Seymour Ferreira, chief executive at the international spirits distributor, believes the on-trade will shrink by around 30% as a result of the Covid-19 pandemic. He warns that the recovery will be slow, but he already sees encouraging pockets of growth in Australia and Asia.
Ferreira also expects the crisis to cause permanent significant shifts in consumer behaviour, which will alter the landscape of the drinks industry. He believes that the large brands can continue to flourish in this new era, but says the business environment will be particularly challenging for small brands as consolidation ramps up in the supply chain.
Amber Beverage Group is based in Luxembourg and it has production and distribution companies in Russia, Mexico, the UK, Austria, Australia and the Baltics. It started out as a distribution company for the Baltics, but an aggressive growth strategy has seen it boost its global footprint.
ABG now produces, bottles, markets, distributes, exports or retails a comprehensive range of more than 600 owned and third-party brands, with 2,100 staff spread across the globe. Its core brands are Riga Black Balsam liqueur, Rooster Rojo tequila, Moskovskaya vodka, Cross Keys gin and fruit fusion brand Cosmopolitan Diva.
Read on for a full interview with Ferreira.
How do you feel the spirits business landscape will be altered once the coronavirus crisis subsides? Which markets will lead the way out of the crisis?
Australia is already leading the way out of the crisis. Our business is doing extremely well in Australia. We’re way ahead of last year and they have come through the crisis quite quickly and quite successfully. We are also seeing China and parts of Asia opening up, and in terms of the curve, they are ahead of Western Europe. You will see that part of the world leading the charge.
What we are seeing in China and Australia is an indicator of what will happen in the rest of the world, which is retail re-opening, wholesalers and the on-premise coming back to business. However, there is a squeeze on available capital, as people have had no income for three or four months.
There is an increased demand for credit and a desire to get consumers to buy your products. Even as HoReCa [hospitality, restaurants and catering, essentially the on-trade] opens up there are still strict rules being applied about keeping social distancing which is reducing capacity and therefore turnover.
My feeling for the spirits business in general is we are not looking at a quick return to the normal business landscape, certainly not this year, maybe not even next year either. What does this mean for the spirits business? I think we will see more focus on big brands, less innovation because return on investment will be much slower and I think we will see a consolidation in the route to market. Wholesalers and many HoReCa accounts will not survive over the next six months, and small brands will start to suffer. It’s going to be very challenging. Overall, I think we’re going to come out of this with a business landscape that is 30% below where it used to be and looking to grow from there. This is going to be very challenging for all companies.
How will consumer behaviour be changed by Covid-19?
The big question is, will people consume out of home and how will they consume out of home? Home consumption increase will probably continue now that people are more used to digital. Ordering online and drinking at home will grow. If you go out and socialise, it requires more effort.
The outlook that we have is that it will change. People will be more uncomfortable and reluctant to spend time in crowds which may mean big venues such as nightclubs will take a while to come back. It will change the kind of products that we make and how we advertise. The question is really, has consumer behaviour been changed forever? It is difficult to tell at the moment, but we’re continuing to monitor it.
What would be your message for the drinks industry during this difficult time?
We are in the entertainment industry and the challenge is to continuing to make it fun, exciting, and attractive to consumers, in a world which is full of very bad news at the moment. Our industry has the perfect opportunity to help lighten everyone’s day.
Have any opportunities for growth arisen as a result of the crisis?
We’ve moved into the production of disinfectants, which has proved to be quite successful. Although to some extent there is now over production and prices are dropping so it is perhaps not as attractive as it was, but still an important part of our new business.
How did ABG respond to the crisis?
We moved very quickly once it became clear that we were dealing with something that was going to be bigger than SARS, for exemple, which I have some personal experience with, having lived in Asia during the SARS outbreak. I understood the severity of this, perhaps more than other people.
We instituted a number of measures very quickly, in fact before many governments, such as banning all international travel within the company, banning attendance at trade fairs and events and really locking down our activity in the on-premise very early on in late February, early March. We also established a crisis management team who met every day, and are still meeting every day.
We quickly moved towards providing, what you might expect for employees: disinfectant, hand sanitiser, and face masks for our employees. We made sure to follow WHO guidelines globally in the company, rather than the national guidelines. In some countries, the WHO guidelines and national guidelines differed quite significantly, and I would say that WHO is more stringent in its guidelines than some countries. Also, we moved quickly to remote working, so all employees, who could work remotely from home, were encouraged to do so and were provided with the technology to do that. Accounting staff, for example, who have fixed PC’s, were all given laptops and worked from home. So we invested in these areas.
We conduct temperature checks from distance in all of our factories are still being performed on a regular basis. We have also enforced a quarantine period of 14 days, for any employees who had recently travelled. The focus we gave to ensuring everyone was safe and secure, was robust and very well thought through. We have been lucky, with two confirmed Covid-19 cases in the business and we are 2,100 employees. In both cases the employees had actually been on holiday and had not returned to work.
We’ve been able to continue running our factories and our business, really without much interruption, from the point of view of our employees. The impact on HoReCa, on-premise, global travel retail and the ability for people to travel and do business has however been severely affected.
Working from home is becoming part of the new normal. A lot more is being done online or digitally through Zoom or Microsoft Teams. We are conducting a lot of brand ambassador work and training online, with many hits on our Quarantine Margarita Cocktails video. In many ways, being creative is part of the adaption we’ve made.
As a management team, the biggest change for all of us is the need to make fast decisions in a rapidly changing environment, and at the same time, increasing communication at all levels is key. There are much more frequent calls and discussions between heads of businesses and I’m communicating at lot more with organisations at every level, running team meetings etc. Whilst that is happening, we are also surveying employees anonymously so they can feedback to us how they’re feeling, what their concerns are, and what they feel we could do better.
Any company with good leadership needs to be level-headed and needs to think broadly about the implications of everything that is happening at the moment. It is important to have much greater levels of communication in order for people to see positive leadership.
How has Covid-19 affected sales of ABG’s brands?
All ABG core brands have been affected by what’s happening internationally. We’ve seen sales changing in different parts of the world. For example, there has been a substantial increase in Riga Black Balsam sales in Russia, as people see it as a medicine or a healthy product. There is an increase in Rooster Rojo tequila sales online in the UK and in Australia, which is unusual because tequila is primarily a HoReCa brand. This may be reflecting people making their own cocktails at home
Mainstream sales of Moskovskaya vodka have not grown, as you might expect, being a well-priced, premium quality product. The reason for that is because our big home markets such as Italy, Spain and Portugal have been completely locked down, even supermarkets.
What we haven’t seen is any real increase in super-premium products. There have been more dynamic sales in e-retailing, with an increase of 400%, but if you look at what people are buying it tends to be more mainstream brands that they know rather than super premium products. However, this isn’t compensating for the close of HoReCa, where most super premium products are normally sold, nor the drop in duty free, and also gifting. For example, Champagne has collapsed because there are no celebrations at the moment.
The market has grown in volume, but it tends to be more at the mainstream price points rather than premium products which are recognisable, as opposed to more niche brands and products. It is difficult for smaller producers and as a distributor, as well as manufacturer, it means that the mix of our products that we sell and how we’ve been selling over the last three to four months has changed. This change will start to reflect in future consumer behaviour as people make narrower choices or maybe they will come out of C-19 more excited to try new things which is something we’re watching closely.
Will ABG’s focus change going forward?
It has raised questions in our business about where we can focus and what is the right thing to do commercially. At the moment, our export markets are looking soft and we ask ourselves the questions - is that going to continue, and if it does continue for longer than we’d hoped, will this change perhaps the way we invest in those markets and how we approach them? Do we change our route to market? Do we spend less time on export and more time on home markets?
Some home markets are doing well, and others are really struggling. In Austria, the country really closed down. Now it’s opening up again we need to ask ourselves, will people be more reluctant to go out and spend money? Each country will have a different response to the easing of restrictions and we need to be watching these closely and reacting.
We have reviewed our portfolio very closely and looked at the dynamics of the marketplace. For example, in Canada large formats are selling better than ever before, a reflection probably of home consumption patterns. Other markets are seeing more convenience-based drinks for home consumption, such as cans and pre-mixed bottled cocktails.
More and more people are happy to consume at home and are interested in trying different things but this may also raise questions for us. The easing of restrictions may not bring a sudden boost in business, it may actually take longer. Businesses and people may be much more cautious than before, so our outlook continues to be one of caution, but we are not changing our overall strategy, which remains the same.
Our strategy is to consolidate business in Baltics, and grow international brands and markets substantially, and organically, by investing behind our brands or by acquiring businesses. We will continue to stick to this path although it may adapt slightly.
Have you seen a strong uptick in online sales?
ABG alcohol sales have grown online although not compensating for the drop in business in HoReCa. Amazon continues to drive a lot of that online activity, partly because they are a full-service shop. There has been an uptick in online versions of supermarkets such as Ocado in the UK, for example. All these companies are selling a lot more online than before.
In most markets we have an online presence of different degrees, such as the Quarantine Cocktails website in the UK, ’Buy Now’ buttons on core brand websites, and in the Baltics, where we have our own retail shops, we’ve moved the shopping experience online. So we are operating at different levels for our own brands and stores. Working with retailers, whether it be Amazon or 31Dover, is more productive for us because they offer a portfolio that is more attractive to consumers than a single brand or single company shop.
How have you adapted marketing plans to communicate with consumers and support the trade during the global coronavirus lockdown?
Social media, at the moment, is the most effective way to get directly to consumers and that’s where we’re putting our efforts. We are focusing on innovative, interesting, fun social media communication more than anything else at the moment because any other format just doesn’t get to consumers. For example, in the UK market with TV advertising, you must ask the question how many people are watching TV? The numbers have declined dramatically rather than grown because people are looking for more interesting content than the run of the mill cooking shows.
Promoting has been difficult as a lot of the supermarkets are focused on feeding the country, or supplying toilet rolls! We invested more time and effort in communication with consumers directly rather than promotions, because talking about your brands and creating activity around them online and through our ambassadors is much more useful at this stage than promoting in stores and digital retailers, because there is too much promotional noise.
ABG’s 8 lessons for the industry during the Covid-19 crisis:
1. Continue to focus on the wellbeing of employees.
2. Be willing to take decisions very quickly and sometimes hard decisions such as cutting the investment on a brand in order to ensure that the money you spend is not being wasted whilst shops are closed, for example.
3. Focus on cash flow. That means watching your costs, managing your costs very closely, ensuring that the business has enough cash being generated to run itself.
4. Really focus on the details to make sure everything is running smoothly.
5. Increasing communication, at every level in the organisation, is critical to being able to focus on the details and make rapid decisions.
6. Flexibility in terms of expectations and planning. What we’re planning for today may be completely irrelevant tomorrow so there is a willingness to keep pushing forward and be ready to adapt and change within an hour.
7. You need a management team that is willing and able to be flexible, because when you change the company direction it increases the workload for a lot of people. They have to feel what they are doing is making a difference which is why communication is key in keeping the business dynamic.
8. We will have to be much more open to working from home and investing in digital and e-retailing and thinking completely differently about our businesses and how we operate them. You will probably see an increase in businesses moving from an office structure to home-based working.
