Year-on-year sales were broadly at in 2019, as declines in wine and spirits were off set by gains in beer and RTDs. IWSR analysts warn there will be a steep drop in 2020 as a result of the coronavirus crisis, and they believe the industry will not fully recover until 2021. It likened the decline and subsequent rally to a “Nike swoosh”.
IWSR chief executive Mark Meek said the downturn would be more severe this year than during the 2008 financial crisis. “We expect declines of almost 12% in 2020,” he said. “There will be some recovery at the end of 2020 and through to 2021. At its most simple, our view is that beverage alcohol consumption is going to take at least five years to get back to where it was in 2019.”
The firm believes that the US and Africa are the best-placed regions to weather the storm, and that Europe, South America and Asia Paci c will be hit the hardest. “We see almost no effect from the virus in the US and Africa in 2020 and beyond, or minimal,” said Meek. He pointed to the strength of the burgeoning hard seltzers category and a successful pivot towards o -trade and ecommerce as reasons for the US trade to be optimistic.
“Although we forecast some declines across the five-year period, it’s holding up pretty well,” he said “Many brand owners are reporting to us that the strength of off-premise sales is negating and outweighing the downturns in on-premise.” IWSR notes that Africa has the youngest demographic in the world and a growing middle class, so it believes the continent will be less severely impacted.
“Europe had declining consumption anyway in many key categories, and there has been quite a severe impact of the virus on the on-trade and travel,” said Meek. “South America will see steep declines because of the whole uncertainty around the virus, particularly in markets like Brazil. We see growth disappearing in the short term, with sharp declines in those three markets in 2020.”
IWSR does forecast some pockets of growth amid the doom and gloom. “RTDs is a small category, and it accounts for less than 5% of the volumes of major brand owners,” said Meek. “Having said that, RTDs has grown phenomenally over the past five years, particularly in the past year or so, driven almost entirely by the huge success of hard seltzers in the US. The growth rates have been incredible.
“We don’t expect that growth rate to continue, but there is every reason to believe strong growth will continue. There are other innovations around RTDs – hard teas, hard kombuchas in the US – that are really driving this category. Outside the US, there is very strong growth in Japan, which is a big RTD market. Even during and a er the crisis, we see a growing number of the population drinking increasing amounts of RTDs, particularly at home.
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“It’s a category focused on the outdoor, refreshment occasion, so it will appeal across many markets, particularly warmer climes. It’s a category, with the right level of focus and investment behind it, that will grow particularly with younger, legal drinking age consumers. We see good growth rates and no downturn in 2020.”
He added that beer would rebound quicker than spirits and wine in the years ahead, driven by low and no-alcohol beer. “We think beer will have a better five years than wine and spirits, and cider will follow a similar trajectory,” said Meek. “Having said that, in 2020 we are expecting quite steep, double-digit declines for beer. Beer is very much an on-premise drink. In the UK, almost 50% of beer consumed is in pubs.
“Substantial volumes of beer are also consumed at outdoor events, and those have either been closed or opened in a much more restricted way than was the case pre-crisis. That does not include malt-flavoured beverages such as hard seltzers. We include those in RTDs. We expect beer, particularly driven by low and zero-alcohol beer, to get back to 2019 levels by the back end of 2024.”
The global spirits category experienced a 2.5% decline in volume sales during 2019. This is entirely attributed to a decrease of almost 10% in baijiu consumption in China, caused by the government and brand owners closing production facilities that were catering to the very low end of the market. Excluding baijiu, global spirits volumes grew 1% in 2019.
“We expect spirits to show some quite steep, double-digit declines in 2020,” said Meek. “A lot of spirits consumption is driven by on-premise sales – particularly bars, nightclubs and restaurants – and travel retail, and those have been most materially affected by the downturn. There will be an uptick at the back of 2020, going through to 2021, but we expect spirits volumes only to get anywhere near to 2019 by 2024, so quite a lengthy lead time for spirits to get back to where it was.”
IWSR sees scotch whisky, rum, vodka and gin all struggling, but it believes American whiskey and cognac will hold up well, largely thanks to the strength of the US market. Meek added that alcohol-free spirits such as Seedlip should regain momentum and enjoy growth over the next few years.
Wine faces a tough couple of years, but it should rebound to 2019 levels by around 2024, according to IWSR. “Still wine has been declining in core markets like Europe and the US,” said Meek. “Categories like spirits and RTDs are really taking share, particularly with younger, legal drinking age consumers, from the wine category.
“Only sparkling wine has been holding it up, mainly driven by prosecco. We expect wine to be severely affected by the downturn – still wine, sparkling and champagne to see double-digit declines. We have seen many reports about strong off-trade wine sales in markets such as the US and the UK and others, but that is not off setting steep declines in the on-trade. There was a total ban on sales in South Africa. In South America, there has been a big decline in consumption. We expect a steep level of decline. We do expect it to get back to some level of normality by 2024.”
