Global Alcoholic Drinks: Industry Prospects in a Cold Economic Climate

As the debate regarding the elusive 'green shoots of recovery' from the unprecedented financial contraction rages on, Euromonitor International investigates the short-term regional implications of the current volatility in the global alcoholic drinks market.

Volatility on a global scale

According to Euromonitor International's latest global report, 'Alcoholic Drinks Industry Prospects in a Cold Economic Climate', alcoholic drinks volume growth will slow down, but contraction is not expected in the short to medium term. Advanced economies like the US, the UK and Spain are forecast to be affected most as the economy deteriorates, while on the other hand emerging economies like China and India will be better placed to weather the economic storm. While it seems likely that emerging markets will overcome the global financial crisis better than the world's industrialised countries, there is no doubt that contagion will eventually strike.

Asia-Pacific, Australasia, Eastern Europe and Latin America less affected

Asia-Pacific as a region will see a slowdown in growth of 1-2% 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. On the other hand, destocking and consumers' initial shock reaction to the gloomy financial environment could translate into nose-diving sales as the Q1 results of ThaiBev suggest, with beer sales down by a third in the first quarter of 2009.

Growth is forecast to be unspectacular across the region of Australasia, although Australia should retain investment potential, especially in the beer sector. Nevertheless, Pacific Beverages has reported in June 2009 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 culture 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 economy and domestically produced variants will continue to dominate sales and possibly further consolidate their presence. In Russia, manufacturers could be forced to pause 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 contagion 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 while A-B InBev reported a 7.6% volume rise in Latin America for Q1 2009.

North America and Western Europe feeling the pinch

There is no question that belts are being tightened among core middle-class consumers in North America, 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, reflecting 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, against a 2008 first quarter bolstered by high prices for Bordeaux grands crus 2005.

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 contraction is eventually over.

Table of contents

DEFINITIONS
Definitions

INTRODUCTION
Introduction
Key Findings

QUANTIFYING THE IMPACT: 2009-2010 OUTLOOK
World Alcoholic Drinks Performance 2007-2008
World Alcoholic Drinks Performance 2008-2010
Quantifying the Impact Of the Global Economic Crisis
Most Affected Categories
The Impact On Spirits
Asia Pacific: Industry Outlook
Industry Outlook On India, South Korea and Japan
Australasia: Industry Outlook
Eastern Europe: Industry Outlook
Eastern Europe: Industry Outlook - Russia
Latin America: Industry Outlook
Middle East & Africa: Industry Outlook
North America: Industry Outlook Canada
North America: Industry Outlook USA
Western Europe: Industry Outlook
Most Affected Countries

CORPORATE IMPACT
Diageo and Pernod Ricard Show Similar Trends
Diageo Volumes Suffer Q3 & Q4 2008
Diageo's Results In More Detail
Pernod Ricard - V&s Acquisition Hides Slow Growth
Pernod's Results In More Detail
Spirits and Wine Companies 2008 Performance
Latest Beer Companies Results 1
Latest Beer Companies Results 2
Alcoholic Drinks Companies: 2008 Performance
Key Company Strategies 2009
Most Affected Companies
On-trade - The Most Affected Channel
Operating Environment: Changes In Taxation Policies

FUTURE SCENARIOS
Future Scenarios

GLOBAL ECONOMY
Global Economy In 2009 - Imf, April 2008 View
Global Economy In 2009 - Imf, January 2009 View
Global Macro Economic Picture
Advanced Economies
Emerging Economies
Asia-Pacific: Overall Outlook
Australasia: Overall Outlook
Eastern Europe: Overall Outlook
Latin America: Overall Outlook
Middle East & Africa: Overall Outlook
North America: Overall Outlook
Western Europe: Overall Outlook
Western Europe: Performance By Main Market 2008

METHODOLOGY OF QUANTITATIVE ANALYSIS
Projecting the Future: Forecasting & Factor Analysis
Quantifying the Impact Of the Crisis: Factor Analysis

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Related research categories

By sector: General alcohol, General drinks

By market: Global