Pandemic shift to premium brands leaves beverage makers in high spirits

Beverage industry leaders may be hoping for another ‘1920s roar’ when coronavirus restrictions ease, but millions of households have already embarked on an era of premium hard drinks in their homes. living room as Covid-19 reshaped the global culture of alcohol consumption.

Global sales of tequila, vodka and liqueurs topped the broader alcohol market in 2020, as homebound consumers have grown accustomed to sipping premium spirits and mixing their own cocktails.

While parts of the population faced severe financial hardship as a result of the coronavirus, wealthier consumers who kept their jobs found themselves with additional disposable income as vacations and outings became virtually impossible.

This has resulted in “huge trade” when it comes to alcohol, said Jefferies analyst Ed Mundy, as these cash-rich drinkers have also benefited from lower retail prices than the same drinks served in bars and restaurants. restaurants.

“If you’re stuck at home and don’t want to go out to the stores, it’s easier to buy a large bottle of spirits than 24 beers. There are more cocktails at home. . . people are switching from brandy to cognac, from cheap drinks to expensive drinks, ”Mundy said.

Sales of premium spirits, which cost more than $ 100 a bottle, are expected to grow by more than two-fifths through 2024, about four times faster than standard brands and nearly four times faster than standard brands, and nearly four times faster, according to beverage analysis group IWSR. twice the growth of premium bottles.

The world’s largest distiller, Diageo, said its tequila sales increased 80% last year, driven by high-end brands Don Julio and Casamigos, co-founded by actor George Clooney. The boom, centered in the United States, followed a resurgence of high-end “pure agave” tequila as a sip drink.

“The trend away from spirits from beer and wine has accelerated in the pandemic,” said Ivan Menezes, CEO of Diageo. The North American leader of the group said late last year that household penetration for spirits increased in 2020 to three times the rate of beer and double that of wine.

Pernod Ricard said its whiskey brands Jameson and The Glenlivet had shown “solid growth” despite closing stores at airports and train stations, which had traditionally been a major outlet for spirits.

Globally, the overall consumption of alcoholic beverages fell only 8% in volume in 2020 from the previous year, despite the closure of many pubs, bars and restaurants, according to figures from IWSR . But there were substantial differences between countries.

Chart showing beverage sales edged down in 2020 as people shifted to high-end cocktails and spirits

Changes in consumption habits, at first glance, appear similar in the UK and the US: sales through on-trade, which includes pubs, bars, restaurants and clubs, have plummeted by half in 2020 in both countries, while retail sales rose 12 percent.

Yet overall consumption was much higher in the United States last year, as retail sales of home drinks account for much more of the market. Before Covid-19, a fifth of alcohol sales by volume took place in bars and restaurants in the United States, while it was twice as high as in the United Kingdom, Jefferies said.

In South Africa, where periodic alcohol bans have been imposed, and Turkey, where beverage sales are closely linked to tourism, consumption has fallen by about a third. Many countries still turned to a spirit of choice: Brazilians preferred gin, Colombian liqueurs and vodka, Diageo said.

While all beverage makers have suffered to some extent from pub closures, brewers have been hit particularly hard: the world’s second largest brewer, Heineken ad 8,000 job cuts this year as it struggles to keep up with declining beer consumption.

In China, the source country of the pandemic but where the virus was brought under control relatively quickly, alcohol consumption fell 9%, but retail beverage sales by volume rose 23%, the highest among the main markets. Kweichow Moutai, which makes a luxury version of the national baijiu white spirit, reported a 10% increase in sales for the year.

Chart showing that alcohol consumption has fallen in countries with strong bar and restaurant cultures

For those who thirst for less fiery drinks – Kweichow Moutai contains 35 to 60% alcohol – another trend has set in: the cocktail in a can.

Ready-to-drink cocktails, a broad group that also includes flavored alcoholic sparkling water known as hard seltzer, was the only category to record growth last year. Sales increased by more than 40 percent, a surge that started in the United States but is also evident in other markets such as the United Kingdom and China.

As vaccinations are rolled out, analysts at Bernstein expect a return to “near-normal” in terms of socialization by mid-2021. “As vaccines are rolled out and lockdowns are getting easier, there will be a huge pent-up demand to socialize, drink in hand, ”said Trevor Stirling, analyst at Bernstein.

And entrepreneurs are making a similar bet; in the UK, despite the pain of the coronavirus, the Wine & Spirits Trade Association said a record number of new distillers were registered in 2020.

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