As the end of the year approaches, just-drinks takes an in-depth look at the stories that made the headlines in 2020 across the global drinks industry. In part III, deputy editor Andy Morton picks out the highs and the lows for the global spirits category.
COVID-19 dominated 2020, a year that will be forever linked to the novel coronavirus that has infected millions and brought parts of the world to a virtual standstill. For the spirits industry, business for a long time to come will be split into pre- and post-COVID, partly because of the unprecedented disruption but also because of the major trends and new consumer drivers set in action by the global pandemic. However, even now, 12 months on from the first stirrings of the challenge to come, global spirits faces an uncertain future. As vaccines start to roll out around the world, management teams will hope 2021 will be much quieter, and that a semblance of normality can return.
COVID-19 – The Ultimate Disruptor
The coronavirus first showed up on just-drinks’ radar at the end of January, when its emergence in China was briefly mentioned as a potential headwind to Remy Cointreau’s financial year. Little could we guess at that time what an impact it would have, and not just on Remy’s premium Cognac sales. By the end of the year, company balance sheets across the trade were shot through by COVID-19 and brand owners are still unclear on when the disruption will be over. In October, Pernod Ricard CEO Alex Ricard said his company did not see sales returning to growth until at least 2022.
In August’s announcement of fiscal-2020 results, Diageo took a total of US$1.3bn in write-downs as it revealed a torrid H2. Markets where coronavirus restrictions included bans on alcohol sales were the most affected. Diageo sales in South Africa, for example, were down 25% across the 12 months.
Remy, meanwhile, posted a 16% plunge in six-month sales to the end of September as those premium Cognac concerns in China were joined by coronavirus challenges in all markets. Indeed, as China cycled out of the worst of the COVID impact, the country was one of the few bright spots for Remy in H1, a turn of events that was repeated in other spirits companies’ results. Going into 2021, spirits companies appear more optimistic about their East Asian markets than for western ones.
Global Travel Blues
Even the more resilient global distillers – ‘resilience’ became the word of the year among CEOs in 2020 – were heavily impacted in some areas.
Both Brown-Forman and Beam Suntory recorded financial results that were impressive, under the circumstances. Brown-Forman’s sales in the six months to the end of October managed a 4% increase and Beam Suntory – the international spirits unit of Japanese conglomerate Suntory – posted a 3% H1 slip.
A major weakness for both companies, however, and for the rest of the spirits industry, was Global Travel Retail – not unexpectedly, as passenger numbers in airports and the number of consumers crossing borders in the midst of the pandemic collapsed. The impact was a long way from the prediction of travel retailer Dufry‘s CEO, who said in March the COVID-19 coronavirus was a “temporary issue” that should pass peak impact in a few months.
Instead, Pernod was to announce a 64% drop in GTR Q1 sales (three months to end of September) and, just last week, Brown-Forman revealed a 59% slump in its sales in the channel for the six months to the end of October as flagship brand Jack Daniel’s bore the brunt of GTR’s demise. The declines forced a number of changes to GTR strategies. Edrington took some of its team out of Singapore and back to Scotland, while Scotch whisky producer Ian MacLeod Distillers burst the GTR bubble by taking a Tamdhu whisky previously only available as an airport exclusive and putting it for sale through e-commerce.
Already a channel faced with enormous change, GTR looks set to undergo a major stress-test in 2021.
More Reasons to Premiumise
Many of the trends that have emerged from COVID-19 are not new. But, their adoption by the consumer has accelerated during the pandemic. Top of the list are e-commerce, home consumption and – according to one CEO, at least – premiumisation. In June, Brown-Forman head Lawson Whiting said the industry “[hasn’t] seen the trade down that some of us were worried about: Ultra-premium is still growing the fastest”.
This, said Whiting, has made Brown-Forman more focussed on super-premium-and-above brands. “That’s not only where the growth has been, but it’s where our company performs the best,” he explained.
Other distillers look set to use COVID as further motivation to boost their premium portfolios and take the high road when it comes to price. For an example of a company that didn’t do this and suffered as a result, 2020 served up Marie Brizard Wine & Spirits, which only a few years ago, was heralding the rise of the value spirits brand. Losses in recent years culminated this year in the group selling its Polish operations to United Beverages Group.
Financial difficulties remain, though, and Marie Brizard has made it to the end of the year with a bail-out by Compagnie Financière Européenne de Prises de Participation (COFEPP), which owns a near-30% stake..
The Low-Cal RTD Revolution
Another trend in spirits this year is one borrowed from beer. After phenomenal success for US brewers jumping into hard seltzer, global distillers joined in the fun with launches under marquee spirits brands. Across the year, we saw Brown-Forman launch a Jack Daniel’s hard seltzer and Pernod roll out a number of low-cal RTDs under the Absolut vodka brand. There were many more besides – even TV chef Gordon Ramsay has his own – and the launches will no doubt keep coming next year. Only this week, Beam Suntory announced the appointment of a ready-to-drink MD in the US to drive its pre-mix portfolio there.
The Drive Towards a Sustainable Future
One trend that may have been expected to fall away as a result of the focus-pull of coronavirus only grew stronger in 2020. Relatively speaking, sustainability was for many years a backwater for spirits brand owners, but consumer demand for more ethical and sustainable business practises continues to bring it to the fore. This year, a number of companies launched updated sustainability manifestos, including one from Diageo last month that promised a 30% cut in the water used to make its beverages by 2030. More immediate examples of sustainability in spirits include Remy moving to eliminate gift boxes and a Pernod project to turn its Glentauchers distillery in Speyside into a carbon-neutral site. Zero-net emissions has become a new focus for distillers, and with good reason. Speaking to just-drinks in September, net-carbon frontrunner Eden Mill said that having a zero-emissions footprint will be considered a normal part of doing business within a decade.
Meanwhile, next year could see a wider roll-out for paper-based spirits bottles after competing prototypes were unveiled by Pernod and Diageo. Bacardi also pushed back the boundaries of science with news of a biodegradable bottle that breaks down within 18 months.
Whether the rush to develop a more sustainable packaging format is a step towards a practical alternative to glass or a marketing stunt may be answered in the next 12 months.
Sexism in Spirits
As the spirits category faced a formidable threat in coronavirus, it was also forced to reckon with a far older foe. 2020 marked the spirits industry’s entry to the #MeToo movement as a groundswell of resistance to sexism grew into a concerted kickback against outdated ideas. The catalyst was the most recent edition of Jim Murray’s Whisky Bible that was criticised for using crude and sexist language. Distillers that over the years had used reviews from the Whisky Bible to promote their brands distanced themselves from the publication while, on social media, a conversation quickly took root about sexism in the male-dominated world of whisk(e)y.
The full consequences of the moment have yet to be defined and whether it will mean lasting change and an industry that is equally welcoming to all. As just-drinks’ brown spirits commentator, Amy Hopkins, wrote, it’s important that the words of the global distillers in condemning the Whisky Bible is followed by action.
“There is still a lingering complacency and reluctance to challenge the status quo,” wrote Hopkins, “but meaningful change needs to come from deep within.”
Dispatches to the Frontline
Finally, a word on the major efforts from spirits brand owners to help support the global hospitality trade during the worst of the pandemic. Many distillers funnelled much-needed funds to the bartenders and bar staff that were the hardest hit by the near-total closure of the on-premise. It was a reminder of just how symbiotic the global drinks industry is, and the importance of hospitality employees who work long hours and represent the frontline of the trade.