The Covid-19 pandemic is set to cause a deeper and more long-lasting impact to the global drinks industry than the 2008 financial crash, with the on-premise and global travel retail both suffering a severe impact, according to IWSR.
IWSR looked at the impact of the 2008 financial crash and assessed whether similar patterns are likely to unfold in the wake of the Covid-19 pandemic.
While the pandemic and its economic consequences may share some common aspects with the downturn of more than a decade ago, such as increased at-home consumption, price stagnation and falling beer sales, there are also marked differences.
These include not only the enforced closure of the on-trade and severe restrictions on international travel, but also the fact that the BRIC markets are less likely to prop up demand this time, and the likely disproportionate impact on smaller and craft producers. The speed and extent of any recovery – which came relatively quickly following the 2008 crash – will depend on the path of the virus, how quickly restrictions can be lifted and the impact of any future Covid-19 surges.
Travel retail sales suffered in 2009, with wine and spirits volumes dropping by 8%, but recovered in 2010, rising by 12% as the worst of the crisis passed. This time around, however, there is continued uncertainty about social distancing at airports and on board aircraft, and many airlines are in severe financial trouble.
“It is very hard to see a recovery as quick as last time until a vaccine is widely available,” says IWSR CEO, Mark Meek. “This will have long and deep ramifications for the whole travel retail channel and the relationship between suppliers, operators and landlords.”
During the global economic downturn of 2008/9, the BRIC markets provided a much-needed silver lining: while global alcohol consumption in 2009 was essentially flat, it would have fallen by 2% without the contributions of the BRIC nations, where consumption volumes rose 3.7% in 2009, according to IWSR figures.
With the expansion of these markets over the past decade, the industry cannot depend on them to shore up demand this time around – although China’s recent easing of lockdown restrictions might bring pockets of renewed growth.
“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,” says Meek. “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.”
The closure of much of the global on-trade has had a huge impact, but there will be no swift recovery as restrictions are eased. In China, consumers have so far been reluctant to return to the on-premise, and some reopened bars and nightclubs have closed again as social distancing proves difficult to uphold.
Spain’s restriction of the reopening on-premise to outdoor spaces and 30% capacity will likely prove difficult for many operators, and sales are likely to remain limited at first. But, the gradual re-opening of the on-premise is the step needed to give brand owners and their distributors a path forward.