New data from IRI reveals that sales of beer, wines and spirits across European retailers (supermarkets, discounters, convenience stores and off-licenses) declined by €2.7bn to €66bn during 2022 as consumers reduced discretionary purchases to moderate the impact of inflation.
In 2020, alcohol sales (by value) increased by 12.6%, driven by consumer demand during the first year of the pandemic as people drank more at home due to the restrictions in the hospitality sector. This added an extra €7.5bn to the off-trade alcohol sector, bringing total category sales to €67.3bn.
During 2021, as lockdown restrictions eased, sales started to return to normal. There was still a marginal 0.7% value sales increase (+€500m) to the category in Europe, although this did not compare to the surge in 2020 and was an early indicator of unsustainable sales growth.
“It is increasingly evident that underlying demand has changed in response to post-pandemic trends with new consumption patterns and choices impacting how the category grows over the next few years,” commented Ananda Roy, Global SVP, Strategic Growth Insights, IRI.
“Alcohol brands are caught in a perfect storm with no end in sight. Alcohol sales tend to peak during a recession as consumers eat in instead of out. However, this recession is fueled by a perfect storm of exceptionally high food and energy prices, record interest rate rises and anaemic wage growth. Households are having to make tradeoffs to moderate its impact on their available income, prioritising food staples and small indulgent treats over discretionary items like Alcohol. Alcohol sales are now lower than pre-pandemic levels.”
As the price of all groceries are predicted to remain high during 2023, IRI predicts that alcohol sales – both at home and at out-of-home venues – are unlikely to grow without investment in new products tailored to new consumer needs and consumption moments that make the category relevant again.
The research shows that zero or low alcohol drinks are bucking the downward trend in the UK. Sales of these products in the UK saw 3.7% growth in volume sales to 5m litres in 2022, which was a 15% decline in units as shoppers bought larger, more expensive packs. Value sales in 2022 grew 5.3% to £16m. The segment is estimated to have a 1% share of the total BWS category. IRI predicts that with a greater variety of options available to shoppers, and space growing at the major supermarket chains, sales will increase this year, particularly as promotional events such as Dry January gain momentum. The study notes that the challenge for brands is how to grow sales without cannibalising alcohol sales that deliver significantly greater profits.
The No/Low category is not yet a revenue driver for major retailers in comparison to the total BWS category, but IRI highlighted that they are keen to support innovative ranges that are key to long-term growth and category dominance and, as such, are expanding their range and shelf space. With 61% of consumers saying they want better choices in zero and no alcohol drinks, the opportunity for brands and retailers to innovate in flavours, mixes and experience will continue to fuel growth in 2023 and 2024.
Meanwhile, sales of champagne and prosecco remain resilient to the overall decline in alcohol sales as people resist giving up on the sparkle of their special and celebratory occasions with family and friends after two years of restrictions and with the cost of out-of-home drinking stubbornly high. IRI noted that consumers are opting to ‘stay in’ on weekends to drink with friends, pushing up sales of ready-to-drink spirits (in lieu of cocktails at bars), as well as multi-pack servings of well-known beer brands.
“Consumers may change the specific champagne, prosecco or sparkling wine brands they buy and where they buy them in order to achieve some cost savings,” said Roy. “But they still want a treat to mark special occasions even if this means purchasing champagne and prosecco at discounter chains rather than mainstream supermarkets. The switch to private labels brands in these specific segments is still in its infancy.”
Ready-to-drink spirits are also staying strong against the turning tide in alcohol. These drinks are particularly popular amongst younger generations as a pre-party or ‘pre-out out’ tipple that they can drink at home without needed to mix their own cocktails.
IRI highlighted that retailers, keen to protect volume sales and consumer footfall, have increased promotions on alcohol more than any other FMCG category. This is particularly notable in the UK where HFSS rules have taken hold and alcohol promotions have replaced confectionary and sugar snacks on end-of-aisle offers.
Retailers’ own labels account for 16.4% or £11bn of value sales for the category. Although growth of private labels has not been as significant as in other categories, IRI believes that retailers may focus on the zero and no alcohol trend to increase private label penetration, especially though collaborations with small and artisanal brands as evidenced by BrewDog’s IPA collaboration with Aldi.
Roy concluded: “Retailers are likely to raise prices in 2023, which may soften demand, particularly in the UK and Germany, where shoppers have been hardest hit by the cost of living crisis. When it comes to alcohol, strong brand equity usually keeps shoppers buying their favourite beer, wine and spirit brands. However, as prices rise we could also expect to see more people switching to private label brands as they do in other categories where they are perceived as good as national brands.”
NAM Implications:
- Alcohol suppliers are caught in a double-grip…
- Inflation-induced cut-backs in consumption.
- Low/No growth driven by health concerns, especially young consumers.
- Increases in duties/taxes by the government cannot be ruled out.
- All contributing to reduced demand…
- ..with any real growth having to come at the expense of rivals.
