Retailers drown their sorrows as booze sales slump

man-g27c0cb784_1920You might think that hard times call for hard drinking but it seems the opposite is true with new figures revealing there was a €2.7bn (£2.41bn) slump in sales of beer, wines and spirits across all European retailers for the full year 2022.

Even so, sales of champagne and prosecco remain resilient to the overall decline, with consumers opting to stay in on weekends to drink with friends, a move which has also pushed up sales of ready-to-drink spirits as well as multi-pack servings of top beer brands.

The analysis from IRI, the data and analytics firm for FMCG brands and retailers, unpacks the impact of the pandemic, inflation and the cost-of-living crisis on over 230 FMCG categories, 2000+ product segments and over a 100 million SKUs sold to consumers in the largest European markets (France, Italy, Germany, Spain, Netherlands and the UK).

In 2020, alcohol sales (by value) increased 12.6%, driven by consumer demand during the first year of the pandemic as people were confined to their homes and had virtually stopped eating and drinking at food service venues out of home. This added an extra €7.5bn to the off-trade alcohol sector, bringing total category sales to €67.3bn.

During 2021, however, as lockdown restrictions eased, sales effectively ‘returned to normal’. Although a marginal 0.7% value sales increase added €500m to the category in Europe, this did not compare to the surge in 2020 and was an early indicator of unsustainable sales growth.

As the price of all groceries are predicted to remain high during 2023, IRI predicts that alcohol sales – both at home and at out-of-home venues – are unlikely to grow without investment in new products tailored to what the firm calls “new consumer needs and consumption moments”.

IRI global SVP strategic growth insights Ananda Roy said: “It is increasingly evident that underlying demand has changed in response to post-pandemic trends with new consumption patterns and choices impacting how the category grows over the next few years.

“Alcohol brands are caught in a perfect storm with no end in sight. Alcohol sales tend to peak during a recession as consumers eat in instead of out. However, this recession is fuelled by exceptionally high food and energy prices, record interest rate rises and anaemic wage growth.

“Households are having to make trade-offs to moderate its impact on their available income, prioritising food staples and small indulgent treats over discretionary items like alcohol. Alcohol sales are now lower than pre-pandemic levels.”

Sales of zero and low alcohol products in the UK reported a 3.7% growth in volume sales to 5 million litres in 2022 (compared to the previous year) but this was a 15% decline in units as shoppers bought larger, more expensive packs.

Value sales in 2022 grew 5.3% to £16m.The segment is estimated to have a 1% share of the total beers, wines, and spirits category. IRI predicts that with a greater variety of options available to shoppers, and space growing at the big supermarket chains, sales will increase this year, particularly as promotional events such as Dry January gain momentum.

The challenge for brands is how to boost sales without cannibalising alcohol sales that deliver significantly greater profits.

The no/low alcohol category is not yet a revenue driver for major retailers in comparison to the total beers, wines, and spirits category, but they are keen to support innovative ranges that are key to long-term growth and category dominance and as such are expanding their range and shelf space, IRI explains.

With 61% of consumers saying they want better choices in zero and no alcohol drinks, the opportunity for brands and retailers to innovate in flavours, mixes and experience will continue to fuel growth in 2023 and 2024.

The resilience of the champagne and prosecco market is being put down a resistance to give up on special and celebratory occasions with family and friends after two years of restrictions and with the cost of out of home drinking stubbornly high.

Roy added: “Consumers may change the specific champagne, prosecco or sparkling wine brands they buy and where they buy them in order to achieve some cost savings. But they still want a treat to mark special occasions even if this means purchasing champagne and prosecco at discounter chains rather than mainstream supermarkets. The switch to private labels brands in these specific segments is still in its infancy.”

Ready to drink spirits are also staying strong against the turning tide in alcohol. IRI reckons these drinks are particularly popular among younger generations as a pre-party or ‘pre-out out’ tipple that they can drink at home without needed to mix their own cocktails.

Retailers, keen to protect volume sales and consumer footfall, have increased promotions on alcohol more than any other FMCG category. This is particularly notable in the UK where HFSS rules have taken hold and alcohol promotions have replaced confectionary and sugar snacks on end-of-aisle offers.

Retailers’ own labels account for 16.4% or £11bn of value sales for the category. Although growth of private labels has not been as significant as in other categories, IRI believes that retailers may focus on the zero and no alcohol trend to increase private label penetration, especially through collaborations with small and artisanal brands as evidenced by Brewdog’s IPA collaboration with Aldi.

Roy concluded: “Retailers are likely to raise prices in 2023, which may soften demand, particularly in the UK and Germany, where shoppers have been hardest hit by the cost of living crisis. When it comes to alcohol, strong brand equity usually keeps shoppers buying their favourite beer, wine and spirit brands.

“However, as prices rise we could also expect to see more people switching to own-label brands as they do in other categories, where they are perceived as good as national brands.”

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