just-drinks received 172 responses to the Confidence Survey 2018

just-drinks received 172 responses to the Confidence Survey 2018

Looking back to this time 12 months ago, it would be fair to say that last year's just-drinks Confidence Survey took place in the context of a volatile and rather uncertain global environment. Brexit, Trump, the ongoing threat of terrorism… it was hardly surprising, then, that we recorded escalating levels of pessimism in the global drinks industry, amid concerns about what might happen in the year ahead.

Each of those issues is still with us in some form today: President Trump's first year in the White House has, at times, been every bit as unpredictable as had been feared 12 months ago; the UK's departure from the European Union continues to be dogged by uncertainty over its cost and impact on the economy, while terrorist attacks - and the ongoing threat of them - are an ever-present concern in many countries.

"Keep calm and carry on" might perhaps best sum up the general attitude of our respondents

All of that said, there are signs of a settling down of the prevalent mood in the drinks industry at the start of 2018. There's more optimism and less pessimism, but the former remains cautious and fragile. It's a platitude and a cliché, but "keep calm and carry on" might perhaps best sum up the general attitude of our respondents.

The key questions here bookend the survey, gauging the industry feeling on the overall operating environment, consumer confidence and whether the year ahead will be better, worse or much the same as 2017. All three paint a broadly similar picture. Asked about the outlook for the overall operating environment, our respondents are less pessimistic than they have been for three years, and more optimistic than last year.

It's much the same when it comes to consumer confidence, with a notably more positive response than last year, but it's important to note that levels of optimism are still below those recorded in 2015 and 2016. The improvement in sentiment is there, but it's not significant.

The numbers expecting a better year for drinks in 2018 are relatively high

Skip to the last question of the survey and the differences are even more marginal. The numbers expecting a better year for drinks in 2018 are relatively high (62% of those surveyed), but that represents only a slight increase on last year's figure, and is well down on 2016. That said, levels of pessimism have declined noticeably.

After taking the collective temperature of the drinks industry, we move on to find out what's driving the mood of the optimists and pessimists. The first issue is that of costs, with an increasing number of our respondents expecting rising commodity prices in 2018. The general feeling is that prices have risen less than expected in the past two or three years, with the main commodity indices lower than forecast during 2017 – and that this trend simply cannot last.

If costs do rise, the vexed question is: Who will foot the bill? Most of those surveyed say they will try to pass on any cost increases down the supply chain but, given the price-sensitive nature of most consumer markets these days, somebody in that supply chain will have to take the hit if rising prices are to be avoided.

Last year, the survey included two topical questions on the likely consequences of the election of President Trump in the US; this year, the focus is on Brexit, with questions regarding the early impact on companies of the UK's impending departure from the EU. Given the relatively-early stage of negotiations, it's unsurprising to see the majority of those surveyed detecting little or no impact from Brexit on their trading outlook. But, of those who have felt some effect, the overwhelming mood is negative.

The reasons for this are split between the proximate impact of the Brexit vote itself - most notably, the plummeting value of the pound - and the sheer uncertainty about the process and its effects. Then, there are also concerns over the longer-term impact on the British economy and consumer confidence.

Within the drinks industry itself, where will competition come from during 2018? Our survey detects a shift here: Previously, established international brands have been identified as the main competitors, but now new domestic brands are seen as equally important. And, while international brands, in general, have been perceived as offering the greatest competitive threat in the past, our respondents now see domestic and international brands as equally significant rivals to their businesses.

How many executives go into a new year expecting their brands to perform poorly?

Ask companies if they expect their businesses to grow over the next 12 months – and if they expect to see a rise in domestic and export revenues – and you would expect to elicit a positive response. After all, how many executives go into a new year expecting their brands to perform poorly? So, the levels of optimism here remain high (and broadly in line with previous years), although there are signs of some businesses predicting accelerated sales growth rates in 2018.

Where will this growth come from? More of our respondents expect to see M&A opportunities in the year ahead, but it's equally clear that organic growth – in the form of innovation – remains a far more important driver of new business.

That's also reflected in anticipated increases in R&D spending in 2018, and a slight up-tick in the expected number of new product launches in the next 12 months.

The 'what and where' of business growth remain complex issues with a multiplicity of possible answers. Key trends, beyond product quality, also include premiumisation and - newly identified this year and in line with the ongoing craft trend - provenance. Health concerns remain another key driver, from reduced sugar, alcohol and calories to gluten-free and low-carb products.

In terms of region, the dominance of the US market, abetted by the likes of Brazil, Canada and Mexico, ensures that the Americas is viewed as having the greatest growth potential, well ahead of Asia, Europe, Africa and Oceania.

Supermarket chains are perceived as gradually losing their influence in favour of the on-premise

But perhaps the biggest change in this section of the report comes when we look at how the modern drinks industry sells its products. Here, despite their dominance of the retail trade, supermarket chains are perceived as gradually losing their influence in favour of the on-premise and - growing particularly quickly - online and direct sales.

A similar trend is observed when it comes to marketing channels. With companies likely to increase their spend in 2018, they are more likely to target investment in the digital realm and social media in particular, with 'traditional' channels such as print and out-of-home vanishing from their radar.

We close, as ever, with a snapshot of the kinds of businesses taking part in our survey. No significant changes here, with 32.5% of respondents describing themselves as 'manufacturers', well ahead of a new category - 'consultancy' - at 14.8% and 'marketers' at 13%. In decreasing order of significance, other job types include 'suppliers', 'distributors', 'retailers' and others, including sommeliers, educators and the media.

In terms of category, the changes were again less than dramatic. Spirits led the way again (mentioned by 69% of respondents), ahead of wine (49%), beer (31%), cider (20%), soft drinks (19%), water (15%) and juice (12%).

The full results of this year's confidence survey will be published throughout this week and will be available here