Olympics 2012: Great Expectations

Spiros Malandrakis of Euromonitor argues that any positive effect of the Diamond Jubilee and London Olympics will be short lived and mask more fundamental economic problems for the UK alcoholic drinks industry.

Like a fitting parable capturing the widening discrepancy between overoptimistic hopes and sobering reality, the Great British summer is now past the downpour-sodden Diamond Jubilee high watermark and fast approaching its – probably rather wet – Olympic Games climax. Whispers of massive gains for the domestic alcoholic drinks industry have been circulating for a while and an implicit allusion to the potential reversal of the chronic declines plaguing alcoholic drinks sales in the country will be soon dominating the headlines.

Nevertheless, and while a short-lived and localised boost for certain industry categories is not entirely out of the question, the fundamental indicators, historic lessons and brewing pan-European macroeconomic storm suggest otherwise.

NO ESCAPE THE DOUBLE DIP

To rationally assess the situation beyond the bunting and national pride-driven analysis, one has to take a step back and begin with the less than jubilant economic backdrop. The government – in a role reminiscent of alcoholic drinks companies themselves fervently supporting the hype – has hailed the Olympic Games as a unique opportunity for economic growth. While the Games look likely to provide moderate support in Q3 2012, the probability of the Olympics singlehandedly lifting the UK out of its current double-dipping malaise is pretty low.

An increase in the influx of tourists into the capital will merely support London’s local economy, barely making a dent in the disappointing employment and growth figures beyond the capital. At the same time, large numbers of potential visitors and residents will be temporarily forced out of the city over the summer due to pricing, congestion and accommodation availability concerns.

Olympic projects might have helped mitigate some of the impact of the UK’s construction slowdown in east London, but any extra jobs or investment off the back of the Olympics have already taken effect. The momentary and largely localised boost is already fizzling out. With unemployment still high, further austerity measures yet to be fully implemented, real disposable incomes trapped in a downward spiral and the mother of all black swan events being hatched in neighbouring Europe, a significant boost to alcoholic drinks growth rates in the UK would be as welcome as it would be unlikely.

DISMAL RECORDS

According to Euromonitor International, overall alcoholic drinks volumes in the UK are actually set to register an underwhelming 2% total decline in 2012. This would indeed represent an improvement on the dismal 5% decline posted in 2011 although it could easily be attributed to the gradual flattening of the negative curve following years of consistent and strong declines.

After all, the gloomy macroeconomic palette provides merely half the dark hues completing the bleak landscape of the UK’s alcoholic drinks industry. The finishing touches are decidedly industry-specific.

High levels of saturation and maturity, record and mounting taxation barriers, creeping neo-prohibitionist rhetoric along with the widening gap between the squeezed on-trade and loss-leading, heavily discounted supermarket offers have become so endemic that reversing them would take far more than a monthlong celebration in a couple of key cities across the country.

And therein lies another rub.

Annualised, nationwide growth rates can at best be marginally impacted by shortlived, regionally focused events. The underlying trends always persevere. The examples of both the FIFA World Cup in South Africa in 2010 and the 2004 Olympic Games in Athens prove the case in point. Top-line volume growth in both countries was – rather disappointingly for press and industry acolytes prematurely celebrating skyrocketing sales – within the uninspiring range of historic growth.

Significant jumps in consumption spectacularly failed to materialise, with mere decimal points’ worth of discrepancies in respective yearly growth rates only making it harder to confidently attribute them to the events themselves, random weather patterns or the volatility of the financial backdrop.

Anecdotal evidence does point towards certain areas that could potentially prove lucrative, if not in the straightforward, immediate-sales-within-the-host-country kind of way. While Greece completely failed to capitalise on the Olympic media spotlight to promote locally produced varieties (only to ironically embrace wine exports in the midst of its current ongoing collapse), South African wines did witness a significant increase in shipments to a number of markets after the World Cup, most notably Brazil.

Even if such a surge proves to be shortlived, it could be used as a template for beleaguered British alcoholic drinks companies that need all the help they can get.

Identifying quintessentially British offerings and jumping on the already crammed Olympic bandwagon might sound obvious and secondary to the London-centric Olympic fever, but it is anything but that.

Scotch, Pimm’s, gin and even the much-mocked but rapidly improving and advancing English sparkling wines can focus on quirkiness, heritage, eccentricity and signature history to reach out to billions around the globe. While major brands can enjoy an obvious advantage in this respect, niche producers, craft brewers and micro-distillers can also make the most of the beaming Olympic halo over their respective categories to raise their profile and boost exports over the short to medium term.

Beyond that sliver of hope, the alcoholic drinks industry in the UK should start managing expectations and battening down the hatches. The clouds gathering over continental Europe could, after all, prove much more detrimental than the odd seasonal downpour.