CBC - If you ask me... Tough economics bode ill for Christmas

It's a cliché of course that Christmas preparations in the UK seem to get earlier every year. But you have to give the UK supermarket chains their due, it's seemingly never too early to hang the proverbial mistletoe - yes the festive fare is already out at my local store.

For the drinks industry, talk too has already turned to the holiday season. Again, it seems earlier than usual. However, you can't help but feel that the current economic crisis enveloping us all right now has helped focus the drinks industry's attention on this crucial trading period.

No one who has worked in the drinks sector for any length of time doubts the importance of the few weeks around Christmas for the health of the sector. The misfortunes of the world's bankers, however, will have executives in the world's beverage groups eyeing this period nervously.

The problem at the moment for the FMCG sector in general is that it doesn't know quite how consumers are going to react. There is little doubt that spending is slowing, but the rate and depth of the slowdown over the next few months is still very much open to debate.

The drinks industry is traditionally seen as a defensive stock during times of economic strife as investors move to companies they believe are best placed to ride out downturns. But we are already seeing evidence of some trading down in Western markets. The rallying cries we heard only 12 months ago that drinks companies were recession-proof are no longer being as confidently espoused.

The question for the drinks industry is how the current trend carries itself into the Christmas trading period. And on this front there are two factors to watch.

The first is whether or not consumers will put aside economic concerns and buy alcohol over Christmas regardless of their financial fears and levels of disposable income. The traditional view is that households will continue to buy their Christmas bottle of Scotch or Sherry no matter what.

But I have little doubt that we have begun to hear a change in attitude from the industry itself, which is far more cautious in its rhetoric about future trading prospects, and even at times outright negative, than it was even six months ago.

The comments to just-drinks, reported earlier this week, by the CEO of Constellation Brands Europe, Troy Christensen, were the bluntest warning of what potentially lies ahead.

Speaking exclusively to just-drinks he said he felt the UK drinks market was approaching "an inflection point", whereby both the on- and off-trade "are going to struggle with the existing business model in the next year or two".

The second point to keep track of is the drinks industry's short term reaction to any real or perceived consumer slowdown in the run up to Christmas. Here on just-drinks, we've bemoaned the Christmas discount period before. After all there are few other industries that use the discount so liberally during their peak selling period. Will the drinks sector, then, cut harder and faster than at any time before if it feels volume sales are slow?

Such a move could have huge implications for profits, but some may feel it necessary to drive the sorts of volumes these companies need in December.

Again Christensen was as candid as I have heard a senior executive at a major drinks company for some time, in his warning about Christmas trading when he said: "It's going to be bloody".