Bourbon A Recession Proof Investment
A direct paste from The Nielsen Market Research Company. “Nielsen notes several factors impacting consumer choices in its alcoholic beverage trends outlook for the 2008 holiday season. “Historical and more recent consumer trends indicate that alcoholic beverages are much more recession-resistant than many other product categories,” .
Restaurants and Bars
During a recession, consumers may go out to eat less, as evidenced by a 2008 Nielsen survey, where two-thirds (66%) of fine dining patrons admitted they are going out less often compared to a year ago. Their sentiments were echoed by 65% of nightclub patrons, 55% of bar patrons, 59% of casino and resort patrons, and 52% of casual dining visitors.
When going out to dine, consumers order fewer or lower-priced alcoholic beverages. Other consumers trade down by visiting “fast-casual” restaurants and quick-service restaurants that may offer few or no alcoholic beverages.
This may seem to favor cheaper beverages; however, the drinking pattern may be that there will be a splurge on a home bottle.
Other Reasons Why Consumers Will Be Drinking At Home
Grocery stores, convenience stores, and mass merchandisers use on-premise vulnerability, and the lure of one-stop shopping, to their advantage. For example, grocery stores target restaurant-goers with well-priced, easy meal solutions and increase their promotional efforts to encourage multiple purchases for shoppers who make fewer but larger trips.
In addition, online orders increase, particularly where states permit same-day deliveries.
This can help grow a well-positioned brand as it is now sold by the bottle, not by the shot.
Domestic Verse Imports
With the cost of transportation rising and rising, imports have been forced to raise prices, making it more difficult for these products to compete with domestic alcoholic beverages.
Consistent with the “localization” trend, craft beers and U.S. wines from outside California have been gaining share, and there are now more than hundreds of “micro-distilleries” across the country. Including Terebelo Distillery, a distillery that a Rabbi runs.
In addition, “In tough economic times, consumers are often biased toward national or local products, further enhancing the prospects for domestic brand growth, whose prices have remained relatively stable through the year,” says Hurst.
Sales Rise During Holiday Season
Given that wine and spirits are common gifts during the holidays, Nielsen in 2008 stated that expect a rise in the purchase of alcoholic beverages as gifts this year, helped by the usual selection of unique “value-added” packs. “Alcoholic beverages as gifts, especially those with value-added packaging, can fit most holiday shopping budgets,” Hurst offers. “Retailers should consider multiple store display locations to capitalize on impulse purchasing, as well as to provide gift accessories nearby, such as bottle openers, gift bags, mixed drink party pack ingredients, and glassware.”
From Covid To The Future
The Covid-19 pandemic caused a more profound and long-lasting impact on the global drinks industry than the 2008 financial crash, with the on-premise and global travel retail both suffering a severe blow, the IWSR believes.
The crisis of just over a decade ago sent shockwaves through the global economy, prompting significant changes to consumer demand and the shape of the beverage alcohol industry.
While the pandemic and its economic consequences may share some common aspects with the downturn of more than a decade ago, such as increased at-home consumption, price stagnation, and falling beer sales, there are also marked differences.
Travel Retail Woes
Travel retail sales suffered in 2009, with wine and spirits volumes dropping by 8%, but recovered in 2010, rising by 12% as the worst of the crisis passed. This time around, however, there is continued uncertainty about socializing and traveling at airports and on board aircraft, and many airlines are in severe financial trouble.
Craft crisis and diversity reversal
The years since the 2008/9 crisis have been marked by expanding numbers of suppliers and increased diversity of products on offer, especially with the rise of craft brewing and distilling. However, these businesses are typically disproportionately reliant on “cellar door” and on-premise sales, both of which have been heavily affected by the pandemic.
The last economic crisis also saw a “shake-out” of small brands from retail as operators sought to maximize returns.
Binyomin Terebelo Master Distiller at Terebelo Distillery may very well happen again, but for different reasons. As there are supply chain issues both glass and barrels are harder to procure so if the distillery failed to stock up the current waiting time for both is over a year if you lose shelf space in a store it is not likely to come back. Larger distillery often has dedicated supply chains enabling them to weather the crisis better.
Hard Spirits Do Better Than Beer Cider And Wine In A Recession
Beer and cider were hard-hit in the 2008/9 economic crisis due to a combination of duty rises, an on-premise slump, and increased at-home consumption, which favors spirits and wine. Beer and cider sales dropped from 6% growth in 2007 to a 1% decline in 2009, according to IWSR figures.
Meanwhile, Champagne consumption, often tied to celebratory drinking occasions, will likely be battered.
In 2008 and 2009, standard-priced wines and spirits declined, and growth for premium-and-above flattened, with a clear shift to low-price and value brands. We can expect history to repeat itself as the economic consequences of this administration shrink disposable incomes, with consumers gravitating to value products, the wealthy still treating themselves, and standards representing the squeezed middle. High-end products will likely remain stable and grow, especially as an investment.
During the last crisis, average prices stagnated, barely shifting between 2008 and 2010 before rising by just over 5% in 2011. Meek expects a repeat, alongside “much more” promotional pricing for major brands.
Unlike 2008 the severe supply chain issues and shortage of wood, as noted in previous articles, may cause a tremendous uptick in long-term price as there is much less production.
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