Alcoholic drinks in Ireland – the Celtic Tiger on its knees
As the dust begins to settle over the mauled carcass of the Irish economy, the once roaring Celtic Tiger is desperately looking for a new set of claws. But the explosive socio-economic mix is taking a heavy toll on the once seemingly impervious alcoholic drinks industry, which is reeling under the cumulative burden of sinking consumer confidence, a steady flow of cross-border sales and a crippling unemployment rate which appears to be the only indicator witnessing a sustained boom in the country.
A boom preceding – and paving the way for – the bust
Ireland’s economy fell into a deep recession in 2009 with analysts expecting that it will be 2014 before the Government deficit falls below the three per cent of GDP ceiling allowed under the EU’s stringent Stability and Growth Pact. In the meantime,
unemployment is expected to surpass the 15 per cent high watermark, essentially doubling the 2008 figure. As if that was not enough, Irish consumers are dangerously in debt, with average household borrowing standing at €36,500, twice the EuroZone average, a fact that will severely undermine discretionary spending in the short to medium term. Epitomising the viciousness of the boom-to-bust cycle, Ireland is witnessing a transformation from an international market prodigy to a financial pariah, dragging the alcoholic drinks industry down with it.
While changing consumption habits, legislative barriers and high levels of emigration had subtly but steadily changed the Irish alcoholic drinks market over the course of the review period – while accelerating its eventual demise – it was the loud burst of the housing bubble and the consequent drop in construction that literally shot the tiger down.
A combination of factors had driven consumers to start pulling down the shutters well before the arrival of the recession, upsetting the strongly-held image of an island bursting with traditional song and Guinness-filled pubs.
The off-trade accounted for around a quarter of the market in 2004, with 2009 seeing that figure rise to over 40 per cent as mortgage indebted consumers were forced to stay in. Furthermore, legislation introduced over the review period led to an increased number of targeted breath-tests which discouraged people from going out at night, especially in rural areas where public transport is very limited.
The smoking ban enforced in 2004 also helped to accelerate this trend as did the excise hike on spirits in 2003, while according to the Licensed Vintners Association and the Vintners’ Federation of Ireland the number of on-trade establishments dropped from 11,000 in 2001 to 9,500 in 2008. Posting a sobering two per cent total volume CAGR decline over 2004-2009, the industry was hence only starting to face the unfavourable circumstances that would soon culminate in its recession-induced freefall.
Within this rather bleak context, overall alcoholic drinks sales in the country did not so much as purr, let alone roar, over 2009. Posting an eye-watering six per cent total volume decline, the industry only accelerated its already disappointing five per cent decline of 2008. Mid-single digit declines were only witnessed by a few ‘fortunate’ categories while a number flirted with double-digit collapse.
The beer sector, which is usually considered to be fairly recession-proof, has been going through a clear period of adjustment.
This has been compounded by the numbers of consumers seeking cheaper groceries north of the border, taking a significant proportion of business away from the Republic. Beyond this, rising health concerns and wider media coverage of the dangers of binge-drinking have caused some consumers to address their drinking habits, leading to a sharp six per cent total volume decline in 2009 for the category. Even iconic stout did not manage to escape the slump, posting an eight per cent decline for the year.
Within wine, declines in volume stood at five per cent for 2009, reflecting a significant change in fortunes for the sector. Aside from the clear effects of the recession and the high excise taxes on alcohol, it is worth noting that the majority of growth over the review period came from champagne and rosé wine, with each accounting for extremely small fractions of the market. New consumers contributing to the growth of these emerging categories are different to those who have consistently and traditionally purchased red or white varietals as part of their standard shopping and were hence likely to be the first to fall away, impacting precisely the areas of the market where growth was occurring. And so they did.
As for spirits, they fell victim to a perfect storm of unfavourable trends. Recessionary pressures aside, whiskey, brandy, cognac and gin are increasingly considered old-fashioned drinks, while the mass exodus of immigrants from Eastern Europe severely undermined vodka sales. Tequila surfaced as the only category to witness some gains although its comparatively minute size was the main reason for its resilience.
Every little helps
With one in six jobs in Ireland’s alcoholic drinks market having been lost since the landing of the recession, according to trade body Drinks Industry Group of Ireland (DIGI) and sales expected to post a further two per cent total volume decline over 2009-2014, the horizon is still veiled with uncertainty. The whopping 20 per cent cut in duty on all alcoholic drinks in 2010 provided some respite. Its effects will be closely scrutinised by companies and governments around the globe.
As for the immediate future, focusing on exports and reinforcing the image of ‘Brand Ireland’ abroad is the only way forward. Perhaps sales of Bushmills, Jameson and Guinness to the US and most importantly the emerging markets of Africa and the Middle East and Asia-Pacific could be just the new pair of claws the tiger needs.
–– Spiros Malandrakis
Euromonitor International
For more information: www.euromonitor.com
