The premium-and-above beverage alcohol market stalled amid lengthy periods of Lockdown during 2020 but with opportunities to spend severely curtailed significant premiumisation opportunities exist for brand owners.
Consumers in developed economies have accumulated extraordinarily high levels of savings states market analyst IWSR.
Therefore significant premiumisation opportunities now exist, it points out, but brand owners should plan for a two-speed recovery in key markets post-Covid.
Markets with high vaccination rates and substantial financial support structures will thrive in the short to medium term but IWSR expects to see significant downtrading in less protected markets and regions.
IWSR predicts that many brand owners will look at increasing prices in the next 12 months and there’s increasing evidence that consumers will – within reason – accept those price increases.
In the UK the household savings ratio hit nearly 30% in the second quarter of 2020 – the highest figure since tracking began in 1987. In France, the figure was 27.4% and in April 2020 in the US the personal savings rate hit 33%, according to government reports.
After an almost static year for premium-and-above spirits in the UK during 2020, volumes are expected to increase by close to 6% in 2021. Premium no-alcohol spirits performed particularly well in 2020, driven by new product launches, shifting consumer attitudes and Covid-fuelled concerns over health and wellness.
Wine benefitted from the switch to at-home consumption in the UK, with the report pointing out that, “Premium sparkling wines are expected to see long-term recovery and growth as the on-premise reopens and large-scale celebrations and weddings return.
“Premium Prosecco proved resilient in 2020 thanks to its reputation as an affordable luxury.”
The US also recorded close to a 10% volume gain in premium-and-above spirits in 2020 which is expected to moderate closer to a 7% gain in 2021. Here – as in other developed markets such as the UK and France – brands successfully adapted to at-home consumption trends.
US consumers are responding to the more varied offer in premium-plus spirits, the buzz around celebrity endorsements and more interest in flavoured drinks.
“Covid restrictions have led consumers to appreciate the value of at-home treating through the purchase of premium products,” says IWSR Research Director Jose Luis Hermoso, “The pandemic has put a lot of things into perspective and ‘carpe diem’ is back on the agenda.”
Many brand-owners responded to this pent-up consumer demand by moving promotional spend to targeting consumers at home and becoming more creative in terms of at-home packaging and experiences.
Premium gains: markets
IWSR expects premium-and-above price bands for spirits to more than regain 2020’s volume losses during 2021 as alcohol remains an affordable luxury for those willing and able to spend.
However, less developed nations will be impacted harder and for longer by the effects of Covid-19.
“In many developing countries, mainstream premiumisation – trading-up from local spirits to imported, for example, or from value to standard price bands – has suffered a blow and will take time to resume,” says Jose Luis Hermoso, “But even in these economies there’s a small segment of the population less affected by economic hardship through Covid-19 who could embrace the very high end at even a faster pace than before,” he adds.
“Fancy, expensive packaging is no longer enough”
As the premium-plus marketplace becomes more crowded and competitive, consumer engagement is vital to brands finding an audience.
“Luxury consumers are becoming more discerning about what is in the bottle and how the liquid justifies its price,” points out Jose, “Fancy, expensive packaging is no longer enough.”
The pandemic has given brands a new set of tools to reach customers virtually. After discovering the huge potential of e-commerce, digital communication and social media during Lockdown, many companies now have dedicated budgets and teams working in this space.
However they’re also having to cope with ongoing supply chain issues as a result of the pandemic including worker shortages, shipping delays and rising raw materials costs.
Some importers in the US, for example, have already seen their costs increase – for some, the cost to bring one container on a barge into the US has increased 60-75% between 2019 and 2021. These changes in the supply chain will leave brand owners facing a choice between putting up their prices or eroding profitability.
IWSR predicts that many brand owners will look at increasing prices in the next 12 months and there’s increasing evidence that consumers will – within reason – accept price increases. However, this hypothesis is finely balanced and caution is required.
Resurgent on-trade vital
A resurgent on-trade will also be vital to the recovery of higher price segments in the world’s top 10 markets which together account for more than 80% of global premium-and-above sales. Covid-19 will have a severe long-term impact here, with many venues permanently closed or struggling to survive.
Extended periods of on-trade inactivity may also have had a psychological impact on consumers.
“There’s a belief that, during Lockdown, they may have learned not to pay hospitality prices,” says Jose, “As the on-trade returns in 2021, consumers may prefer to drink a premium product at home (at retail cost), rather than a more standard product in a restaurant (at on-premise margins).”
Covid-19 has created a notable shift in the channel balance for premium-and-above beverage alcohol, with e-commerce now a significant feature of the trading landscape and at-home consumption likely to remain dominant – in the short term at least.
But he notes that this last point should be viewed with a degree of optimism. For brand owners do not underestimate the importance of the on-trade to their brand building efforts.
“The desire of consumers to go out and enjoy concerts, night entertainment and festivals should not be underestimated,” says Jose, “Nor should we forget the crucial role of the on-trade as a brand-builder.
“This is why multinationals have continued – and will continue – to support the on-premise throughout the crisis, regardless of how investment levels in each channel might change post-Covid.”