As drinks companies look desperately for the elusive 'green shoots' of economic recovery, Spiros Malandrakis of Euromonitor International examines the varying impact the downturn has had across regional alcoholic drinks markets.

The global economic downturn has had a severe impact on consumer markets across the globe and the alcohol sector has not been immune. However, according to Euromonitor International's latest global report, Alcoholic Drinks Industry Prospects in a Cold Economic Climate, while volume growth globally will slow down, contraction is not expected in the short to medium term.

Moreover, there are some marked regional differences in the impact the recession has had. Drinks markets in Asia Pacific, Australasia, Eastern Europe and Latin America have been less affected than the US and the mature markets of Western Europe.

Asia Pacific as a region will see a slowdown in growth of 1% to 2% in 2009 and 2010, but no volume contraction is expected. India and China are forecast to continue to post upbeat medium-term growth, which will create a positive climate for NPD activity, especially in the beer sector.

Growth is forecast to be unspectacular across the Australasia region, although Australia should retain investment potential, especially in the beer sector.

Nevertheless, Pacific Beverages reported in June that premium brands like Peroni Nastro Azzurro, Grolsch, Miller Genuine Draft and Bluetongue were growing well ahead of the category and appeared relatively unaffected by the downturn. Wine consumption remains strong, although there is a danger of dwindling penetration rates for the category, which is gradually becoming mature.

Spirits consumption fell across much of Eastern Europe in 2008, due partly to increased transfer into beer and partly to growth in consumption of informally produced products. However, three leading distillers in the Czech Republic all reported a sales rise in 2008, indicating that global economic problems have yet to bite. Growth in the vodka category is expected to be slow but steady, while budget ranges and domestically produced variants will continue to dominate sales and possibly further consolidate their presence.

In Russia, manufacturers could be forced to slow production as retailers are unable to pay for the goods in time. Over the forecast period, standard products are set to increase their share, especially in vodka, as the crisis will force consumers to reduce their spending, especially on goods that are not essential. As a result, Russia's previously dominant premiumisation trend is set to temporarily reverse as standard variants will once again spearhead short-term growth. Nevertheless, economy spirits are not expected to increase their share, as illegal products of low quality are always positioned in that price segment. In general, Russia's spirits market is forecast to weaken, with beer generating the most attractive investment opportunities.

In 2008, the impact of the global downturn on the alcoholic drinks market in Latin America was low, with Argentina in fact showing some of the region's best results. There is likely to be a tightening of belts across much of the region and this will translate into increased demand for competitively positioned local brands. Across Latin America, locally produced beer was the stellar growth category, with A-B InBev reporting a 7.6% volume rise in Latin America for Q1 2009.

In North America and Western Europe the picture has been somewhat different. There is no question that core middle-class consumers in North America are looking to economise, which would indicate a growing trend towards trading down as well as a bigger market for value protection brands. Sluggish short- to medium-term growth is almost a certainty in the US as consumers are squeezed more by the credit crunch. The market for alcoholic drinks is set to become increasingly competitive in the US, underscoring a growing need for innovative marketing and astute product development, while Canada is forecast to perform only marginally better.

Sluggish macro-economic activity is also likely to be reflected by a slowdown in consumption of alcoholic drinks in a number of key Western European markets. The impact on the alcoholic drinks market is expected to be particularly strong in Germany, with contractions across all core sectors expected. The clear winner based on Euromonitor International's analysis will be economy lager, which is in line with what was seen during the 2002 recession.

The beer sector in the UK was also a high-profile casualty, reflected by a major slowdown in on-trade volume. A sharp decline in beer volume demand in both the on- and off-trade was witnessed in Q4 of 2008, although SABMiller reported in May 2009 that it had increased its share of the premium lager market in the UK by 20%, enhancing its belief that consumers still refuse to switch to cheaper beer brands despite the recession.

On the upside, wine categories are likely to make some volume gains, although the credit crunch has undermined fine wine prices. According to the Fédération des Exportateurs de Vins et Spiritueux de France (FEVS), exports fell by 30% in the first quarter of 2009.

Overall, Western Europe will see a major impact in the on-trade as consumers are going out less and spending more time at home. This will hamper sales of products such as stout, which are heavily based in the on-trade, while Champagne will contract in 2009 in most markets both on- and off-trade, as celebratory occasions will be temporarily postponed.

On a global scale, volume consumption of alcohol has proved to be broadly resistant to past economic crises, although as this recession is unprecedented its effects on the alcoholic drinks market are already markedly distinct from historic examples.

On the whole, advanced economies will see a more dramatic decline in alcohol consumption volumes as the economy deteriorates, but it is expected that these declines will be short lived and the market will start to recover at the end of 2010. Furthermore, it is possible that 2011 could see steeper growth than originally forecast, compensating for the belt-tightening period and providing for a reinvigorated, bullish performance once the recession is over.