So far, this new decade has not disappointed with its stream of bad news. After years of optimistic growth, 2020 may be a bad awakening for many wine and spirits brands. In this article, we explore why you should be concerned about the recent external factors and what are the trends to build opportunities.
Indeed, 2020 has been rich in terms of uncertainties and bad news that will affect confidence and consumption. These factors include:
Trade Tariffs Wars: Since 2019, the EU and USA are locked in trade disputes which are affecting wines and spirits on both sides of the Atlantic, an several Category Associations are reporting severe volume drops. In a recent analysis, we detail how to deploy a pricing strategy to protect profitability, but when 25% Tariffs are imposed, some producers will suffer a lot.
Production Decline: The wine global production has been declining globally with 2 digits drops in some countries for 2 years now. I am constantly reminded that wine volume output is cyclical, but the impact from climate change and the recent fires in the US and other wine producing countries, may have a lasting effect. In a previous article, we examine the production issue in conjunction with pricing to compensate volume loss, but this is not an easy exercise when negotiation power is often on the trade side.
Stock build up and low depletion: This factor is perhaps less publicised, but we should not be surprised to see stock building in 2019 in the UK in the face of the negotiation uncertainties with the EU. This makes the books for 2020 look good, but products have to rotate, and if they don’t, trade will dramatically cut orders and / or apply heavy discounts – often paid by... producers.
Slowing down of the activity: The Covid-19 crisis is having a direct impact on drinks. In Asia, the imported spirits will probably slow due to less company entertainment and less group gatherings. The de facto cancellation of Prowein 2020, will also impact the sector, as it was a strong opportunity for small producers to make business, and some brands are postponing launches, and therefore pushing sales ahead.
The relentless competition from Spirits: More and more spirit brands target wines as a source of volume. It’s the cross category sourcing game. And with higher margins than wine and a lower dependence on production variation, expect to see more of this. Unfortunately, many wine brands are still locked in a “wine only” view of their consumers.
The points above are bad news and call for careful planning and management in the face of possible important volume drops. But they also are good news for those who know where to find opportunities in adversity. And, there are many opportunities to tap into:
More digital and more Off Trade: The current situation is impacting On Trade consumption (less discretionary income, the fear of the “group”). This may mean more home consumption which is well served by Off Trade and Digital platforms. Brands who have a solid presence in digital channels should benefit from the On Trade slow down. This aspect impacts not only the end buyer, but also Trade Marketing, and already some companies are offering online initiatives to present their products via streaming and make up for the lack of trade fairs.
Affordable is better: If disposable income declines, some consumers may switch altogether from one category to another. Spirits and Super Premium brands may suffer, but this can benefit low ABV categories or in mainstream / low price ranges. Again, if your portfolio also has variants in the price lower range, perhaps now is the time to put them forward more.
Safe is nice: We live in an uncertain world. And nobody likes uncertainty. In this sense, brands which celebrate group safety, well-being, trust and friendship, will have an edge. Positioning experts will talk about "affiliative" and "contentment" motivations. This is not just a communication aspect, it also means having a product which reflects this harmony such as soft colours or easy liquids. This is not specific to a category as demonstrated by liqueurs or brandies. Last - and because it's all a buzz, low ABV is this context can certainly play a role as lower alcohol is perceived as healthier and therefore safer.
In conclusion, the current news may not be bright, but opportunities are everywhere if one knows how to assess impact beyond immediate situation. If you would like to explore how we can help to see beyond the current hardship, do contact us. [email protected]