Cost of Drinking Squeeze
What will the cost of living crisis do to drinks?
Even through the midst of the pandemic the drinks industry enjoyed a boost as consumers both drank more, and drank better. But as consumers start to feel the pinch, what luxuries will they omit, and what will they consume instead?
Picket lines. Protests. Strikes. Soaring costs. Though – due in part to other global headlines this week, you could be forgiven for thinking we’ve taken a step back to the dark old times – this is what we’re faced with in this bright, shiny, post-ish pandemic world. Yes, 2022 keeps throwing curve balls. With global wars, soaring inflation, new variants, and political scandals galore, it’s safe to say things are not going to plan.
What does this mean for drinks? Well, historically when shit hits the fan, consumers have drank their way through uncertainty, reaching for one of the few luxuries that is tied to the cathartic act of socialising, and crucially, escapism.
On the escapism part, the industry has well and truly got the memo. Look to the past and the exoticism and frivolity of the Tiki trend served as adequate distraction from the times. This time around, the exoticism and playfulness is still here, though the problematic festishism of an appropriated and distorted culture has been left behind. Yes, we’re talking about the flurry of tropical flavours that continue to come to market. But are they enough to keep consumer’s spending?
Well, that depends where you look. If it’s in the off-trade, currently, apparently not. Our post-lockdown hedonism is being sobered by the real financial impact of global events. According to data published this week sales of the top 100 alcohol brands in the UK off-trade are on the slide, losing more than £1.5bn in sales in the past 12 months. The Grocer’s 100 Biggest Alcohol Brands report found that a staggering two thirds of the top 100 brands saw declines. Notably, gin brands have declined, while vodka has seen gains; something to keep an eye on for the future. Though of course, the results have to be tempered with the impact of previously homebound consumers returning to the on-trade after lockdown.
For a more micro view on what’s happening right now, we go to the Office for National Statistics (ONS). As prices rise, people usually change their behaviour. Not lease because their outlook on life shifts a little. Despite the plunge in consumer confidence, the ONS reports that it is alcohol sales that are currently propping up retail. A surprise 1.4% volume rise in sales during April was driven by sales of booze, tobacco and sweet treats; no judgement, we’re all looking for a little comforting it seems.
Yet, brace yourself for more bad news, the British Retail Consortium does not agree. It says that due to the rising cost of living, alcohol has become much less affordable. Britons now spend 15.9% less on alcohol products than they did a year ago. The fact that Brits are cutting back, shows that price increases on alcohol matter, it says.
Suffice to say, the dust is still settling. What price increases truly mean for the alcohol sector will be revealed as the situation deepens. But, we can crystal ball it. You see, it’s not just about a price squeeze. After the past couple of years we’ve all had, it’s about a mental and lifestyle adjustment as much as a financial one when it comes to how consumers will react to having some of their financial freedoms curtailed, as disposable incomes take a considerable hit.
So though conventional wisdom says consumers will markedly cut back on non-essentials, the consumer point of view on what those in fact are, may well have shifted. With freedom and socialising curtailed for so long, now that it’s back, many consumers no longer view it as a frivolous spend, or something to cut back on. No, no, many now view it as an essential, a key form of human contact and interaction. So the question really is, if prices mean customers have to cut back, where will they go instead?
After a boost during the lockdown, off-trade sales have been hit by the re-opening of the on-trade. Now that it’s summer, it’s likely that some consumers will return to lean on outdoor socialising. Though RTD formats have been the convenient answer for the past couple of years, it’s likely consumers may not take a hit on ease, in exchange for getting more bang for their buck, moving back to full spirit bottles and mixers which work out considerably cheaper per serve. It’ll take a while for the shift to work through innovation departments; there’s surely many more RTDs still in the pipeline. But you can expect the slowing of new releases of the format, as consumers prioritise value over convenience.
Furthermore, expect a shift to one-and-done categories. That’s right; to many consumers, spirits will begin to feel expensive, especially when you add in the need to buy a mixer, and garnish. Wine, cider and beer then for example start to look a lot better value for money. At home cocktails will continue, but be relegated to special occasions. Though spirits that seem to offer a full cocktail with only the addition of one mixer, such as flavoured vodkas – specifically those that mimic an established cocktail such as a pina colada or mojito – will find a growing market.
Necessity is not the mother of invention
When it comes to bars and the on-trade, necessity may not be the mother of invention. Higher-end establishments are currently stuck between a rock and a hard place. Commercial utility costs have recently vastly increased, and yet passing this increase on to consumers in many ways, is a no. no. Any marked increase in prices will curtail what is already seen as a luxury spend by many. No, instead the first thing to go for many bars will be their research and development spend. It costs money to experiment with new serves, create a new menu, launch it, and see what sticks. Instead, bars will rotate their menus less, create less new serves, and stick to their safe, tried and tested popular serves. That’s right, rising prices will curtail creativity among the industry’s most creative high-end bars, the impact of which will be felt across wider drinking culture.
So, will the much-loved trend touted by brands for the past 15 or so years, finally drop off? Of drinking less, but drinking better? With higher stress levels, less disposable income and therefore less choice of how and how often consumers are able to socialise, the answer is, this time, yes, very possibly.
Though many consumers during lockdown have worked their way across the gin shelf, finding their favourites, have invested in their favourite Scotches, or else explored higher price points in more traditional categories such as Cognac, many will also have never before felt their income squeezed so profoundly. Or been so spooked by the economic outlook.
In short, post-pandemic consumers are likely to prioritise fun over anything, dropping their standards to have a good time while they can, and however they can. And who can blame them.
However, brands need to be ready to respond, with affordable options that don’t compromise on the integrity of the brand, and everything the drinks industry has been working towards for a long, long time. These are unchartered waters.
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