Spirits | coronavirus

On-premise has hope with spirits

The coronavirus pandemic has decimated the on-premise sector around the world, with lockdowns leading to zero sales and furloughed staff in the channel. Richard Woodard looks at how, as lockdown eases, those bars and pubs that are still standing could see consumers' stronger relationship with spirits provide a healthier and sustainable future.

It's reckoned that any major lifestyle change, such as taking regular exercise at the gym – if you can remember what one of those looks like – needs about six weeks for that change to 'stick' and become a habit. Break the pattern or interrupt the repetition before that and you'll probably revert to your bad old ways.

Most of us are at least a couple of months into some form of lockdown now, and our transformed lives have assumed a peculiar structure. For beleaguered parents, it's a frenetic combination of home-schooling, remote working (if still employed), daily exercise and trying not to fret about your escalating snack consumption.

There's been a lot of debate about how the pandemic will change our long-term behaviour, assuming that we can, at some point, return to the lost normality of early 2020.

For drinks companies, assessing the longevity of radical shifts in consumer behaviour is especially vital. When almost the entire population is forced to drink at home for a prolonged period rather than going out to a bar, pub or restaurant, what will they want to do when they emerge from lockdown?

Recreating on-premise in retail

Looking at the US, a market previously valued above all for its vast and profit-rich on-premise channel, the data appears to suggest that consumers haven't given up on the margaritas and martinis they quaffed at their favourite bar, but have instead tried to recreate the experience in their homes.

The explosive growth in retail sales of spirits, while not remotely matching the losses incurred by the lost on-premise, has routinely outpaced that of wine or beer since lockdown began. 

According to Nielsen, spirits sales were up 48.5% in the week to 9 May and accelerating on the week before. One can't draw any firm conclusions from one week's figures, with Cinco de Mayo driving especially strong growth for Tequila, ready-to-drink (RTD) margaritas and margarita mixers. But, step back and consider a three-week period and the category leaders are clear: RTD cocktails, tequila, cordials and gin.

Tequila was on fire long before Covid-19, but there's a common thread linking it and the other big lockdown winners. Tequila, gin and cordials are all traditionally on-premise-driven categories in the US, and RTD cocktails are merely a domestic facsimile of what people drink when they're out.

Raising the bar at home

If you're a bar operator or a brand owner reliant on the on-premise for a chunk of your sales and profits, this might seem worrying. When people find they can make these drinks cheaply and conveniently at home, will they still want to go out? Particularly, in the midst of the Covid-19-driven economic downturn that is already with us?

Many industry commentators and executives have met this question with the same response: lockdown fatigue will make everyone desperate to get out and meet their mates over a couple of drinks once they can do so safely – or as we’ve recently seen in the streets of Soho in London, perhaps not so safely. 

That makes perfect sense, and the fact that people are so keen to recreate the bar experience in their homes shows, fundamentally, how much they miss their nights out. So, yes, it could give a much-needed boost to a reopening on-premise – but how long will that honeymoon period last?

We should remember that, until a vaccine is available, the on-premise experience is going to be very different, with sweaty basement dives and rammed style-bars replaced by something far less crowded and more sanitary. Social distancing, after all, runs contrary to everything that bars are about.

Todays menu: super-premium

And yet, there are grains of optimism in current consumer behaviour that augur well for returning normality. You might think that job insecurity and financial fears were sending people scurrying for bargain-basement booze, but that's not happening. 

The worst-performing spirits price segment in US retail during March and April was also the lowest rung: 'value', up 15 percentage points in dollar terms versus the year to the end of February. 'Ultra-premium' didn't fare much better at 18%, but 'mid-price' rose by 26%, and 'premium/super-premium' was up 33%.

There's no ignoring the painful fact that the on-premise all around the world has a tough period ahead

If people are learning to make high-quality drinks with premium ingredients at home, and sharing their experiences with others – even if only virtually, for the moment – it can only deepen their affiliation with those product categories, price tiers and brands in the longer term. 

There's no ignoring the painful fact that the on-premise all around the world has a tough period ahead of it, or that many venues will not last to see the period of renewal and recovery that will eventually come. 

But, if and when they do return, consumers have become that bit more knowledgeable about the liquid in their glasses –  and appreciative of the skills of the people who put it there –  then that can only be a good thing for the spirits category as a whole.

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