TRENDING: No cheer for liquor industry

by Louise Burgers. ‘A sobering situation’. This was the title of a Nielsen webinar yesterday, 15 July, to consider the longer-term implications of South Africa’s lockdown prohibition, in order to reconfigure growth strategies for the future in the weeks, months and years ahead. Nielsen said lockdown-restricted liquor sales in South Africa have been unprecedented, even in a global context. The circumstances have provoked unique consumer responses and radical business paradigm shifts that will “irrevocably impact future behaviour and sales trends”.

As Retailing Africa has reported, the losses in liquor sales will amount to a further R10 billion per month as the ban on the sale of alcohol under lockdown continues. As businesses and brands look to repair and rebuild from the sharp prohibitive effects, Nielsen is attempting to aid the industry in understanding consumers’ changing shopping and consumption behaviour, including the impact on the industry from the sudden second ban on alcohol sales announced by President Cyril Ramaphosa on Sunday night, without consultation with the industry this time round. In fact, the Nielsen team had to scramble to update their presentation to take into account the latest regulations prohibiting the sale of alcohol ahead of the webinar.

Leandra Wiid, liquor industry lead for Nielsen South Africa, said there were distinct themes pre-lockdown that may continue into the future, post-Covid, but growth was not uniform in the category. In recent times the liquor categories were increasingly fragmented and included the emergence of the local origin and craft options. Trends included florals and flavours, with the colour pink predominant, as well as a shift to wellness. The wellness trend will most likely continue post-Covid, and liquor brands need to take note of that. Non-alcoholic, zero trends with natural ingredients with unique South Africa flavours, like fynbos and rooibos, are trends that could continue post-Covid.

“When we move more into the category specifics and highlights, we see that not all liquor categories enjoyed growth: beer, the biggest category by far – 50% of total liquor sales – is indicative of the market pace; FABS, the second biggest category, added nearly a third of incremental sales; whiskey and vodka were flat; then gin, a category on its own was steaming ahead with growth and innovation, where nearly 12% of all incremental growth was seen,” Wiid explained. In beer, premium beers showed an uptick; in FABS pink flavours and premixed gin was driving the category gains; wine was under pressure; in whiskey there was trading down; and brandy had lost some of its appeal; and in vodka there was trading down and trading out; and the gin category was showing growth and maturing.

The home haven

Even pre-Covid, much of liquor purchased was for home consumption, with over half of consumers indicating that they consume drinks at home (53%); with a third consuming alcohol while socialising at home (35%); and 31% at a tavern or shebeen, reported Wiid. “With home havens now taking root, this will be even more significant in the future.” With purchasing patterns, retail outlets lead, with 28% purchasing from Tops and 26% from Pick n Pay. Taverns play a significant role, Wiid emphasised, with 23% of purchases coming from this segment of the market, for specifically off-premise consumption. But, despite continued growth in the industry, there was no doubt that as South Africa slipped into a recession in January 2020, consumers were beginning to curb their spending, even before Covid changed everyone’s world.

Said Wiid: “Ultimately no one was expecting a global pandemic that would force everyone into these restricted living conditions; and locally, in an unequal global action, none of us could have anticipated a complete ban on liquor, tobacco sales and other non-essential product. And especially not for the extent of the time it was; and now for the second time. This will impact what consumers purchase in the future and what trends will follow.” The pantry loading that took place ahead of national lockdown due to COVID-19 in March 2020 propped up growth in the sector to a certain extent as R1 billion was spent by consumers in stocking up for what all thought at the time was a 21-day lockdown. The beer category suffered, said Wiid, mainly due to capacity as a constraint. The winners were whiskey, wine and gin as consumers opted for longer-lasting bottles. The longer period prompted long-term, significant changes in consumer behaviour and growth challenges for businesses ahead as lockdown continues.

Your new consumer

In profiling the extensive losses the industry has faced and will face in the coming months due to both periods of prohibition, Ailsa Wingfield, executive director Nielsen global intelligence team, also warned that significant consumer consumption pattern changes would also be carried over into the future, meaning that brands would have to have entirely different market strategies in the near future. One of the positives, is that the non-alcoholic category has shown rapid growth under prohibition and this trend is likely to continue, also driven by health concerns.

Alcohol-free beer has continued to pick up pace and sales increased by as much as 342% at the end of May and Heineken 0.0 was the number one beer brand in South Africa; with Devil’s Peak Hero becoming the fourth biggest beer brand in South Africa. Wingfield said that for many consumers, this category change has sufficed, and they indicated they will continue to drink zero options. Many other categories have also benefited from the shift, with Duchess Virgin G&T sales increasing by 900% – more than the growth in hand sanitiser sales, Wingfield pointed out. The longer consumers stay under lockdown, the longer these habits and entrenched behaviours will remain entrenched and will influence future consumption and require different business strategies, she reiterated. “We will likely require reboot and reset strategies. Companies will also need to reformulate their brand portfolios.”

Brand regeneration strategies will have to take into account the severe economic and financial shocks to consumers, as well as change in society. “We are already seeing considerable societal shifts in how consumers will live, engage, socialise and shop,” Wingfield warned. Consumers will, for example, demand more precautions while shopping; choose open spaces over confined spaces; socialise and shop at arm’s length; opt for contactless options; opt to shop locally within their own communities and restrict travel; work virtually rather than in an office; and opt for al fresco dining, rather than sit inside a restaurant or bar. Only a third of consumers say they will go back to previous behaviours. “Many consumers will be surviving only on essentials. We will move to social backlash against those brands, organisations and retailers that have not helped.”

Related behavioural shifts during the current lockdown period show consumers consuming 60% less alcohol and 14% say they will continue to consume less over the next six months; with a further 16% saying they will continue to consume less alcohol over more than six months. Only a third of consumers say they will revert to previous drinking and social behaviour. People are drinking and eating at home. “Broadly across the FMCG industry, consumer behaviour has also shifted. We know consumers have reduced shopping frequency; and the consequence of that is that they are trading down to cheaper brands; they are increasing basket sizes and looking for larger pack sizes as they are shopping more infrequently. They are also rationalising on less essential and discretionary items as pressure on incomes increases. We are likely to see these behaviours in a post-lockdown liquor world as well,” Wingfield said.

There has been growth of over 100% in online shopping in markets across the world. Locally, consumers who have used online shopping for the first time, will continue after lockdown, Wingfield added. Lockdown was a catalyst for these channel changes and 37% of consumers who shopped more for FMCG products online, will continue to do so. Avoiding risk was the primary driver, Wingfield pointed out. Many who have now moved online, those who can, will remain in an online, ecommerce environment post-pandemic.

What next for the industry?

The last speaker on the Nielsen liquor industry webinar on Wednesday, was Jon-Jon Emary, client business partner, liquor and FMCG, Nielsen South Africa. Nielsen believes that realistically, the liquor industry is likely to see volume declines between 35-45% for 2020. This is a challenge like no other, ever, and there are various strategies that brands will need to focus on. Brands will also need to take into account the structural changes in the economy. There are many vulnerable sectors, such as hospitality, tourism, services; and specific consumer groups, particularly the youth, which are among the most vulnerable. Unemployment will take decades to recover. This will affect both insulated and constrained spenders, Emary reported.

Emary outlines the factors that will affect the industry in the near future:

• Not all bottles are equally profitable for all categories.
• Post-prohibition, many brands may die out.
• Many brands may experience supply chain constraints.
• Every bottle will have to prove it’s worth on shelf. Assortment rationalisation is already a factor.
• Brands will have to reassess their portfolios and strategies.
• Smaller brands may not be able to retain on shelf space and will have to look for alternative means of distribution.
• Gin may see the end of its boom.
• Price and promotions will face intense scrutiny and premium benefits will need to be justified.
• Hyper-localisation may provide solutions for craft and mixology trends.

“With the signs of downtrading already evident prior to lockdown and immense structural factors weighing on consumers, including a second job loss spike looming; price tolerances will diminish, leading to downtrading within price tiers, for both insulated and constrained consumers. Changing product needs and demands will lead to reassessed pricing mechanisms; the reintroduction of promotions – both depth and frequency, is likely to change; ownership and delivery of promotions may shift from mainly retailers to include manufacturers in various direct-to-consumer options,” Emary predicted.

Right now, with the second prohibition in place, export may be the only feasible lifeline for brands and manufacturers in the short term; but smaller, independent restaurants and bars and taverns maybe crippled. Proliferation in etailing will be an option and this could fill the gap and will continue apace as consumers remain wary about entering physical stores. This channel also offers customised options for brands to market direct to consumers. In fact, Emary says innovation will have to be at the heart of every business and brand strategy going forward.

“Innovation is more than a bottle. Brands, retail and venues need to reinvent invention. Brands need to think about promotions that are about innovation and promotion, not price,” said Emary, citing examples such as ready-to-drink at home cocktail mixers; brands needing to provide solutions for the home environment; sampling and trialing will have to be reinvented, i.e., using airline mini-samples.

Nielsen’s final slide warned brands that this will be one of the toughest journeys they have ever undertaken and that they also need to have empathy for consumers’ changed circumstances.

Louise Burgers (previously Marsland) is the Publisher and Editor and Co-Founder of RetailingAfrica.com. She has spent over 20 years writing about the FMCG retailing, marketing, media and advertising industry in South Africa and on the African continent. She has specialised in local and Africa consumer trends and is a passionate Afro-optimist who believes it is Africa’s time to rise again and that the Africa Continental Free Trade Agreement (AfCFTA) will be a global gamechanger in the next decade.

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