Covid-19 will cause more damage than financial crisis

The ongoing coronavirus pandemic will have a “deeper and more long-lasting impact” on the global drinks industry than the 2008 financial crash, according to IWSR Drinks Market Analysis.

Following the financial crisis more than a decade ago, changes to consumer demand affected the beverage alcohol industry. As the industry is once again under pressure, market analysis firm IWSR has assessed whether similar patterns could unfold following the Covid-19 pandemic.

According to IWSR, both the financial crisis and the Covid-19 pandemic resulted in increased at-home consumption, price stagnation and falling sales in some sectors.

In addition to this, the pandemic has also led to enforced closure of the on-trade and severe restrictions on international travel. IWSR also reported that demand is less likely to be supported by the Brazil, Russia, India and China (BRIC) markets as it was following the 2008 crash.

IWSR CEO, Mark Meek, said: “China is likely to provide a boost, especially if no further outbreak occurs, but Russia, India and Brazil will likely not provide as much of the demand this time around.

“The new ‘BRIC’ is Africa and I suspect that this region will be heavily affected by the low price of oil and the impending Covid-19 crisis likely to develop across the continent.”

Changing sales 

As a result of lockdown measures implemented to stem the spread of coronavirus, a slump in on-trade sales and increased at-home consumption could negatively impact categories such as beer, but may “favour spirit sales following the pandemic”.

While spirits may fare better than other sectors, IWSR suggested that standard-priced and premium products may struggle as a result of shrinking disposable incomes as a result of “the economic consequences of the pandemic”.

However, high-end products will likely remain stable and could even grow, especially as an investment.

Across the drinks industry, IWSR predicts the craft spirits movement and the travel retail sector may face “a very difficult time”.

Since the 2008 financial crisis, the spirits industry has witnessed a boom in craft spirits, but IWSR says these producers rely on “cellar door” and on-trade sales, both of which have been negatively impacted by the pandemic.

Physical distancing regulations and travel restrictions are also hindering the travel retail sector, which suffered an 8% drop in volume sales following the 2008 financial crisis.

Meek added: “It is very hard to see a recovery as quick as last time until a vaccine is widely available.

“This will have long and deep ramifications for the whole travel retail channel and the relationship between suppliers, operators and landlords.”

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Author: Owen Bellwood {authorlink}