a focus on economic brands”.
South Africa is one example where cut-price beer is being sold more. AB InBev’s low priced Lion Larger was growing in double digits in the first quarter of the year – and indications are the beer giant is pursuing this strategy after the alcohol sales ban ended in the country.
Smaller businesses will be more affected by the after effects of COVID-19 than large Big Alcohol multinationals. Brewers, led by AB InBev and Heineken, have acquired competitors and slashed costs, creating a high-margin duopoly in some emerging markets. At the cost of smaller businesses these multinational giants can retain some profit by selling alcohol for prices cheaper than possible for smaller brewers.
For governments concerned about the alcohol burden in their societies, alcohol pricing policies will clearly be ever more essential to ensure that Big Alcohol does not push cheap alcohol on people.
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Sources:
CNN: “People are buying lots of booze, but global alcohol sales are still tanking“
Vinexpo: “The New Normal: Beverage Alcohol in a COVID Environment“
Buisness Live: “Recession set to alter beer-buying landscape“
Harpers UK: “Alcohol to not rebound globally until 2024“
The Economist: “Farewell for now to a golden age of drinking“